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GLOBAL JOURNALIST: Implications of the Gulf oil spill

Friday, June 18, 2010 | 1:09 p.m. CDT; updated 11:20 a.m. CDT, Sunday, August 8, 2010

Charles Davis, National Freedom of Information Coalition, Missouri School of Journalism: We have recently been bombarded with news of the BP oil spill. Reports each day provide varying estimates of the amount of oil flowing into the Gulf or the different techniques used to try stopping the flow. Today we delve deeper into the implications of the Gulf oil spill. President Obama has called for a six-month moratorium on offshore drilling. He told the country it is time to embrace a clean energy future and to shift away from reliance on fossil fuels. Across the globe, disastrous oil spills have been taking place for years. Yet governments let oil companies regulate themselves. Can this multibillion-dollar industry be properly regulated? Could this event create a shift in energy policy? To answer some of these questions, we have Charles Ebinger, director of Energy Security Initiative, The Brookings Institution; Jorge Pinon, international energy consultant, Cuban Research Institute; David Olive, business and current affairs columnist, Toronto Star; and Erikka Askeland, reporter, The Scotsman, Edinburgh, Scotland. What has gone wrong thus far with stopping the oil flow in the Gulf region? Why is it proving so difficult to stop?

Charles Ebinger, director of Energy Security Initiative, The Brookings Institution: From what we know, this well has been a problem since they began drilling it. People have said they were worried early on about the excess natural gas pressure in the well. But we still aren't sure whether it is just the riser that is creating the problem or some larger fissure in the Gulf of Mexico caused by when the rig went down.

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Davis: Tell us about the many risks of offshore drilling. Apparently this is only one thing that can go wrong.

Ebinger: It is a dangerous industry. We've had other big oil spills, but I think we should look at how many wells have been drilled in the Gulf of Mexico over many years, both shallow and deep, that have not had a problem. I fear this moratorium will ultimately have a very deleterious impact on U.S. energy policy, leading to greater imports and greater U.S. demand for oil.

Davis: What were your thoughts on the president's address this week?

Ebinger: I was very disappointed in the president's address, and I say that as one who has been a supporter of the president and still is. This whole idea that by developing a clean energy future we're going to get off oil I think misses the point. The clean energy the president talks about are certainly the way we need to go, but those right now are only going to help us with the electric power side of the equation. In the United States, we almost use no oil in the electric power sector. It is a transportation problem. To wean ourselves away from oil, we have to do things that are politically unpopular such as raising gasoline and diesel taxes, aviation taxes, maybe move to congestion pricing in our major cities, raising parking prices, a whole slew of things. I think the president missed an opportunity to make clear to Americans that we are part of the problem if we refuse to reduce our dependence on petroleum.

Davis: Jorge, from your perch looking over the Latin American oil markets, what effect is the spill having in terms of the marketplace?

Jorge Pinon, international energy consultant, Cuban Research Institute: In the last few weeks, we have seen a shift in the marketplace from the U.S. Gulf Coast to other regions like Brazil. We have to remember that semisubmersibles such as the Deepwater Horizon cost around $407,000 a day. The operational cost of one of these rigs is about $1 billion a day. So for companies drilling deep off the coast of Mexico, there is a moratorium, and they cannot afford the cost of those rigs standing. If this continues, we are going to see those semisubmersibles out of the Gulf Coast into other markets. Latin America is one of those markets.

Davis: What is your take on the six-month moratorium? Do you think it was wise policy?

Pinon: No question about it. We have to remember the sad event of the Challenger space shuttle back in 1986. It took a year and a half before the ban was lifted on future flights to space. The lessons learned in that tragic accident were very important. The oil industry refining or transporting hydrocarbons is inherently a risky business. What the industry has tried to do over the years is manage and minimize that risk. There is no one out there that can tell us that we can live in a risk-free environment in the oil industry.

Davis: This is just as much a public relations disaster for the industry as an environmental disaster. What are the industry's efforts to communicate that risk to the public?

