- Joined
- Oct 17, 2007
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- 11,862
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By the time the oil leak has finally been stemmed, one will likely witness an evolution of events not dissimilar to past major accidents/crises, including the Torrey Canyon spill (1967), North Sea blowout (1977) and Exxon-Valdez spill (1989). An inquiry into the accident will almost certainly find that human error and/or negligence was largely or wholly responsible for the accident. More specifically, “cutting corners” e.g., a bid to save costs, was likely a central contributing factor and it is not implausible that the recent financial crisis, which knocked down the price of oil, helped amplify pressures to take shortcuts. If so, the probability of accidents in other relatively high-risk industries could currently be above normal.
The Obama Administration’s standing among the public will be hurt. Questions as to why the Jones Act was not waived, troops were not deployed to clean beaches/help with efforts to deploy spill containment equipment, the President did not meet with the CEO of BP until nearly two months after the rig explosion, among others will be asked. During crises leaders need to act decisively and boldly before the public. Any hint of hesitation is damaging in the public image. Tonight’s Oval Office address by the President will not rehabilitate his image on the leak. He might receive a temporary boost, but the continuation of the leak and growing magnitude of its impact will cause the above-noted questions, among others, to reassert themselves. The upcoming 2010 campaigns will likely seek to exploit any actual or perceived weaknesses in the handling of the accident. In short, it is unlikely that the Obama Administration will be able to cite its response to the BP oil leak as an exercise of strong, effective leadership. Instead, it will be confronted with trying to contain the hit to its reputation that will likely be incurred on account of that accident and to limit the political fallout that could result.
Oil industry executives and policy makers alike will ask the question as to why they didn’t foresee the kind of accident that occurred. Certainly, if one assesses all links of a value chain, of equipment, etc., a logical question should have entailed what might happen if a blowout preventer failed. From there, one would ask what measures would be necessary to address the consequences of such a failure. The human tendency to underestimate the scale of the accident will also resurface.
BP has already committed to paying the cleanup costs and all other “legitimate” costs related to the accident. Nevertheless, perhaps driven by growing public anger and political opportunism, there may well be a temptation among some policy makers to overreach and demand far more compensation. Demands for an escrow account could morph into threats of asset seizures. Legal writs could be pursued against BP's assets if policy makers are not satisfied with BP's efforts related to compensation. If BP feels it is faced with an existential threat, BP will almost certainly countersue or, in a worst-case scenario file for bankruptcy. Either way, prospects for full reimbursement of the cleanup costs could diminish, as courts might have little choice but to uphold existing liability limits or a bankruptcy judgment limits BP’s overall liability. In addition, those seeking reimbursement for the cleanup could incur legal costs in the process. Their legal costs could be significant if the litigation lasts for years, as would be possible given the complexities of the case. A legal settlement might also result in less-than-full reimbursement. A proliferation of private lawsuits could also lead to BP’s making legal moves to limit its liability. Political overreach could also, to some extent, chill U.S.-U.K. relations, and damage the United States’ image as a good place to do business.
In the weeks, months, and possibly years ahead, the oil industry will come under increasing scrutiny within and outside the United States. If today’s testimony is accurate and the oil companies presently lack effective plans for dealing with deepwater drilling accidents, deepwater drilling activities could be limited in some venues until such plans are developed. Trust in oil company projections will also be diminished. After all, some of the contingency plans claimed to have been capable of dealing with leaks of up to 250,000 barrels per day. Those projections were woefully off the mark. Therefore, standards of evidence demanded by regulators will likely be increased. Additional safety regulations could be developed and implemented. Legislation addressing liability issues, possibly creating a prefunded cleanup mechanism could be adopted in one or more countries. Even a new international convention that deals with deepwater-related issues might be proposed or even pursued. To head off regulation that they perceive as excessively costly, it is plausible that at least some of the major oil companies could seek to pool knowledge/expertise and collaborate on developing a common response to deepwater accidents, and even a common fund for dealing with cleanup costs.
Issues of unintended consequences of leak/spill mitigation could come to the forefront. Questions as to whether the chemicals deployed might have caused more harm than good could be raised. Issues as to whether the oil itself or chemicals used to attack the leak might have an adverse food chain impact, including an impact on human consumption, could be asked. Litigation could well erupt on those fronts.
