ENVIRONMENT AND ENERGY MAY 7, 2010
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Early on Monday, BP’s boyish CEO, Tony Hayward, sat in an open-collared white dress shirt and, rocking back and forth in a studio chair, submitted to a series of four network interviews about his company’s catastrophic oil spill in the Gulf of Mexico. The questions from NBC, CBS, ABC, and the BBC differed slightly, but to all the anchors, Hayward delivered a similar line: “This is not our accident.” In other words, it's not BP's fault. Only after making that point did the 52-year-old Hayward proceed with a vow to clean up the mess and cover any damages.
Hayward is not known to be a gruff oilman. Yet his slow and defensive public response to the April 20 rig explosion has dismayed many oil and p.r. industry veterans who say that BP lost control of public perceptions virtually from the outset. Its first corporate statement after the explosion was a link to a press release from Transocean, the Swiss-based operator of the rig from which BP’s Macondo well was being drilled. And then, for almost two weeks, neither Hayward nor any other London-based executives got in front of the cameras on the scene to explain what they were doing and would do about the spill. When Hayward finally did, the British oil executive seemed intent on conveying only one crucial point—that, unlike a string of accidents in BP-run operations going back five years, this one was not inflicted directly by his company’s personnel. He bristled at comparisons with a deadly 2005 explosion at a BP refinery in Texas City, Texas. Yet, given the typically intense oversight exercised by Big Oil over important contractor-run projects such as Macondo, Hayward might as well have suggested that aliens seized control of the rig. The overall impression was that of an out-of-control catastrophe in which the company's CEO was attempting to fob off responsibility to a no-name contractor.
Now, the fallout from this clumsy response is making petroleum companies extremely nervous. Executives, not just at BP, but throughout the oil industry, are concerned that the disaster will have the effect of restricting or closing off their continued ability to drill in the Gulf, one of the few remaining places on the planet where oil producers are permitted a relatively free hand. That's why Exxon, Shell, and Chevron, which all have significant operations in the Gulf, are pitching in technical assistance—because the blowback from this disaster might harm their interests as well. "I’m really worried. I think this is Chernobyl" in terms of public opinion, says Merrie Spaeth, a Dallas-based corporate crisis consultant. “It plays to the, ‘Don’t drill, the sky is falling’ crowd."
Indeed, to understand the enormity of what's at stake in the Gulf of Mexico, you have to recall the dramatic effect such disasters have historically had on American politics. The most recent similar event was the 1989 grounding of the Exxon Valdez, a supertanker that spilled some eleven million gallons of oil into Prince William Sound, killed more than 100,000 seabirds and other animals, and dramatized the impact that a single accident can have on nature. But, in terms of overall political impact, one must go back another two decades to a more direct comparison—the 1969 blowout of a Unocal well six miles off the coast of Santa Barbara, California, which spilled around three million gallons of oil into the Pacific Ocean and was instrumental in the birth of the full-throated environmental movement that we know today.. Santa Barbara is why oil drilling in U.S. offshore waters is largely outlawed, and why President Barack Obama—even as he moved on March 31 to ease a moratorium on drilling off of America's east coast and off-limits sections of the Gulf—did not dare touch laws governing California.
The Gulf spill is already overturning attitudes in Washington. President Obama has frozen his plans to lift the drilling moratorium. Few believe that he will return to the same formulation regardless of the environmental outcome: experts predict stiffened regulation of drilling, and companies may not be permitted to produce in a wider area at all. But if the oil comes ashore and spills into the marshes of the Mississippi Delta, all drilling in the Gulf will be in jeopardy, not to mention other initiatives that affect the vital interests of energy companies.
“The public perception is that this is a dangerous, dirty business,” says Edward Chow, a former senior Chevron executive, and now a senior fellow at the Center for Strategic and International Studies in Washington, D.C. “Everything is going to be examined more closely—Arctic exploration, shale gas.” (Critics say that shale gas, a fuel source that has the potential to revolutionize American energy production, risks fouling water supplies.)
Already, California Governor Arnold Schwarzenegger has withdrawn support for a plan to re-open the state’s coastline to drilling as a way to reduce its budget deficit. “You turn on the television and see this enormous disaster, you say to yourself, ‘Why would we want to take on that kind of risk?’” Schwarzenegger told reporters in California on Monday.
Meanwhile, petroleum companies are giving the impression that the spill has caught them completely by surprise. “People in the industry are stunned,” says Robin West, CEO of PFC Energy, a Washington consulting firm. West says that the industry has been obsessively focused on safety for the last decade or so, to the point where a recent farewell party for Chevron CEO David O’Reilly included a company executive standing up to deliver a safety briefing about fire exits and other emergency preparations. Because it has created such a culture of safety, the industry assumed that a spill of any significance in the Gulf was simply impossible, as it pushed for broader rights to drill. “I’ve heard of a number of board meetings this week where it has been asked, ‘How could this have happened?’” says West.
