Washington, 5am, Tuesday:
A tired Tony Hayward, chief executive of BP, was finally patched on to the conference call. At the other end, a dozen journalists sat aroPost Tagsund a boardroom table at its plush headquarters in St James’s Square, London and leant in towards the squawkbox. BP had just announced a 135% increase in profits for the first quarter, but all that anyone wanted to discuss was the Deepwater Horizon disaster.
A sombre Hayward, who had spent the weekend co-ordinating the operation to contain the slick off the coast of Louisiana, recognised as much when he began the call: “Clearly a good set of results has been overshadowed by events.”
Serious as the disaster was at that stage.
He would not have known just how much of an understatement that was. By the end of the week, BP admitted that more than five times as much oil – 5,000 barrels – was leaking from the sunken rig each day and the slick had hit the Louisana coast. BP’s shares had fallen by more than 6%, wiping £12bn off its market value as the environmental – and legal – repercussions hit home.
BP’s safety record is once again under the spotlight.
Particularly in the US. It was only in 2005 that 15 workers died when its Texas refinery exploded, and a year later a major leak occurred at one its pipelines in Alaska. The disasters hastened the departure of former chief executive Lord Browne. Hayward, who took over three years ago, promised a zero-tolerance approach on safety. Even some industry critics, such as Jake Molloy, general secretary of the Offshore Industry Liaison Committee, a major trade union for offshore workers, report that there has been a noticeable improvement in its approach in the North Sea, for example. The Deepwater Horizon disaster – even though the rig was operated by another company on BP’s behalf – has come as a hammer blow.
The disaster has also focused attention on the industry’s safety record. Companies are struggling to maintain production – and oil reserves – as “conventional” production from mature fields including the North Sea declines. This means the industry has to use new technologies and explore often environmentally sensitive regions. As Manouchehr Takin of the Centre for Global Energy Studies says: “Companies are constantly pushing the technological boundaries, and this can increase the risk [of accidents occurring].”
Not surprisingly, the oil industry – not just BP – is mounting a PR offensive in the US to reassure the public – and politicians – that offshore drilling is safe. The Deepwater Horizon accident comes at a critical time for the industry. After years of lobbying, a month ago Barack Obama agreed to open up new areas to offshore drilling, including in Alaska. Companies including Shell said they planned to start drilling in the region this summer. But this weekend, Obama announced that new no licences would be issued until an investigation into the disaster was completed.
On the face of it, the statistics on the global industry’s safety and environmental record are impressive. The American Petroleum Institute reports the amount of oil spilled in the US in the decade up to 2007 was over two-thirds less than 30 years before. According to BP, it spilt 1.2m litres of oil last year, compared with 4.4m litres in 2005. Shell’s figures show a similar improvement.
On safety too, the official data appears to indicate steady improvement. According to the International Association of Oil and Gas Producers (OGP), in 2008 the total amount of hours lost as a result of injury was the lowest on record. However, it admitted that the fatality rate increased by 4% as the number of severe cases rose, though it said the long-term trend was downwards. Certainly, most executives take environmental and safety performance much more seriously than before, knowing they face huge financial and reputational damage if they fail to do so. As one oil company executive says: “People are generally pretty careful now. They know there are plenty of regulators out there willing to chase them if they screw up.”
But the headline statistics do not tell the whole story.
Molloy says that the oil companies often mask the extent of less serious accidents by assigning injured workers to office duties. This way, such incidents do not show up in the key “lost time injury frequency”.
Oil spillages are also not the only indicator of environmental damage caused by the industry. Shell’s figures show a steady increase in the amount of hazardous and non-hazardous waste it creates each year – 1.7m tonnes in total in 2008. This is in large part due to its growing oil sands business in Canada, where vast amounts of energy, water and chemicals are required to process the tar deposits. Even excluding oil sands, Shell is using a quarter more energy to find and produce each barrel of oil than it did a decade ago.
The industry’s performance outside North America is significantly worse.
Although the official statistics are patchy and those that are published are often of dubious quality. According to the OGP, in 2008 the fatality rate in Africa was about 50% higher than the global average; in South America, it is even higher. Russia is not much better. However, it says that over the past decade the overall trend is again downwards.