On the brighter side, the accident will increase pressure for innovation. Innovation could take the form of new technologies that facilitate deepwater safety, improve responses to well blowouts, and facilitate the ability to mitigate the impact of accidents. Innovation could also occur on the alternative energy front, especially if some governments make a meaningful and sustained R&D commitment to alternative energies in a bid to reduce the risks of deepwater-related accidents.
The Obama Administration’s standing among the public will be hurt. Questions as to why the Jones Act was not waived, troops were not deployed to clean beaches/help with efforts to deploy spill containment equipment, the President did not meet with the CEO of BP until nearly two months after the rig explosion, among others will be asked. During crises leaders need to act decisively and boldly before the public. Any hint of hesitation is damaging in the public image. Tonight’s Oval Office address by the President will not rehabilitate his image on the leak. He might receive a temporary boost, but the continuation of the leak and growing magnitude of its impact will cause the above-noted questions, among others, to reassert themselves. The upcoming 2010 campaigns will likely seek to exploit any actual or perceived weaknesses in the handling of the accident. In short, it is unlikely that the Obama Administration will be able to cite its response to the BP oil leak as an exercise of strong, effective leadership. Instead, it will be confronted with trying to contain the hit to its reputation that will likely be incurred on account of that accident and to limit the political fallout that could result.
Oil industry executives and policy makers alike will ask the question as to why they didn’t foresee the kind of accident that occurred. Certainly, if one assesses all links of a value chain, of equipment, etc., a logical question should have entailed what might happen if a blowout preventer failed. From there, one would ask what measures would be necessary to address the consequences of such a failure. The human tendency to underestimate the scale of the accident will also resurface.
BP has already committed to paying the cleanup costs and all other “legitimate” costs related to the accident. Nevertheless, perhaps driven by growing public anger and political opportunism, there may well be a temptation among some policy makers to overreach and demand far more compensation. Demands for an escrow account could morph into threats of asset seizures. Legal writs could be pursued against BP's assets if policy makers are not satisfied with BP's efforts related to compensation. If BP feels it is faced with an existential threat, BP will almost certainly countersue or, in a worst-case scenario file for bankruptcy. Either way, prospects for full reimbursement of the cleanup costs could diminish, as courts might have little choice but to uphold existing liability limits or a bankruptcy judgment limits BP’s overall liability. In addition, those seeking reimbursement for the cleanup could incur legal costs in the process. Their legal costs could be significant if the litigation lasts for years, as would be possible given the complexities of the case. A legal settlement might also result in less-than-full reimbursement. A proliferation of private lawsuits could also lead to BP’s making legal moves to limit its liability. Political overreach could also, to some extent, chill U.S.-U.K. relations, and damage the United States’ image as a good place to do business.
In the weeks, months, and possibly years ahead, the oil industry will come under increasing scrutiny within and outside the United States. If today’s testimony is accurate and the oil companies presently lack effective plans for dealing with deepwater drilling accidents, deepwater drilling activities could be limited in some venues until such plans are developed. Trust in oil company projections will also be diminished. After all, some of the contingency plans claimed to have been capable of dealing with leaks of up to 250,000 barrels per day. Those projections were woefully off the mark. Therefore, standards of evidence demanded by regulators will likely be increased. Additional safety regulations could be developed and implemented. Legislation addressing liability issues, possibly creating a prefunded cleanup mechanism could be adopted in one or more countries. Even a new international convention that deals with deepwater-related issues might be proposed or even pursued. To head off regulation that they perceive as excessively costly, it is plausible that at least some of the major oil companies could seek to pool knowledge/expertise and collaborate on developing a common response to deepwater accidents, and even a common fund for dealing with cleanup costs.
Issues of unintended consequences of leak/spill mitigation could come to the forefront. Questions as to whether the chemicals deployed might have caused more harm than good could be raised. Issues as to whether the oil itself or chemicals used to attack the leak might have an adverse food chain impact, including an impact on human consumption, could be asked. Litigation could well erupt on those fronts.
On the brighter side, the accident will increase pressure for innovation. Innovation could take the form of new technologies that facilitate deepwater safety, improve responses to well blowouts, and facilitate the ability to mitigate the impact of accidents. Innovation could also occur on the alternative energy front, especially if some governments make a meaningful and sustained R&D commitment to alternative energies in a bid to reduce the risks of deepwater-related accidents.
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