The answer has a lot to do with BP. The company's safety procedures were obviously not up to the ambitious task of drilling at ultra-deep Macondo. And on the p.r. front, it made the mistake of not preparing ahead of time for just such an event—something that oil companies usually do as a matter of course, since at least the Exxon Valdez spill. According to Spaeth, the crisis-control expert, an elementary step to take would have been to coordinate who among the Macondo project’s partners would take charge of the public message. In addition, any standard pre-disaster plan should have included “competitive video," meaning pre-prepared company footage that can be offered up to networks as stock shots for broadcast. In BP’s case, this could have included training drills and the application of dispersants “You know there will be horrible pictures” in such a situation, Spaeth explains, so it’s important to get out company images prior to the appearance of pictures in “the dead, soiled bird stage” of a catastrophe. In addition, Hayward and other senior executives should have been put before journalists from the outset, to let them “chew on you,” Spaeth said.
Now the whole industry is furious. As it stands, says Chow, “it looks like it’s out of control, like they they really don’t know what they are doing.”
Steve LeVine, a Washington-based writer on energy and foreign affairs, is the author of The Oil and the Glory.
8 comments
Instead of spending billions on these offshore oil platforms oil companies should be developing green sources of energy. Hopefully this disaster will wake up our Congress to really start pushing for clean energy with or without the oil companies.
- bobsr
May 7, 2010 at 11:34am
I used to work for BP, and hearing the bit about the safety announcement at the beginning of the Chevron CEO's talk brought back memories of the countless safety presentations I sat through every time we had a meeting outside the office, or had a meeting in the office with people from outside. You would not believe how obsessed the company was with this kind of safety - we also had to turn in a certain number of safety cards every month where we identified safety hazards in the office like power cords in walkways, laptops improperly perched (a falling hazard, and also a repetitive-stress hazard, since the laptops were not in optimal typing position), overloaded plugs, etc. And when the refinery blew up, the company doubled-down. (Argentina shouldn't cry for them, but most senior executives had their bonuses cut dramatically after Texas City because it blew the safety targets in their performance contracts out of the water, so to speak.) Here's the lesson I take away from the latest disaster. It doesn't prove drilling isn't safe - it's incredibly safe, just as commercial aviation is incredibly safe, even though planes crash. But, despite being incredibly safe, disasters are possible, and probable over a span of time. (In the same way that it is highly unlikely that a plane will crash today, but incredibly unlikely that there will never be another.) So, if this is what "safe" drilling looks like, can we afford it? Well, we're going to need a lot of hydrocarbons for the foreseeable future, so we'll probably still have to run more risk than optimal. But, what we can't afford to do is waste energy, yet the explicit Repub position, from Dick Cheney's dissing of conservation as an unnecessary virtue to "drill, baby, drill," is that Americans have a right to waste energy. Well, we don't. Driving a Hummer may be a fun way to piss off Ed Begley, Jr., but it's unconscionable when the price is some hotel in Destin laying off workers, some shrimp fishers being put out of business and all the other terrible things the spill will bring. I hope this argument will get a better reception now that we've been reminded the hard way that safe drilling can still cause an epic disaster. Or, in Merrie Spaeth's world, now that the sky we've been warned would fall has actually fallen.
- Geoff G
May 7, 2010 at 3:06pm
The problem, bobsr, is that the cost of most clean energy doesn't come close to competing with petroleum. And the one bit of clean energy that does--nuclear--has been hammered into oblivion by environmentalists. Imagine if we would have advanced the state of the art knowledge of Lithium Ion batteries by 15 years through deep investments in the early 90's, and imagine if we could have moved to France's aggressive nuclear trajectory in the late 70's. It's very possible that right now we'd be looking at a US fleet that was 15% electric, and moving to 80% in one replacement cycle--or about 7 years. And it was all fueled by clean nuclear. The anti-nuke crowd is largely responsible for our current mess. Their objection keeps the status quo since the alternates pipe dreams.
- seattleeng
May 7, 2010 at 4:58pm
-- clean nuclear I always get the heebie jeebies when the word clean and nuclear are associated. It is particularly inadvisable when discussing responses to environmental catastrophes. -- Imagine if we would have advanced the state of the art knowledge of Lithium Ion batteries by 15 years through deep investments in the early 90's, and imagine if we could have moved to France's aggressive nuclear trajectory in the late 70's. A much more sensible imagining is that the US had taxed gasoline at the same levels it is taxed in Europe. Had it done so cars in the US would be a lot more fuel efficient than they are and we would be sending money to Washington as gasoline taxes instead of to Riyadh and Tehran in payment for excessive consumption of oil.
