Business Costs & Regulation

A New Global Focus: Oil Spill Prevention

Oil-producing countries will tighten their rules -- but not to the point of restricting output.

The U.S. won’t be the only country tightening up on deepwater oil drilling in the wake of the Deepwater Horizon oil well disaster. The U.K., Brazil, Mexico and Canada, as well as the U.S., will insist that offshore oil wells be outfitted with acoustic switches. Such systems, now required by Norway, are anchored near a well to trigger blowout preventers. They activate when they detect sounds indicating something is amiss, such as oil rising too quickly or natural gas bubbling up.

The U.S., U.K., Brazil, Mexico, Canada and Norway are likely to establish permanent spill response centers, requiring oil companies to pay for stockpiling materials needed to minimize damages. The U.S. has a program in place, funded by refiners, but it only pays out if the government can’t decide who’s responsible for a spill, or rules that an involved company is blameless.

Odds are the U.S. will adopt a well-by-well review and approval process,replacing the blanket approval the feds now give drillers using industry accepted standards. The new process will require the oil companies to prove to the regulators' satisfaction that they have devised technologies and systems that would staunch an oil flow if that well failed. Drillers also will be required to show they have a plan to mitigate any oil leaks.

African nations may follow suit. Other Western Hemisphere and European countries already require that each drilling operation be considered a unique proposition. But all countries will avoid overly tough restrictions that could crimp output.

More draconian measures will get an airing, but they’re unlikely to be adopted. For example, the government won’t require U.S. oil companies to drill an emergency relief well alongside each new well in water 1,000 feet or deeper.

The U.S. also won’t declare an outright ban on drilling oil wells in water of that depth. Doing so would hurt U.S. producers and help foreign competitors “because it is very likely (similar bans) won’t be required off of West Africa, Cuba, Brazil or other places where there are vast amounts of oil” in deep water, says Philip Sharp, president of Resources for the Future, a think tank focused on worldwide environmental and natural resource issues.

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