The fallout from the Deepwater Horizon oil spill in the Gulf of Mexico in 2010 cannot be measured only in the catastrophic environmental damage caused. The disaster sent a shockwave throughout the entire offshore oil and gas industry, sending BP tumbling into disrepute along with the safety credibility of all other offshore operators. The US offshore regulatory system, which some believe failed to enforce the strictest safety protocols, was another target for harsh criticism.
The impact has not been limited to the US. The devastation caused to eco-systems along the Louisiana coastline, not to mention the economic ramifications, have pushed offshore safety into the spotlight around the world. On the other side of the Atlantic, the European Commission has proposed new tighter regulations on offshore drilling to help avoid a repeat of the Gulf of Mexico tragedy off European shores. Here, we look at new legislation and proposals in the US and Europe as the industry seeks to improve standards and move forward with confidence.
New US offshore regulations
On 12 October 2010, Secretary of the Interior Ken Salazar announced that the US ban on deepwater drilling, put into place on 12 July 2010, had been lifted seven weeks ahead of the original schedule. The Department of the Interior (DoI) and the Bureau of Ocean Management, Regulation and Enforcement (BOEM) did not reach this decision without significant changes to the offshore regulatory structure, however. The US Government has acknowledged that over the last 30 years, offshore regulations have become outdated in light of new technologies that allow operators to drill ever deeper to reach oil and gas reserves. The new regulations aim to bring US safety protocols back up to date.
All deepwater rigs wishing to operate will now have to undergo a BOEMRE inspection before being awarded a permit. The DoI noted that 18 deepwater rigs were currently idled and need to pass muster before beginning operations again. The two most recent rules introduced, coming into effect immediately, were announced on 30 September.
“These new rules and the aggressive reform agenda we have undertaken are raising the bar for the oil and gas industry’s safety and environmental practices on the outer continental shelf,” said Salazar.
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The drilling safety rule, the first of the two regulations, sets out a full set of standards for well cementing, casing and the use of drilling fluids to secure well bore integrity.
It also stipulates further safeguards for shutting of the flow of oil and gas with a blowout preventer and its components, including subsea remotely operated vehicles (ROVs), pipe rams and shear rams. Operators will have to convince independent inspectors of the effectiveness of their well designs and flow intervention mechanisms before being allowed to proceed. The DoI has also finally dismantled a loophole established in 2003, which exempted many Gulf of Mexico offshore operators from presenting plans for worst-case discharge scenarios.
The drilling safety rule is complemented by the workplace safety rule, which covers more general issues to strengthen offshore safety practices. The rule requires operators to present and maintain a safety and environmental management system (SEMS) to reduce human errors and ensure that all staff are well-drilled on procedure in case of an emergency. The SEMS is similar to the safety cases that are already required for companies operating in UK waters. The workplace safety rule has also made the previously voluntary American Petroleum Institute recommended practice 75 compulsory for all offshore operations, placing the onus on individual companies to identify and mitigate any safety and environmental risks inherent to their operations.
The most recent rules form part of a broad swathe of reforms that have been enacted by the DoI and BOEM since the Deepwater Horizon spill. A fundamental change was the splitting of the former Minerals Management Service, which had previously been responsible for three somewhat conflicting objectives of energy promotion, regulation and revenue collection, into three separate organisations, including BOEM.
Other reforms include a significant expansion of BOEM’s group of inspectors, engineers and specialists who are tasked with constantly making sure that operators are up to code. BOEM has also been provided $29m to regulate the industry for the remainder of 2010, with a further $100m proposed for 2011.
BOEM director Michael Bromwich has also set up an internal investigations unit within the organisation to scrutinise practices within the agency to ensure fair regulation and to pursue companies seeking loopholes in the system.
The European offshore crackdown
The Gulf of Mexico disaster has compelled the European Commission to re-examine its own international regulations for offshore drilling. The commission was even pushing for a similar deepwater moratorium to the one put into effect in the US, although this proposition seems to have lost momentum. Although Norway is currently the only country supervising drilling at depths matching the Deepwater Horizon, other countries are investing in new deepwater projects.
The UK is planning wells off the Shetland Islands and Faroe Islands at depths of 1,600m and 1,100m respectively.
Nevertheless European energy commissioner Günther Oettinger stressed the need to bring all European operators up to the highest standard. He was quoted by the Guardian newspaper as saying: “We have to make sure that a disaster similar to the one in the Gulf of Mexico will never happen in European waters. This is why we propose that best practices already existing in Europe will become the standard throughout the EU. Safety is non-negotiable. Offshore accidents do not know national borders. This is why we need EU legislation.”
The UK, on whose waters more than half of the EU’s offshore rigs operate, is strongly opposed to a moratorium as it is overseeing numerous new drilling projects in the North Sea as part of its short-term energy strategy. A government spokesperson cited the UK’s excellent offshore safety record and comprehensive regulatory regime (as detailed by OSPRAG chairman Mark McAllister in a recent interview with Offshore Technology), as well as a lack of EU authority to call for a continent-wide suspension of offshore activities in its opposition.
While likely stopping short of a full moratorium, the commission is determined to tighten regulation. New proposals from the energy commissioner will force companies to guarantee that they have the funds – or insurance – to cover the costs of a spill cleanup operation if the worst should happen. Oettinger is also pushing for the distance from the shore at which companies can be made liable for spill costs to be increased from 12nm to 200nm. Arguably, the focus on covering costs rather than enacting regulatory reform to preventing spills from occurring could lead sceptics to believe that the commission is more concerned about financial, rather than environmental, ramifications. Whatever the case, draft legislation on the new rules is expected to be presented in early 2011.
The catastrophe in the Gulf of Mexico exposed the sluggishness and laxity of US regulations to that point. But a disaster on this scale has a way of rapidly accelerating the process of reform, and more progress was made in a few months than in the many years before the spill. With new deepwater drilling projects continuing regardless, it can only be hoped that the industry has learned its lessons as well as the US Government and will stick meticulously to the new rulebook set before it.