- ndmackenzie
May 7, 2010 at 5:58pm
ndmackenzie, are you suggesting that Europe has any less a dependence on foreign oil that the US? That is rich. They have done exactly what you have thought would solve the problem, and they are still stuck. Just like us. In fact, in the US a few years back when oil shot through the rough and gas was closing on $5/gallon, our driving reduced less than 1%. Germany is perhaps the most aggressive large-scale economy in the world when it comes to alt energy, and they dont' have a plan to get much above 35% long term, adn they are scaling back as we speak. Obama's plan on alt energy is pathetic. He is letting it grow at an annual rate about that as Bush. He also increase CAFE just 10% over Bush. You think this is going to solve the problem? Are you kidding? So given the most green friendly countries in the world don't have a plan to significantly reduce their dependency on oil, and given our most left-leaning government in decades is indistinguishable from Bush in terms of energy metrics, and given consumers have not shown a shred of restraint in the face of increasing energy prices, and given nations that have substantially higher fuel costs (due to taxes) are still just as dependent as we are.....your conclusion is what??? Keep trying the same thing over and over? I stood around a solar water heater that a neighbors dad installed in the 70's when I was a kid. It was huge. "Soon, everyone will have these in their backyards" he said. Still waiting. It's always just aroudn the corner.
- seattleeng
May 7, 2010 at 6:35pm
We need it all. Natural gas, nuclear, solar, wind, offshore drilling. In all of this we need to distinguish between "good" and "bad" production. We need, for example, to compute the real costs of drilling in the Gulf of Mexico with adequate precautions, versus the real cost of mining coal in the Appalachians, versus the real cost of a wind farm off the coast of Long Island, versus natural gas from shale, etc. etc. Then we need a realistic assessment of the oil demand in the U.S. in 2020. And some way to set the right incentives in place. So that each of these approaches is inclined toward "good" management rather than cutting out precautions. And better knowledge-sharing about maintenance and procedures.... BP's safety processes are indeed observed obsessively -- they're famous for it. But its pattern with disasters was already clear before the Gulf explosion. Nuclear, oil drilling, refining - all of that infrastructure needs to be secured. Nuclear power and offshore drilling aren't good or bad innately; their reliability depends on the way they are managed. A huge amount of technological and reputational rehabilitation is needed, all taking place with immense lack of trust, by outsiders, that either the companies or the government will keep their promises.
- art.kleiner@booz.com-old1
May 9, 2010 at 11:15am
It is not a culture of safety. It is the culture of finance: securitization and collateralization. Look at the values Deepwater Horizon was collateralized at, insured for, and taxed on. It is a culture of legalism: due diligence and compliance, soon to be followed by negotiation and settlement. BP will pay for all the lawyers, some of the damages, and, of course, no penalty. Sadly, this just complements a political culture of bi-partisan concession-tendiing and a bureaucratic culture culture of making rules and issuing waivers -- JUST LIKE COAL MINING. This is the whole pattern of Anglo-American extractive industry, formerly plantations and mines worked by immigrants or slaves. I am all for nuclear power and deepwater drilling. But, where is Admiral Rickover?
- JRBehrman
May 23, 2010 at 9:22am
"the cost of most clean energy doesn't come close to competing with petroleum. And the one bit of clean energy that does--nuclear--has been hammered into oblivion by environmentalists. Imagine if we would have advanced the state of the art knowledge of Lithium Ion batteries by 15 years through deep investments in the early 90's, and imagine if we could have moved to France's aggressive nuclear trajectory in the late 70's" Seattle...you're flat wrong on nuclear energy coming close to competing with petroleum. Unless you define competitive as requiring 90% Federal subsidization and PUC guarantees for fee pass-on to consumers. And it wasn't environmentalists that beat it dead into the ground, it was a combination of the Three Mile Island accident and private investors balking at the cost because it isn't profitable. The sad reality is that the ONLY way nuclear power can be feasible is if the Feds run the program. But that would mean "socialized" electricity. I'm not one to quote CATO institute but even they realize that the cost of nuclear as a "private" industry is not feasible. http://www.cato.org/pub_display.php?pub_id=3134 The U.S. was on the path to ramped up battery and renewable energy development technologies in the 70s coming out of NREL but when Reagan came into office. In fine Republican fashion, eviscerated the funding of NREL and other Federally funded research into renewables and applied technologies and instead favored what we "do over and over again." Subsidize oil and gas at the expense of any other energy sector. After 8 years of hearing that "energy conservation" is a virtue, I would suspect a quantum leap from Washington on the energy front within the first year of Obama's administration. That they're addressing it now, I could only wish it were more aggressive on multiple levels.Tying conservation with renewables, controlled and regulated natural gas extraction, as well as taxing behavior to get people to move towards being more energy cost conscious. And that includes not just the monetary cost but the socio-economic and environmental cost impacts of energy production. And if Obama is acting as the most liberal administration in over a decade, I'd hate to see what a truly left-leaning administration's energy policy would be.
- singlspeed
June 10, 2010 at 4:07pm