Blowing up the blowout

Disastrous as the “Macondo Oil Spill” may be, the fact is that, as a new report from the Energy Policy Research Foundation (EPRINC) shows, offshore oil spills caused by blowouts are extremely rare, particularly in the US. In fact, historically the most common and largest spills have been those from oil tanker accidents. Thus, ironically, as the US has to import more oil if it cuts domestic production, a reduction of offshore drilling will lead a higher risk of accidents, argues EPRINC. It is just one of the fascinating details coming out of EPRINC’s contrarian cost-benefit analysis.

BP's chief executive Tony Hayward gets ready for  congressional testimony at the US House of Representatives on 17 June
No one can deny that BP has made a terrific mess of things in the Gulf of Mexico. Yet, the response from the US government and American society at large to this terrible accident, is by now turning into something that looks like a regular witch-hunt. What no one could have imagined on April 20, when the blowout of the Macondo well happened, is becoming ever more likely: the drive to punish BP is driving the company towards bankruptcy. In addition to having to pay huge damages and running the risk of being shut out of future activities in the US, BP is facing a mountain of lawsuits that are likely to lead to stratospheric penalties that would ruin the company altogether. Some in the US are even calling for the outright nationalisation of BP’s US assets (see http://mises.org/daily/4545).

Without belittling BP’s sins, one cannot help feeling that government representatives and activist groups are using the disaster to pursue their own agendas. Politicians and bureaucrats have seized on the oil spill to divert attention away from other problems and see it as an opportunity to be seen as the great guardians of the public interest. Activists have their own ideological (anti-business) axes to grind. In the end, though, ruining BP, let alone the entire deepwater oil industry, will hurt rather than protect the “public interest”.

It goes without saying that those responsible for (criminal) negligence should be appropriately punished. But there is no need to go any further than that. BP is already doing all it can to compensate the victims of the oil spill. Bankrupting the company certainly won’t help those victims.

In addition, appropriate measures should of course be taken to avoid similar accidents, but it would certainly not be in the “public interest” to impose prohibitive costs on all offshore oil production or shutting it down altogether. To be sure, accidents will happen, whatever measures are taken. And yes, this may be a good reason to protect vulnerable natural areas from oil and gas production, but it cannot be a justification for avoiding any and all environmental risks. That would be tantamount to stopping any kind of human progress and making economic well-being impossible. Indeed, if “Macondo” is the “Chernobyl” of the offshore oil industry, then there is every reason to be optimistic about the future. After all, after Chernobyl no similar accident has happened in the nuclear industry.

To put the significance of the Macondo oil spill in some perspective, we are reproducing for you – with permission – a report which has just come out from the Washington-based Energy Policy Research Foundation (EPRINC). It should be noted that EPRINC is an oil industry organisation, which naturally defends the industry’s interests. Nevertheless, we believe that this report does an excellent job in providing a much-needed cost-benefit analysis of the possible responses to the Gulf disaster. It concludes that the costs of the current ban on deepwater drilling operations are much higher than any possible environmental benefits. If the government’s policies should lead to a curtailment of all deepwater offshore drilling in the US, then, the report shows, “Macondo” would become an economic catastrophe indeed – not just for BP, but for the whole of the US.

To read EPRINC’s report, “The Blowout and the Deepwater Moratorium”, click here.
This is the third in a series of three EPRINC assessments of the BP Macondo Oil Spill which you can find on EPRINC’s website here: http://www.eprinc.org/

Not everyone is equally sanguine about the impacts of offshore and deepwater oil and gas production on the environment. If you feel that EPRINC’s reports are putting a too positive spin on the BP disaster, you may want to check out the much more pessismistic assessments of Michael T. Klare, a professor of peace and world security studies at Hampshire College. Klare has warned that ‘a new oil rush endangers the planet’. In a recent, fascinating – even if unmitigatedly sombre – piece, he even foresees a ‘new era of energy disasters’. You can’t say we did not give you both sides of the story.