During the opening session of last month’s annual World Drilling Conference in Budapest, Hungary, IADC President Dr Lee Hunt observed that, ‘maybe forever the game has shifted for offshore drilling’. He was of course referring to BP’s Macondo well disaster in the Gulf of Mexico. It is reasonable to assume that the explosion, tragic loss of 11 lives, sinking of the Deepwater Horizon and subsequent oil leak will represent a pivotal moment, not just for the offshore drilling sector but the entire energy industry.
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Environmentally the general public will very likely see the disaster as the point at which the industry ‘crossed the Rubicon’. President Barack Obama has already, and perhaps somewhat misleadingly, likened the tragedy to the environmental equivalent of 9/11. Nonetheless, with estimates of anything up to 60 000 bpd of crude oil still leaking into the Gulf of Mexico every day, his assertion that ‘this disaster is going to shape how we think about the environment and energy for many years to come’, is undeniable. The likely repercussions will mean that from a safety, regulatory and environmental perspective, ‘business as usual’ will cease to exist for the oil and gas industry. The world will no longer accept that this type of incident can’t and won’t happen again. ‘Usual’ will be redefined as regulators seek to design all risk out of oil and gas operations and processes. The old mantra of ‘cost control’, long a dominant force across the industry, will inevitably be replaced by ‘risk control’. The result will be an increasingly restrictive operating environment with many layers of regulation and legal directives inevitably leading to project delays and increased costs.
However, punitive legislation and oil company bullying will not change the fact that until there is a viable alternative, we remain in the ‘hydrocarbon age’. Despite huge investment and subsidisation of renewable energy sources such as wind, solar, hydrogen fuel cells, biofuels etc. the demand for hydrocarbons has and will continue to increase. As John Hofmeister, former president of Shell Oil Company recently observed in an editorial in The Times, ‘Newer alternatives are not capable of carrying the load’, at a time when, ‘Chinese consumers will purchase more than 13 million cars this year. Both near and medium term outlooks demand more – not less – oil and natural gas’.
The fact that this catastrophic event should have occurred on the back of the recent deep global economic recession and crucially in the Gulf of Mexico, the very cradle of the oil and gas industry, is itself a global disaster. The moratorium on deepwater drilling in the Gulf and resulting shutdown in this key region will doubtless impact the evolution of deepwater exploration and production technology worldwide. Certainly the disaster is another example of the demise of ‘easy oil’. Readily available resources are no longer plentiful. Demand for oil and gas is such that oil companies are forced to operate in ever more hazardous environments be they farther offshore or in more hostile regions of the globe. Whilst this demand for oil and gas persists no amount of legislation will negate the fact that this is a frontier industry that operates at the very edge of what is technologically feasible.
As bleak as the situation in the Gulf looks right now, it is important to appreciate that this situation will come to a conclusion. The well will be closed off and the spill cleaned up both at sea and on the beaches. The industry will certainly move forward from Macondo and become stronger. It has many issues to address and will continue to innovate and become safer for both operators and the environment. However, as a result of this crisis the game has indeed changed and there is no doubt that the cost of drilling both on and offshore will be greater and the long term price of oil will increase at a faster rate. None of this is good for consumers or for the fragile global economic recovery so dependent on affordable energy prices.