But it is highly questionable whether the industry can be relied on to provide accurate statistics, particularly on the environmental impact of its operations. Two years ago, when the Observer visited Fort McMurray, a bustling, Wild West town in Alberta at the heart of Canada’s oil sands boom, George Poitras, a former chief of the Mikisew Cree First Nation, was scathing about the industry’s claims. Oil sands operators clear vast tracts of forest to mine the tar deposits, creating deep scars on pristine land. Companies promise to “reclaim” the land, returning it to its former state by filling in the quarries and reintroducing native flora and fauna.
“Our elders back home laugh when the industry says this,” he says. “Who do they think they are – are they God or the creator? They destroy the boreal forest and they are going to put back the land to as good as it used to be? It’s impossible.”
The industry also claims that the huge toxic ponds created by the projects – made up of a mixture of chemicals and water used to process the tar deposits – are contained and do not pollute local rivers or wildlife.
“We think that the water is poisoning our people and giving us cancer. The fish taste different and are sometimes deformed, with two jaws.” Cancer rates or deformed fish do not show up in oil sands companies’ glossy sustainability reports or figures.
In many cases, governments cannot be relied on to provide independent rigorous oversight. The Albertan government in large part relies part on Ramp, an industry-funded body that monitors the impact of oil sands operations on the aquatic environment and which is mistrusted by most environmentalists.
“It’s all self-monitoring by the industry,” according to Joyce Hildebrand from the campaign group Alberta Wilderness. In Alberta, there are only a dozen officials to make sure that operators comply with environmental regulations in a province bigger than Spain.
Because governments such as Alberta’s want to attract oil companies and taxes, it’s not surprising that many are anxious not to scare them away with tough environmental regulations. But even supposedly tough independent environmental regulators are frequently politically motivated and lack credibility.
In 2007, Shell was forced to dilute its stake in the $20bn Sakhalin II project in Russia’s far east, ostensibly over its environmental record. Rosprirodnadzor, the government environmental regulator, had claimed that Shell and its Japanese partners had broken the law by damaging forests and driving grey whales from their breeding grounds off Sakhalin island. But industry observers said that the claims were a pretext to allow the Kremlin to wrest back control of its natural resources.
Lack of thorough, independent oversight of the oil industry’s environmental impact is worrying. In many cases the damage being done to fragile ecosystems is going unnoticed. Deepwater Horizon notwithstanding, it is true that the oil industry has made significant improvements on its record on safety and oil spills compared with 30 years ago at the time of the Exxon Valdez disaster. But companies cannot be relied on to monitor the more indirect environmental impact of their operations, particularly as they move into increasingly sensitive regions such as Sakhalin and the Arctic.
Greenpeace scientist Paul Horseman says:
“Companies are good at publishing glossy reports with nice pictures of smiling people in different countries. But it’s just another public relations exercise with which they try to produce the image that they doing something of value and doing it safely. It’s pure greenwash.”
Twelve months ago BP dismissed the possibility that a catastrophic accident could happen
At its offshore rig Deepwater Horizon, it emerged yesterday. An exploration plan and environmental impact analysis for the well, produced by the company in 2009, concluded that it was virtually impossible for there to be a giant crude oil spill from it.
Now City experts say that the accident could cost the company up to $8bn (£5.23bn) to clear up the slick. The US Coast Guard has estimated that 6m litres of oil has already spilled into the waters of the Gulf of Mexico since an explosion destroyed the rig on 20 April, killing 11 workers.
A further 800,000 litres is thought to be pouring from the stricken well every day, threatening to turn the accident into the worst US oil disaster since the Exxon Valdez in Alaska in 1989. 1 May 2010, a slick 130 miles long and 70 miles wide was being swept towards the ecologically vulnerable coastlines of Louisiana and Mississippi.
Yet BP’s plan for the Deepwater Horizon well, filed with the federal Minerals Management Service, repeatedly said that it was “unlikely that an accidental surface or subsurface oil spill would occur from the proposed activities”.
The company conceded that a spill would have an impact on beaches, wildlife refuges and wilderness areas, but argued that “due to the distance to shore [48 miles] and the response capabilities that would be implemented, no significant adverse impacts are expected”.
