Oil companies should get back to the business of drilling in the deep waters of the Gulf of Mexico, a U.S. federal judge ruled, declaring President Barack Obama's six-month ban "arbitrary and capricious."
As crude oil continues to gush from BP's catastrophic blowout, Judge Martin Feldman said Tuesday that the Obama administration had failed to provide an acceptable rationale for imposing a six-month moratorium on all deepwater drilling in the Gulf.
His ruling came even as BP said the industry needs to change its operating procedures to reduce the risk of another such accident.
The White House immediately said it would appeal the ruling, and oil and gas companies are expected to wait for more certainty before re-starting operations. But the decision represents a major setback for President Barack Obama, who has been under fire from the outset of the crisis, and particularly over the issue of the moratorium.
Republican Governors from Louisiana and Mississippi have backed industry demands that the moratorium be lifted, arguing the suspension of deepwater drilling was unnecessary and would do further economic damage to their already-battered states.
Judge Feldman said the administration relied on a report from Interior Secretary Ken Salazar to justify the work stoppage, but noted Mr. Salazar had misrepresented the views of experts about the need for a moratorium.
That incident, which was seized upon by Republicans and conservative pundits in the U.S., "caused some apprehension" about the process by which the moratorium was enacted, the judge ruled.
He said the administration investigated the BP disaster and then concluded all deep water drilling was unsafe - reasoning he found deeply flawed.
"If some equipment parts are flawed, is it rational to say all are? Are all airplanes a danger because one was? … That sort of thinking seems heavy-handed and rather overbearing," the judge wrote. The moratorium also threatened to devastate the local economy around the Gulf, the judge noted.
The oil industry welcomed the ruling, but Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, said companies won't resume operations until they have some certainty that Judge Feldman's ruling will stand.
"We want to invite [federal government]to take this decision as a way to remedy the safety concerns that we all want in a different manner than a blanket moratorium," he said in an interview. He said the industry supports increased inspections on the rigs to ensure proper safety regimes are followed.
At an industry meeting in London Tuesday, BP warned that the offshore oil industry urgently needs better safety technology and the companies must make major changes to the way they operate in the frontier regions of ultra-deep water.
BP executive vice-president Stephen Westwell suggested the global industry's move into deep water has out-paced its ability to cope with "low probability but very high impact events."
"It's imperative to invest in creating a sustainable deepwater business," he said in a speech posted on BP's website. "We must change the way we operate, and no doubt the regulatory framework will radically change too."
He said the industry needs better safety technology, adding that the blowout preventer - the huge valve that is supposed to shut down the well in emergencies - "is not the failsafe device it was thought to be." He also said the industry urgently needs more effective capacity to intervene at the well site more than 1,000 metres beneath the surface, as well as better co-ordination among drilling partners.
BP's competitors in the industry have insisted that deepwater drilling can be done safely and have argued BP was not following best practices when the Macondo well blew out on April 20, killing 11 workers and causing catastrophic environmental damage in the Gulf of Mexico.
Drilling operations in ultra-deep water are continuing around the world, from the North Sea to West Africa. Chevron Corp. is currently drilling the only such operation off North America, some 430 kilometres off the coast of Newfoundland in water depths of 2,600 metres. The BP well was in 1,500 metres of water.
Industry experts have warned that a widespread halt to deep-water drilling would reduce oil production in the future and leave Western consumers even more heavily dependent on the Organization of Petroleum Exporting Countries.
The six-month halt in the Gulf of Mexico could trim 300,000 barrels per day from global supplies in 2015, said Fatih Birol, chief economist with the International Energy Agency in Paris. If other countries followed the U.S. lead, it would reduce production by 900,000 barrels per day and result in significant price hikes.
Mr. Birol said he was equally worried that government will impose high-cost regulations on the sector, which will drive away investment. Some new regulation is inevitable, Mr Birol said in an interview, but he added: "Governments need to be aware of the unintended consequences."