National Commentary

The Peak Oil Crisis: The Deepwater Horizon

It has been nearly a month since the tragic events aboard BP’s drilling rig, Deepwater Horizon, which suffered a blowout, caught fire, and sank in the Gulf of Mexico releasing prodigious amounts of oil into the sea. So far there has been little damage to the coastline; however, this could change quickly as oil is still pouring from the damaged well pipe and it could be months before the blowout is brought under control.

The possible damage to the environment ranges anywhere from minor, which is doubtful, to wiping out the seafood and tourist industries along the Gulf coast for many years.

Although BP and the government continue to talk about a leak of only 5,000 barrels a day based on photography of the surface slick, numerous outside observers who have viewed video footage of the broken pipe are saying this figure may be an order of magnitude too low. Thus far BP has refused to deploy instruments that could give a more accurate appraisal of the amount of oil spewing into the Gulf on the grounds that stopping the leak, not its size, is what matters.

No matter how much environmental and economic damage results from the Deepwater Horizon blowout, the ramifications of the spill are likely to linger for decades and have a major impact on the availability of deepwater oil as we enter the era of oil depletion. The U.S. government has already put a temporary hold on additional drilling until the facts of the current situation are clarified. The oil companies who are used to minimal government interference with their activities are already raising objections to the possibility of tougher regulation.

From what is known so far, it is clear that offshore drilling came to be seriously under-regulated in recent years with few inspections and little or no penalties for violations. Deepwater offshore drilling has become so expensive – the Deepwater Horizon costs on the order of $1 million a day to operate – that site managers are under heavy pressure to complete projects as quickly as possible and move to the next job.

Another serious problem for the prospects of future oil production is starting to emerge.

The oil industry is said to have largely written the regulations and the government simply ratified what was presented. The Obama administration has already moved to split the regulation function from the Mineral Management Service and place it in a separate agency dedicated to safety and the prevention of further accidents. Although there will be much raucous discussion, It seems likely that heavier regulation, with higher, more expensive, standards, is on the way and that could delay future deepwater drilling projects by months or years.

Shell, which is about to start drilling in Alaska’s Chukchi and Beaufort Seas, has filed new safety plans for their proposed projects. The administration is obviously going to take a very hard look at drilling in areas that are hundreds or even thousands of miles from help if something should grow wrong. It is one thing to drill in the Gulf of Mexico where all sorts of emergency equipment is available within a matter of hours and quite another to drill in the sparsely settled polar regions. The Norwegian and Canadian governments are starting to raise questions about the standards for offshore drilling and are likely to adhere to whatever recommendations come out of the investigations of the Deepwater Horizon disaster.

Yet another serious problem for the prospects of future oil production is starting to emerge. The deepwater wells, on which we are basing much of our energy future, may not be as productive as previously thought. Until recently the poster child for deepwater oil production was BP’s Thunderhorse platform that, after years of delay, started producing in 2008 and was supposed to produce a billion barrels of oil at the rate of 250,000 barrels a day (b/d). At first all seemingly went well with production reaching 172,000 b/d in January of 2009, but then production started falling rapidly to a low of 61,000 b/d last December. BP refuses to comment publicly on what is happening at Thunderhorse, but outside observers are growing increasingly skeptical that the platform will ever produce the planned billion barrels. At least 25 other deepwater projects are said to be facing problems of falling production, raising the question of just how much oil these very expensive deepwater projects will ever produce.

Pressure for regulatory reforms is likely to be based on just how much environmental and economic damage the Deepwater Horizon blowout ultimately causes. If BP contains the leak in a relatively short period of time and there is minimal damage to the seafood industry and coasts, then new drilling could resume shortly. However, if the situation deteriorates further and major coastal damage ensues, then offshore drilling is likely to slow significantly until new regulations are approved and more reliable blowout preventers are developed and deployed.

The battle over tougher regulations is likely to be prolonged and nasty. President Obama has vowed to end the “cozy relationship” between companies and regulators. Testifying before Congress earlier this week, Interior Secretary Salazar said that the oil industry is already characterizing efforts to reform regulations as “impediments and roadblocks to the development of our domestic oil and gas resources.” The Secretary called for federal regulation of blowout preventers which are supposed to ensure that spills of the scale of the Deepwater Horizon incident can’t happen.

Recommendations stemming from the recently announced independent Presidential Commission on the tragedy will likely have much influence on the course of deepwater drilling and thus the availability of oil in the future. Should the Commission conclude that much tougher regulation is necessary, it is difficult to see how the oil industry, even with its considerable clout in the Congress, can resist the calls for reform. Oil might just become far scarcer and more expensive five years from now than most of us think.


Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.