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A support ship circles a relief platform at the Deep Sea Horizon oil spill site in the Gulf of Mexico. (David Quinn)
A support ship circles a relief platform at the Deep Sea Horizon oil spill site in the Gulf of Mexico. (David Quinn)

Eric Reguly

The end of offshore oil drilling? Not a chance Add to ...

For three weeks, about 5,000 barrels of oil a day have gushed out of BP's Macondo well in the Gulf of Mexico. Gobs of black oil, and the weirdly coloured slick - fuchsia in parts, as if Martha Stewart were hired for artistic control - move ever closer to the Louisiana shore and the fecund wetlands behind it. The ruptured pipes could spew oil for another two or three months, the time it will take to drill a relief well. The lifeblood of the U.S. Gulf states - tourism, fishing - faces destruction.

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Since the leak went from annoyance to full-blown disaster, as a result of a failed subsea blowout preventer, the theme has been: Never again.

Politicians, environmental groups and journalists have predicted that the Macondo mess will trigger an overhaul of the way the offshore drilling industry operates. Unless BP stops the leak soon, offshore drilling bans could be announced everywhere in U.S. waters. Already, Arnold Schwarzenegger has withdrawn his support to expand oil exploration off California's coast and Barack Obama has vowed to not authorize new offshore drilling until the cause of the Gulf spill is determined. Sarah Palin's environment-be-damned war cry - "Drill, baby, drill!" - now seems a bad joke.

Offshore drilling, especially of the deepwater kind, is highly risky because of the extreme depths and extreme pressures. Experience only goes so far because each oil disaster is like no other. If BP and its contractors, drilling platform operator Transocean and well-cementer Halliburton, had a reliable playbook, Macondo would not still be leaking. Indeed, the offshore industry needs a drastic overhaul. A permanent ban on deepwater offshore drilling might have to come into effect.

It won't happen. Drilling bans will not come. The predicted slowdown in the offshore industry's growth will not happen. The reason is simple: Offshore is where the oil is.

The monster 1969 oil spill off Santa Barbara, Calif., triggered an environmental movement that resulted in drilling moratoria for decades on huge swaths of watery exploration areas. But 2010 is vastly different from 1969 in terms of oil development and consumption. When the Santa Barbara horror filled TV screens, there was plenty of oil in the world. The United States itself had yet to reach peak oil production (though the peak would come shortly after) and global crude consumption was less than half of today's 85 million barrels a day.

Equally important is the ownership of the world's remaining reserves. Two decades ago, about 80 per cent of known reserves were controlled by commercial operators, from Exxon to British Petroleum (which would become BP). Today it's only about 20 per cent; the rest is controlled by national oil companies such as Saudi Aramco. In other words, the vast majority of the world's oil in the ground is off limits to commercial drilling rigs.

Lack of access to reserves is pushing the big oil companies offshore. As the shallow-water areas are tapped out, the rigs move into deeper water. Transocean rigs have drilled 10 kilometres below the ocean floor. "There's pretty well nowhere else for the majors to go," says John Westwood, chairman of Douglas-Westwood, a British energy consultancy and research firm.

Declining conventional reserves are accelerating the offshore dash. The world's oil fields are depleting by about 7 per cent a year. To maintain production, the equivalent of new Saudi Arabia has to be found every three years. Most of the world biggest oil companies have not been able to raise their oil output recently. Shell's production peaked in 2005, BP's in 2005, Exxon's in 2006.

The prolific offshore areas - the Gulf of Mexico, West Africa, Brazil - are rarities on the oil map in that their production is still rising. Already, about 30 per cent of U.S. production comes from the Gulf (1.6 million barrels a day). Leta Smith, geologist and director at IHS-CERA, an international energy advisory company, says that in 12 of the past 15 years, reserves found offshore have been bigger than those found on land. About 20 per cent of the world's oil production comes from offshore wells; that figure will rise as the drilling rigs move into deeper water. The risks of spills will rise with it.

The mistake made by the oil companies - notably BP, which has a history of oil spills and industrial accidents, including the 2005 Texas City refinery explosion that killed 15 people - was to underestimate the risks associated with sinking wells on the earthly equivalent of the far side of the moon. Armed with legions of lobbyists, and comforted by political donations, the companies successfully argued for light-touch regulation. Their regulator, the Minerals Management Service, became a compliant friend.

The whole gambit blew up April 20, when the explosion turned Transocean's Deepwater Horizon drilling platform into a fireball, with the loss of 11 crew members. The platform sank and BP's Macondo well has been out of control since then.

There will be calls for blood. The three main companies involved in Macondo - BP, Transocean, Halliburton - are blaming one another for the catastrophe. When the cause is determined, the lawsuits will fly and one or two executives, but certainly not the top bosses, will be sacrificed. A new regulator will be created and politicians in Louisiana and Washington will announce that offshore drilling has entered "a new, safer, more responsible era," or blather to that effect.

Then the rigs will start drilling again, in ever-deeper water, because the gluttonous North American lifestyle demands obscene amounts of oil. BP's Gulf spill will be no more than a minor setback for the industry.

Follow on Twitter: @ereguly

 

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