BP Oil Leak: Is this an indicator of disasters to come?

The recent BP oil leak disaster in the Gulf of Mexico is undoubtedly an environmental disaster that will have severe consequences for marine and coastal life in the area. The disaster occurred in April 2010, when there was a catastrophic malfunction on the oil platform which created an explosion which ultimately resulted in the death of employees on the rig and the eventual melting and collapse of the platform. What are we to make from this event?

This disaster is different from the Exxon Valdez oil spill in Alaska twenty odd years ago, in that the breakup of that crude oil tanker in the formerly pristine wilderness environment was contained to a limited area. Of course that “limited area” is still now suffering the costs of this disaster, through among others, the loss of the sustainable fishery as viable economically. The difference in the case of the BP disaster is that the “leak” is from an oil seam beneath the seabed in the Gulf of Mexico, so not only is the oil covering the surface of the water, it is spread through multiple layers of the marine ecosystem. The Environmental impact is instant and widespread, and the longer the leak continues the more widespread the damage will become. Oil deposits are already affecting the shorelines of four American states, and subsequently the economic sustainability of the communities that rely on the Gulf for their livelihoods. This is all bad news for BP, for although ExxonMobil were held responsible for the clean up as in the case of BP, the economic compensation claims were limited to only a few communities. BP is already responding to claims from hundreds of communities along the Gulf. Many more people are directly affected in the Gulf of Mexico than were affected in Alaska.

The Oil rig and platform that ultimately was destroyed was a state of the art platform that essentially “floated” above the oil well. The oil well was in a deep water and so as a result required a flexible drilling platform to deal with the currents and wave movements in the Gulf of Mexico. In years past a drilling operation of this kind would have been economically unviable. However with Oil prices rising to above US$100 a barrel in 2008 before the GFC, and expected to return to that level once the global economy recovers, these wells are now economically viable. Deep water wells of this kind taping Liquid Gas and Oil are now becoming more common around the world. So does this mean there is the likelihood of more disasters of this kind?

In 2010 we have already seen a leak on a oil and gas exploration platform off the North West Australian coast, and these rigs are by their nature in risky environments. The BP have already declared that the risk of this Gulf of Mexico leak event occurring had been one in one million. This is not that high and they have suggested that the industry needs to reduce the risk level to one in one billion or one trillion. Indeed they should!

This environmental disaster will result in significant damage to the BP brand and probably the company’s profitability as well. Don’t be surprised if BP is total transformed in the coming year due to this event. BP have already accepted responsibility for the disaster, and are responsible for the financial claims of citizens effected, responsible for the cleanup, and Bloomberg press have suggested responsible for $1 million a day in royalties. How many companies can afford this sort of financial effect?

We need to learn from this disaster, in terms of managing environmental risk, as well as managing political and financial risk – they are all related in this disaster. Companies need to heed the consequences of disasters like this, and ensure that they do not themselves make decisions that in due time will be seen as risky. As a society we need to consider the true impact of our thirst for petroleum products. The more we consume, the greater the desire to tap these hard to get oil and gas seams, and if that is the case we open the likelihood of more disasters like this to come in the future.

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