Following a six-month enquiry, the House of Commons Energy and Climate Change Committee has published its report into the implications of the Gulf of Mexico oil spill for UK deepwater drilling.
It makes 25 recommendations for changes to UK regulation and operating practices.
The committee rejected calls for a moratorium on deepwater drilling. Its conclusion was that such a moratorium would cause drilling rigs and expertise to migrate to other parts of the world, would decrease the UK’s security of supply and increase reliance upon imports of oil & gas.
According to the committee’s report, “there is insufficient evidence of danger” to support a moratorium. However, the committee did express serious doubts about the ability of oil spill response equipment to function in the “harsh environment of the open Atlantic”, west of Shetland.
As a consequence, the report recommends that the UK Government should ensure that any capping, containment and clean-up systems are designed to take full account of the environmental challenges in that area.
A number of other significant recommendations are made in the report including:
MINIMUM SAFETY STANDARDS
For fail-safe devices, the government should adopt minimum, prescriptive safety standards. The committee specifically recommended that the HSE considers prescribing two “blind shear rams” (the device which failed on the Macondo well in the Gulf of Mexico spill), rather than one, for blow-out preventers.
Whilst recognising that the UK has high offshore regulatory standards, the committee also recommended that the government should monitor any changes in the US regulatory regime to see if, in light of the response to the Gulf of Mexico spill, a “new gold standard of regulation” is established.
Emergency response
It is essential that there is someone offshore who has the authority to bring a halt to drilling operations at any time, without recourse to onshore management.
The committee recommended that the government should seek assurances from industry that the prime duty of the people with whom this responsibility rests is the safety of personnel, and the protection of the environment – it is hard to imagine that it could be otherwise.
It also expressed concern over the “sharing” of Oil Pollution Emergency Plans (OPEPs), which it states could have led to a culture of “copying-and-pasting” in the past, rather than production of site-specific plans. The recommendation is that the government re-examines oil spill response plans to ensure that this is not the case.
Worst case
The committee was concerned that the licensing regime should take full account of high consequence, low-probability events, such as the environmental impacts of a sub-sea blow-out, and that the DECC (Department of Environment and Climate Change) should not automatically accept claims that companies have mitigated away the risk of such worse-case scenarios.
Companies should, as part of the licensing process, be required to consider their response to such events, especially as drilling ventures into increasingly extreme environments (DECC has in fact already addressed this point. In revised guidance issued to oil companies just before Christmas on worst case scenario planning for oil spills, it stipulated that OPEPs should address the risk of a blow-out following the failure of all containment barriers, such that a relief well is the only solution).
Liability levels
The committee believes that Offshore Pollution Liability Association Limited’s (OPOL) current limit of $250million is insufficient to cover the costs of dealing with a blow-out on the UKCS, and that the voluntary nature of the scheme weakens its force.
It therefore recommends that it should be a requirement of the licensing process that licensees prove their ability to pay for the consequences of any incident that could occur.
The committee also recommended that government consider whether compulsory third-party insurance should be required for small E&P (exploration & production) companies.
The industry is already considering this issue through OSPRAG, but is likely to resist the suggestion that the limit under OPOL should be raised for all industry players, as the risks which the committee was considering apply to only a relatively small percentage of deepwater or high-risk wells. Instead, a more tailored solution is likely to emerge to avoid creating unnecessary barriers to exploration.
Regulation
The committee’s report also stated that it “utterly rejects” calls for increased regulatory oversight from the European Commission, and it recommends that “EU countries without a North Sea coastline should not be involved with discussions on regulation of the offshore industry on the UK Continental Shelf”.
This is consistent with the approach Malcolm Webb has taken on behalf of Oil & Gas UK.
However, the committee does open the door to EU involvement in a different context, calling for the government to work with the EU to ensure a new directive is drawn up that follows the polluter pays principle, and unambiguously identifies who is responsible for the remediation of any environmental damage. The pressure for the UK to turn the current voluntary arrangements of OPOL into a legislative regime, similar to that in the US and some EU countries, which would make offshore operators strictly liable for pollution incidents up to a set level, may be hard for the industry to withstand.
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