The revelation that BP had apparently underestimated the dangers posed by the rig brought outraged responses from local activists. “If you’re going to be drilling in 5,000ft of water for oil, you should have the ability to control what you’re doing,” said Robert Wiygul, an Ocean Springs, Mississippi-based environmental lawyer.
This point was backed by Chris Frid, professor of marine biology at Liverpool University. “The way to deal with an accident like this is to hit the oil with dispersants as soon as it starts bubbling up to the surface,” he said. “Once it has been in the sea for a few days, it becomes more difficult to break up into small particles that can then be degraded by bacteria.
“But that has not happened. Either insufficient dispersants were available or there was a lack of co-ordination among those dealing with the spillage. Either way, there has been a ludicrous delay.”
For its part, BP has claimed that the events leading to the rig’s destruction had no parallel.
“The sort of occurrence – a blowout at this depth – is clearly unprecedented,” said a spokesman.
Crews have struggled for days without success to activate the well’s underwater shut-off valve using remotely operated vehicles. They also are drilling a relief well in hopes of injecting mud and concrete to seal off the leak, but that could take three months.
The prospect of oil pouring into the gulf for such a period could have horrifying effects on wildlife, added Frid. “That part of the gulf’s coastline consists of a sedimentary shore with lots of muddy inlets. The oil will penetrate into the mud, and because it contains no oxygen the oil will not biodegrade. For generations, any disturbance of the sediment will bring oil back to the surface and that will happen over a very large area.”
Similar fears were also stressed by Jane Lubchenco, head of the US National Oceanic and Atmospheric Administration, after she took part in a conference call with the governors of the gulf states on Friday.
“There is very deep concern about what is happening,” she added.
To date, most efforts to deal with the growing slick have failed. Rough seas and strong winds have blocked efforts to burn off the oil or hold it in check with inflatable booms strung along the coast. Louisiana officials have opened gates in the Mississippi river in the hope that a flood of fresh water would drive oil away from the coast, but the high winds also thwarted that plan.
Meanwhile the Pentagon has deployed two C-130 cargo planes to spray chemicals on the oil, while the Louisiana National Guard has been deployed to help local communities.
The cost of dealing with the Deepwater Horizon oil spill could reach up to $12.5bn, according to City analysts, with BP’s share totalling $8bn.
Neil McMahon of Bernstein Research estimated a total of $7.5bn for the clean-up and subsequent damages, with another $5bn for losses suffered by the fishing and tourist industries in the area. BP owns 65% of the licence, so would pay the bulk of this figure.
BP is currently spending $6m a day on the clean-up but this is likely to rise to at least $10m a day, according to Bank of America/Merrill Lynch analysts, and could go on for six months. On top of that, the company is drilling two intervention wells at a total cost of about $300m.
At the end of a very long day of waiting and worrying, the commercial fishing captains of Venice, the last town on the Mississippi before it opens up into the Gulf of Mexico, have gathered at the Harbor Seafood and Oyster Bar for what they have been told is a very important meeting. As they wait, dressed in standard-issue faded baseball caps, shorts and shades, they chew on Cajun-style crawfish and sip Michelob Ultra.
Peter Young specialises in inland fishing of speckled trout, redfish and flounder in the marshes around the coast. He has been waiting at the bar now for more than an hour. I ask him what the meeting is all about.
“We don’t know.”
Who is going to talk to them?
“We have no idea.”
So why are all the captains hanging around waiting?
“That’s the whole problem; we don’t know. No one has told us what’s going on. There are no answers.”
There is anger in Young’s voice. He says he has had his phone turned off since noon because it was constantly ringing with customers wanting to find out whether their fishing outing was still going ahead. He couldn’t tell them anything, so why answer?
“This is our perfect storm,” says Captain Cade Thomas, who runs a business called Runaway Charters. “May and June are bread and butter months for us – half our income comes in then and if they shut us down we’re finished.”
Overnight, an answer of sorts does finally arrive. Louisiana state officials announced they were closing all commercial and recreational fishing to the east of the Mississippi where the oil from the Deepwater Horizon, spewing out at least 5,000 barrels a day from the seabed, is most likely to be blown onshore by prevailing winds.
