SOME time back, I wrote that oil&gas companies were not actually in the business of providing us with energy and operating in the national interest, but making a profit for their shareholders, and that the provision of energy was just coincidental.
If they could make as much money out of selling beans then that’s what they would do.
Given what has taken place in the Gulf of Mexico, I’m beginning to wonder whether selling beans might just be a better alternative, at least for BP.
It’s very obviously far too early to apportion blame to anyone or any company for what happened onboard the ill-fated Deepwater Horizon drilling rig.
In fact, I’m not really sure yet if anyone can tell us with any real conviction exactly what did happen, and it may be that nobody was to blame.
All we can say is that what should really have been a fairly straightforward operation somehow went very badly wrong and that the outcome is now costing BP a huge amount of money; will probably, if not already, be costing at least some of BP’s contractors a huge amount of money, and – worst of all – has done enormous, and possibly irrevocable, harm to the reputation not just of BP, but the entire offshore oil&gas industry.
We should also not forget that the economic and social impact on those dependent on the Gulf of Mexico for their livelihood will – because of the environmental impact – be huge and potentially long-lasting.
President Obama’s decision to suspend test drilling on 33 rigs in the Gulf of Mexico, as well as halting exploratory deepwater drilling for another six months, and the cancellation of the sale of some offshore leases off the coasts of Alaska and Virginia, suggests that the US government has little faith in the industry.
However, Obama is responding to public opinion in a way which is bound to impact on the policy of reducing dependence on foreign oil. He probably had no option but to do that given the level of environmental damage being inflicted, coupled with growing anger among the American public.
My question is how the industry got to a situation where a cock-up of this type and severity could actually happen.
I don’t like speculating, but it seems to me that a lot could have to do with the way the major oil companies now run their businesses and what their real priorities are, versus what the glossy front might say.
Although my comment about them putting shareholders’ interests first was – as you might expect – a bit tongue-in-cheek, there is no doubt in my mind that many of those who make up the upper echelons of oil-company management teams now consider their MBA to be more important than their engineering degree.
Looking back, it was undoubtedly this mindset which led to the business model we have now where most western major oil companies no longer do things such as own and operate their drilling assets, because they believed this was not their core business.
Instead, they thought they were being clever by off-loading this responsibility to the contracting sector and reducing their costs and liabilities.
Now, you can do things like this with non-essential services such as catering, but a lot of people still doubt whether off-loading such critical aspects of the business as drilling was ever a very wise thing to do.
It is, therefore, important, apart from the technical and operational aspects of this disaster, that the whole issue of the relationships – contractual and otherwise – between operator and contractors should also be looked at.
Oil & Gas UK has set up an “Oil Spill Prevention and Response Advisory Group (OSPRAG)” to “provide a focal point for the sector’s review of its oil-spill prevention and response practices in the UK in advance of the conclusion of investigations into the Gulf of Mexico incident”.
To my knowledge, there hasn’t been an incident that comes close to the seriousness of the Deepwater Horizon for maybe 20 years or more.
That said, Statoil is currently having to deal with recurring pressure problems this month on its Gullfaks C platform which, at one stage last month, led to a partial evacuation of personnel.
However, while we should applaud the reaction of UK Oil & Gas, I think we do need to ask whether this review will be anything like broad enough. If they don’t look at the operator/contractor relationship then I think they could end up missing a trick or two.
There is more to come on this unfortunate incident, I’m sure, but in the meantime, our commiserations to all those who have lost loved ones and colleagues.
Now to the next energy generation, which is suffering from its own problems.
At a recent conference at Queen Margaret University, Edinburgh – entitled Can the green economy delivery for Scotland – Susan Rice, the boss of Lloyds Banking Group, warned that a “financial black hole” is threatening Scotland’s conversion to a low-carbon economy and that something in the region of £20billion may be needed to support all the major projects needed, such as offshore and onshore windfarms and marine renewables.
Well, we already know that, so nothing new there perhaps. However, Susan Rice also said: “We know what needs to be done – the big question is, how do we fund it?”
I’m not actually convinced we really do know what needs to be done, but let’s leave that for the time being because, much more importantly, Lady Rice (no relation to Tim) said banks could not be expected to shoulder the burden when investments in emerging technologies such as wave-power devices were often still risky.
“Banks aren’t always best placed to take that risk,” she said.
She added: “Banks have a key role to play in this, but not the only role … and it would be very helpful if people understood that.”
Oh, I think that most people involved in the renewables sector – or, indeed, in any sector that involves things such as research, product development and manufacturing – understand very clearly that the banks will play as small a role as they possibly can and that they will avoid like the plague taking any form of risk whatsoever, especially where it involves new technologies.
Lady Rice also suggested that, in order to fund future projects, we may have to introduce new carbon taxes in order to encourage investment. This is despite the fact that we already pay huge amounts of carbon tax, very little of which finds its way back into new projects or, more importantly, into supporting new clean-technology companies.
Lloyds – along with the other banks – appears to be behaving once again in a distinctly unhelpful manner. This is bad news. I’d like to think that, one day, we’ll get a set of politicians with sufficient testicular capacity to take the banks on properly.
Sadly, though, I have a feeling that day is still a long way off.
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