The cost of the Macondo well disaster

CGES | JULY 2010 | SOURCE: Global Oil Insight

BP is at last making progress in containing the flow of oil leaking to the surface, although it is still far from sealing the well and work is continuing round the clock.

The accident will undoubtedly raise questions about the specific operation of the Macondo well, as authorities seek to apportion blame, and the scale of potential accidents with which future drillers must be able to cope.

The cost of the Macondo well disaster

A much broader question, which will probably be avoided, is what level of risk are we as oil consumers prepared to accept in order to ensure the continuous supply of the fuel on which we have come to depend?

The blowout on the Macondo well in the Gulf of Mexico and the subsequent sinking of the Deepwater Horizon drilling rig is a tragedy for the eleven crew members who lost their lives and the families they leave behind.

For the local marine environment and those whose livelihoods depend on it, the accident is a potential catastrophe, the scale of which will depend on the effectiveness of the attempts to contain and curtail the flow of oil from the well, to clean up the oil that has escaped, and to protect those affected from the economic fall-out of the leak.

The accident and its aftermath will raise a host of issues, investigations and law suits that will keep lawyers busy for years to come. The drilling of the Macondo well itself will be scrutinised as the companies involved seek to limit their exposure to the blame, if not the cost, for what went wrong. Industry practice will be scrutinised to determine whether safeguards and spill response plans are adequate and properly implemented.

The opening up of US offshore acreage to oil and gas exploration may be set back once again, as the world’s most profligate user of hydrocarbons firmly reinforces its not-in-my-backyard  attitude to drilling in much of its coastal waters.

The most optimistic hope that the accident will trigger a reassessment of the  US’s dependence on oil and lead to concrete steps to reduce the country’s consumption of fossil fuels.

BP is, after four weeks of trying, at last beginning to succeed in reducing the flow of oil into the sea from the Macondo well, although it is still far from halting it. After an unsuccessful attempt to place a containment dome over one of the oil leaks to funnel the oil into a tanker on the surface, a pipe and stopper have now been inserted into the leaking well, allowing around 2,000 bpd of liquid to be brought to a vessel on the surface, where the oil is stored and the associated gas flared.

However, BP cautions that ‘this remains a new technology and both its continued operation and its effectiveness in capturing the oil and gas remain uncertain’. Meanwhile two options are being considered for blocking the flow through the failed blowout preventer on the sea floor: the first involves pumping dense mud into the well to choke the flow of oil, while the second involves blocking the blowout preventer with golf balls, shredded tyres and other ‘junk’ to stop the flow of oil.

These, too, are only temporary solutions, designed to halt the flow while relief wells are drilled to tap into the leaking well far below the seabed, diverting the flow of liquids and allowing the well to be ‘killed’, a process that is underway, but which is expected to take around three months from commencement to complete.

There is still no clear indication of the volume of oil leaking from the Macondo well. Initial estimates of around 1,000 bpd were soon revised to 5,000 bpd, although some now question the accuracy of that figure, suggesting that the flow could be as much as 70,000 bpd, plus or minus 20%.

Both BP and the US government say that a more accurate measurement of the rate of flow from the well would do nothing to alter their action plans, although this attitude is fuel to the conspiracy theorists who see it as an attempt by both parties to downplay the size of the problem.

Whatever the size of the immediate oil leak, its implications are enormous, particularly as it came at a critical time for both BP and US energy policy.

The company appeared at last to be putting its past record behind it in the US. The explosion and fire at its Texas City refinery in 2005, which killed 15 workers, and oil leaks from corroded pipelines in Alaska in 2006 seriously damaged BP’s reputation in the country, a reputation that will be undermined further by the Macondo disaster, no matter how well the company responds to the spill.

While its repeated pledges that it will meet all the containment and clean-up costs of the accident and honour all legitimate compensation claims should be welcomed, questions will be raised over its operation of the drilling of well MC252.

The blame game has already started, with BP pointing out that the Deepwater Horizon rig was owned and operated by Transocean, not BP, while a Transocean employee told a US TV programme that BP had been pushing to speed up completion of the well, which had already taken twice the anticipated 21 days to drill, raising questions as to whether safety was compromised in the rush to finish the well.

The almost inevitable backlash against BP in the US has already begun, with one pressure group urging a boycott of BP-branded gas stations and another seeking to have operations halted at the company’s offshore Atlantis field, where production isexpected to average 200,000 bpd in 2010, the loss of which would virtually wipe out the expected growth in US oil production this year.

Prior to the Macondo blowout, the US Administration was seeking to ease a long-standing moratorium on offshore oil drilling as part of a broader energy and climate bill. Its hopes of being able to use the easing of offshore oil drilling restrictions to persuade some Republican senators to back the bill, which Democrats were expected to support, now appear forlorn.

Several Democrat senators announcing a withdrawal of their support for any legislation that includes an easing of the current offshore oil drilling ban. The Republican governors of California and Florida have both expressed their rejection of oil drilling off their states.

Nobody is suggesting that anything other than the highest standards of safety, both for crews and for the environment, should be enforced. Serious questions have been raised about the state of the blowout preventer used on well MC252, the fail-safe device that failed to prevent the blowout, and inspection standards and oil spill response procedures will inevitably be made tougher in the months ahead. However, offshore oil drilling is a risky business and, no matter how strict the safety standards, it will never be possible to eliminate entirely the chance of something going wrong.

Thankfully, incidents such as the Macondo blowout are rare. The last major offshore oil leak from oil drilling operations in US waters happened more than 40 years ago, off the coast of California in 1969. Meanwhile, between January 1973, when records publicly available on the EIA’s website begin, and March 2010, more than 1.5 million oil wells and gas wells have been drilled in the US, most without incident.

Related article: BP’s Macondo investigation spreads the blame