Pinon: We have a very difficult task ahead. The industry has been one of the villains, whether in the media, the public or among environmentalists. Every time gasoline prices go up 5 cents or 10 cents, local newspapers go after the oil industry. When the profits are reported at the end of the year, everyone goes after the oil industry. This is very sad. There are over 3,500 rigs in the Gulf of Mexico today, but less than 50 of them are ultra-deep-water. Deep-water exploration is limited, so it is a difficult case for the oil industry.

Davis: David Olive, how closely are Canadians watching this situation?

David Olive, business and current affairs columnist, Toronto Star: I think people around the world are watching intensely. In Canada, we have one major deep well off the coast of Newfoundland. But the difference is that it is 1,400 kilometers off shore. The Deepwater Horizon is about 50 miles away the Louisiana coast. We must have a rethink about risky wells so close to coastlines where you would have the maximum damage in the event of a spill.

Davis: Canada has faced its fair share of oil spills as well. Can you explain Canada's regulation of the industry and how it differs from the United States?

Olive: Regulation is really quite similar. I would have to dispute about the number of spills; we had one terrible tragedy in the 1970s when an oil rig exploded and killed the entire 156 member crew of the Ocean Ranger. It was an exploratory rig that had not yet begun drilling. We have not had an oil spill of any particular size relative to what we're looking at in the Gulf or even some of the historically large ones like the Exxon-Valdez. We rely heavily on self-regulation because the industry has the specialized technology and it is frankly in the self-interest of the oil company to not have this kind of thing happen. There are billions of dollars that BP invested, so they are the ones who have the biggest interest in making sure there are no accidents. And of course this tremendous reputation damage — BP has done a great deal of damage to the industry with the moratorium, and you can be sure there are going to be very significant reforms. We already see with Norway and Brazil that they make more demands on deep-sea drilling than is the case in the Gulf of Mexico. There needs to be acoustic devices for the blowout preventer, for instance. We see the Chinese will start using two blowout preventers instead of just one, in case one of them breaks down as this one did. So there are going to be a lot of changes.

Davis: I would imagine we will see reforms all over the world.

Olive: Reform is a code word for money. You know where it is going to show up. It is going to show up at the gas pump.

Davis: Can consumers brace for increases in fuel costs?

Olive: They're looking at $200 a barrel by the end of this decade, but this accident will make it worse. The world's declining amount of oil is overwhelmingly located in very difficult places. In Saudi Arabia, you could stick a straw in the ground and extract very high-quality crude oil. By the end of this decade, we're going to be looking at places like Athabasca, which is the second-largest reserve in the world in northeastern Alberta, but that is a strip-mining operation. It's not oil; it is bitumen. It has to be processed twice, once just to extract the oil from the sand, and then it has to go to specialized refineries in the United States that are much more costly to operate. These oil reserves exist in huge quantities in Venezuela, but the Chavez government has chosen not to develop them. There is Siberia. There is Kazakhstan, which is a very politically unstable place. There is Nigeria, where there is an insurrection and a civil war going on every day. Nigeria has the equivalent of two Exxon-Valdez spills every year for the past 30 years or so, and that is increasingly where we're getting our oil today. The oil is going to be more expensive, harder to find, poorer quality and will cost more to refine.

Davis: Erikka, you wrote in a recent article that "Environmentalists argue a similar disaster to that of the Gulf of Mexico would be worse in the Arctic, where icebergs, winter darkness and remoteness from nearby ports where booms or skimmers could be dispatched are major concerns." What's the story with Cairn Energy, and where are they with this process?

Erikka Askeland, reporter, The Scotsman, Edinburgh, Scotland: Just yesterday, Cairn announced that Greenland authorities gave the green light to begin drilling two oil wells off the west coast of Greenland in an area called Disko, in the Davis Straits often referred to as iceberg alley. And off the east coast of Baffin Island in Canada, they will begin drilling in July. They say there is a 10 percent chance they will find oil in these four wells. The U.S. Geological Survey estimates there could be around 50 billion barrels of oil or gas off the shore of Greenland, which adds to David Olive's comments that where we going to get our oil is probably going to be these virgin waters in the Arctic.