That’s just the start. “It’s bleak, very bleak,” said Captain Shawn Lanier. “We are fixing to lose our livelihoods if they cancel everything.”
Estimates have put the value of the recreational fishing fleet around this part of the Gulf of Mexico at $3bn. That’s more than even the commercial fishing in these parts.
The captains want to know why BP and the US federal government appear to be doing so little to protect the fragile ecology of the coastal marshes around the Gulf of Mexico that represent 40% of the wetlands of America. Eleven days after the rig exploded in what could become the worst oil disaster in US history, there is still scant evidence around Venice of any preventive activity.
Captain Ross Barkhurst of Argonaut Charters points out that the small towns along the Mississippi are overflowing with people who have come to help in the emergency. But everybody is sitting around waiting for the oil to come ashore.
“It’s like 80% of the effort is going on waiting for the clean-up operation when the oil reaches land and only 20% on stopping it coming in in the first place,” he says. “That should be the other way around.”
His point is underlined by what is going on beneath our feet. Below the deck of the oyster bar, about 50 workers have been sitting around all day looking bored. They are from a contracting company called Oil Mop that specialises in oil spillages. They are not allowed to talk to the media, so it is not entirely clear what they are doing, but their time appears to be spent, at least for now, in glorious inactivity.
The note of frustration and anger is rising up the political chain in Louisiana. The governor of the state, Republican Bobby Jindal, gave his verdict on the handling of the catastrophe so far: “Not adequate.”
Another refrain was heard on the lips of several of the fishing captains: where are the booms? Though miles of booms have been laid far out to sea in an attempt to hold back the slick, high winds have made them virtually redundant, whipping the oil over their defences. Fishermen say that booms should by now have been placed much closer to shore, where the waves are smaller and the technique could be more effective.
“This is the richest estuary in the world and there’s been zero response,” says Barkhurst. “If there had been an earthquake in Nicaragua, would they have been as slow as this?”
Lanier agrees to take us out on his speedboat, the Flounder Pounder, to go in search of the missing booms. The boat is well named: as we tear down the Mississippi, it pounds against high waves with spine-crunching force.
We cross the Mississippi – at this point at least a mile wide – battling through currents that drench us in spray, and head east through the inland waterways that criss-cross this extraordinary natural wilderness. It is like entering another world, where the loudest noise is the swishing in the wind of the bamboo-like roseau canes lining the waterways.
Immediately, an abundance of wildlife becomes visible. White egrets stand elegantly on the banks of the water and swallows swoop in and out of the reeds. A heron flies overhead, followed by a pair of wild ducks. Mullet leap out of the water as the speedboat rushes by, and a group of pelicans are fishing in the open water in the gulf.
Then, as we travel more slowly through a shallow stretch of marsh, an alligator languidly lifts its body from its perch on a mudbank and slinks slowly into the water. All 15 feet of it. All that, and much more, is endangered should BP fail to plug the leaks in short measure, allowing the Deepwater Horizon to become an entry in the chronicle of environmental disasters even more notorious than Exxon Valdez.
“The first thing that will go will be the roseau canes, because they’re real fragile,” Lanier says. “Once the oil is in those canes, it will be very difficult to get it out. It’s like throwing a bucket of oil on your couch at home – easy to do, very hard to undo.”
He points out large areas of waterway where there is no vegetation. Before Katrina this was all a forest of roseau cane, but the hurricane wreaked such havoc that the authorities had to dredge the area and the plants have never returned. The same fate, he fears, now beckons with the oil.
He takes us on a giant loop around the peninsula, heading east until we reach the open Gulf of Mexico that stretches far off towards Florida. A group of oil rigs stands hazily in the distance.
Then we tack south towards Redfish Bay, one of the most imperilled areas where oil is likely to reach land first. There is mercifully no sign of it. More worryingly, there is no sign of any booms either. Indeed, no sign of any attempt to hold back the oil when it finally does arrive.
“I’m real glad we can’t see any oil,” Lanier says as we head back to the oyster bar. “But I know it’s going to be here soon. It’s coming.”