New offshore regulations targeted at preventing emergency situations like BP’s Macondo come with $31-billion price tag: API
The Obama administration will issue new regulations for offshore oil and gas operators this Thursday. The regulations will require more preventative measures to be used in offshore oil wells in order to avoid blowouts like the one that took place at BP’s (ticker: BP) Macondo well.
The final measure did give some ground to the industry, Bloomberg reports, but could still cost tens of billions of dollars to implement, potentially hurting future investment into the Gulf of Mexico, which is expected to produce about 17% of total U.S. output.
The Interior Department’s Bureau of Safety and Environmental Enforcement, which developed the measure, estimates that it will cost $1 billion over the next 10 years, but studies from various oil and gas industry groups have placed the price tag much higher.
The American Petroleum Institute conducted a study of the draft rule and came to the conclusion that the new rules would cost $31.8 billion over the next decade. A separate study from Wood Mackenzie for the Gulf Economic Survival Team, estimated that the rules would also cut exploratory drilling in half, or by about 10 wells a year.
As proposed last year, the new rules would require more frequent testing of the blowout preventers used in offshore wells, while mandating continuous monitoring of deepwater projects. The draft rule also require operators to maintain a newly defined “safe drilling margin” that specifies the precise balance between the drilling fluids that are pumped under the sea floor and the amount of pressure the underground formation can take before it cracks.
Oil companies said almost two-thirds of the wells drilled in the Gulf of Mexico since 2010 wouldn’t meet the proposed requirements. They asked that they be given more flexibility to deviate from the drilling margin standards without waiting for approval from regulators.
The final rule will give more discretion on the timing of equipment tests, reports Bloomberg. The measure regarding a safe drilling margin is still expected to be included with a process for offshore operators to seek variances from standard.
Offshore regulators are worried the costly regulations will hurt future investment, but the Department of the Interior said the new regulations dovetail existing practices.
“There’s been a lot of alarmist language associated with the rule,” Interior Department’s Bureau of Safety and Environmental Enforcement Director Brian Salerno told reporters March 2. “To believe that, you have to almost ignore the way the agency has historically operated, where we’ve had that dialogue, that back and forth with the industry in the permitting process. There’s no intent to change that process, that dialogue.”
Oil companies do understand the need for regulations to prevent any repeat of a blowout of that magnitude, one that is considered the largest accidental marine oil spill in the history of the petroleum industry.