Davis: I guess they are bracing for more restrictions on North Sea rigs. What is that going to do in terms of the profitability of that kind of exploration?

Askeland: I get the impression from Cairn that they are drilling in July using two rigs. If something happens, it is going to be almost impossible to dispatch the clean-up machinery fast enough to prevent any major disaster because of the area's remoteness. But they've taken extra precautions. Apparently the Greenland authorities are insisting on Norwegian standards of offshore drilling, which are higher than the standards you see in North America or even the U.K. North Sea.

Davis: What's the sense in Europe, particularly in Scotland, about watching the oil exploration? Is there tension as well?

Askeland: We can't forget that BP is British Petroleum, and it is a London-headquartered company. It could very well be U.K.'s largest company. So on one hand you've got this absolute reaction of horror about what is going on in the Gulf and how it is affecting people. There is also this sense that one of the U.K.'s biggest companies is at risk. It is looking at protecting its assets. There have been diplomatic conversations between the U.K.'s new Prime Minister David Cameron and President Obama. There is also the belief here that maybe the U.S. is responding to BP CEO Tony Hayward like a British pantomime villain and using him as a scapegoat. There are many questions to ask about how it all went wrong, and there is definitely blame that needs to be appended. Scotland has been a major producer of oil ever since they opened up the North Sea in 1975. It is focusing on developing its renewable energy sector and sees opportunity in developing offshore wind farms and looking at technologies that use tidal and marine power to provide renewable energy sources.

Davis: Jorge, you retired from BP in 2003. There are many in the press who are saying BP may not be able to survive. What do you think?

Pinon: I think it is in the best interests for environmentalists and for the U.S. for BP to survive instead of going into bankruptcy. It is a very large company that is also in petrochemicals and refining. I can tell you from a conversation that I've had with my peers in the company that they were all very sorry. We all want to work on this, and, in a way, there is only so much we can do. I think — and I hope — the company will survive. I think this incident will make the company better. I worked in Europe for a number of years for BP and can tell you that the business I ran was a major business in the western Mediterranean including refining and shipping and pipelines. I had quite a bit of high-risk assets under my management. Environment and safety are certainly number one on the list, not only because of the good citizenship but also because it is good bottom-line sense.

Davis: David Olive, one of your recent columns was titled "Offshore drilling is safe if done right," and you wrote that continued oil consumption is the bridge between fossil-fuel use and emerging alternative energy sources. Can you talk a bit more about that?

Olive: It was unrealistic to talk about long-term moratoriums against oil production. Oil is part of our energy mix for a century. It is going to continue at least for another generation, so we have to work very hard to reduce consumption. The United States and Canada are the world's two largest per capita consumers of oil. We look at the European economies, even Japan — they use far less oil per capita than the United States and Canada. The excuse we have is that the United States is the third-largest country in the world and Canada is the second-largest, so they are very expensive countries to run. We have tremendous transportation demands because we're such huge countries. We're looking at Louisiana losing its way of life. Its way of life revolves around the fisheries, and these risks are unacceptable at a certain point. But we're going to need the oil, so we're going to have to find safer ways. I would have to disagree on BP. I think we could do without BP. This is a company which for the past decade has given us a Texas oil refinery explosion that killed 15 people. They don't seem to know how to run a refinery very well. They have done terrible destruction in Alaska with very significant corrosion of pipelines with huge spills, and now we have an oil rig. This well, which is the deepest well in the history of the Gulf Coast, should never have been licensed. I heard earlier that Mr. Obama's performance on television was kind of disappointing. His real mistake was that he should never have licensed this well in the first place.

Davis: Analogies have run the gamut to explain the significance of this oil spill. It has been compared to 9/11, the Iran Hostage Crisis, Apollo 13. Regardless, the Gulf region and possibly the world will experience the effects of this disaster for years to come. The question lies in whether this will create a shift in America's and the world's energy policy.

Producers of Global Journalist are MU journalism graduate students Liz Lance, Youn-Joo Park, Angela Potrykus, Tim Wall and Rebecca Wolfson. The transcriber is Pat Kelley.


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