Blowout Prevention Act–or Oil-Production Prevention Act?

Today, the House Energy and Commerce Subcommittee on Energy and Environment will hold a hearing on the Blowout Prevention Act of 2010. A draft of the legislation and other pertinent documents are available on the Subcommittee’s Web site.

Although the draft legislation and hearing documents address serious problems brought to light by the Committee’s ongoing investigations, the Blowout Prevention Act would throw the baby out with the bath water.

To restate the obvious, although oil spills are bad, oil is good. Without oil, there would be no modern commerce and no mechanized agriculture. Life for most people would be “nasty, brutish, and short,” and many of us would not even be alive. Another obvious point — British Petroleum (BP) is to blame for the worst environmental disaster in U.S. history, not the oil industry as a collective entity.

Yet the draft legislation that Chairmen Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) will promote at today’s hearing could shut down all offshore drilling in the United States.

The draft text says the federal government “shall not issue a permit to drill for a high-risk well unless the applicant for such permit demonstrates . . . and the appropriate federal official determines that . . . the applicant has an oil spill response plan that ensures that the applicant has the capacity to promptly stop a blowout in the event the blowout preventer and other well control measures fail.”

Sounds innocent enough. However, the bill defines as “high-risk” any “offshore oil or gas exploration or production well,” not just ultra-deepwater rigs. In addition, at both the June 17 Oversight and Investigations Subcommittee hearing and the June 15 Energy and Environment Subcommittee hearing, Chairmen Waxman, Markey, and Bart Stupak (D-Mich.) emphasized that none of  the major oil companies, individually or in combination, could have stopped the spill after the blowout preventer failed:

• “BP failed miserably when confronted with a real leak, and ExxonMobil and the other companies would do no better.” — Chairman Waxman, June 15
• “It could be said that BP is the one bad apple in the bunch. But unfortunately, they appear to have plenty of company. Exxon and the other oil companies are just as unprepared to respond to a major oil spill in the Gulf as BP.” — Chairman Stupak, June 15
• “Yet when you’re asked can you stop the massive quantities of oil that are now ruining the beaches and marshland, killing the wildlife, and devasting the economy, you [BP, ExxonMobil, Chevron, Shell, ConocoPhillips] say no. You say you’re not well equipped to deal with it, and these catastrophic impacts are simply unavoidable.” — Chairman Markey (hearing transcript, pp. 220-221), June 15

The implication is obvious: The federal government “shall not” issue any more permits for offshore drilling, because nobody knows how to “promptly stop a blowout in the event that the blowout preventer and other well control measures fail.” Rep. G.K. Butterfield (D-N.C.) put it this way: “BP ignored a very simple rule. If you can’t plug the hole, don’t drill the well.” But, as the BP disaster shows, some holes cannot be plugged, at least not in time to prevent gigantic spills. Logically, the bill implies that no permits to drill should be granted and that existing permits should be revoked.

How might Chairmen Waxman, Markey, and Stupak reply to this criticism?

Maybe they would claim that they just want Big Oil to invest more in spill response. For example, Markey asserted that the industry has “invested zero time and money into developing safety and response efforts.” He continued: “The oil companies before us today amassed nearly $289 billion in profits over the last 3 years. They spent $39 billion to explore for new oil and gas. Yet the average investment in research and development for safety, accident prevention, and spill response was a paltry $20 million per year, less than one-tenth of 1 percent of their profits” (June 15 hearing transcript, p. 4). These numbers seem to speak volumes. In fact, they are highly misleading.

Oil companies are not like pharmaceutical companies, which test and develop their products in laboratories. Most of the information relevant to the safety of offshore wells is acquired in the field, in the process of drilling for gas and oil. Safety information obtained via discrete investments in R&D is supplemental to information generated in the course of producing hydrocarbons. The most important safety ‘R&D program’ is the multi-billion dollar annual investment the industry makes to find and produce new fields of oil and gas. It has been very successful. It is the reason that, until the BP disaster, there had not been a blowout in the Gulf of Mexico since the 1979 Ixtoc 1 oil spill, more than 30 years ago. It is the reason, notes ExxonMobil CEO Rex Tillerson, that nothing like the BP disaster occurred “at the 14,000 other deepwater wells that have been successfully drilled around the world.”

As the Committee’s investigations make clear, disaster struck not because the oil industry is stingy with R&D, but because BP repeatedly cut corners in the design and testing of the Macondo well. BP flouted industry best practices and acted with reckless disregard for employee safety, environmental protection, and the region’s economy. That is hardly surprising given BP’s atrocious record of “willful and egregious” safety violations in the refining end of its business.

The irony here is that BP’s dreadful safety and environmental record may well be related to its lobbying for the Waxman-Markey cap-and-trade bill and multi-million dollar re-branding as “Beyond Petroleum.” Cynicism and the pursuit of excellence don’t mix. There is hardly anything more cynical than lobbying for market-rigging rules in the name of saving the planet. Also, an oil company that starts to believe its own PR about being “beyond petroleum” is bound to become sloppy about its core competence.  

One thing is clear — no amount of additional R&D spending would have enabled BP, or any of its rivals individually or working in concert, to stop the spill after the blowout preventer failed. At the June 15 hearing, Chairman Stupak engaged Mr. Tillerson in colloquy on this very point. Consider these excerpts:

Stupak: “So when these things happen, these worst-case scenarios, we can’t handle them, correct?”

Tillerson: “We are not well equipped to handle them. There will be impacts as we are seeing. . . .That’s why the emphasis is always on preventing these things from occurring, because when they happen, we’re not very well equipped to deal with them.”

Stupak: “. . . so no matter which one of the oil companies here before us had the blowout, the resources are not enough to prevent what we’re seeing day after day in the gulf, not only the loss of 11 people, but we’re on, what, day 56 or 57 of oil washing up on shores. There is no other plan. There is no way to stop what’s happening until we finally cap this well, correct?”

Tillerson: “That is correct. . . . There is no response capability that will guarantee you will never have an impact. It does not exist and it will probably never exist.”

In short, the Blowout Prevention Act sets a standard no oil company can meet. No applicant for a permit to drill can “demonstrate” that it has “the capacity to promptly stop a blowout after the blowout preventer and other well control methods fail.” Chairman Stupak surely knows this, having belabored the point at the June 15 hearing.

Maybe the Blowout Prevention Act is simply a product of sloppy drafting. But maybe not. As written, the bill would revive and expand the federal ban on offshore drilling. Indeed, it would cripple U.S. domestic petroleum production. Do the sponsors not know that banning offshore drilling would increase consumers’ pain at the pump, destroy high-paying American jobs, and make the United States more dependent on OPEC oil? Or do they just not care?