- The Guardian: HSBC failed to act on money laundering, says US Senate
- REUTERS: Alstom says fined for negligence in Swiss bribery probe
- The STAR: NGOs add new twist to IOI-RSPO issues
- UN HABITAT - State of the World's Cities 2010/2011 - Cities for All: Bridging the Urban Divide
- Open Forum on Social Responsibility, 14 December 2010, Kuala Lumpur
|The Price of Oil|
|Written by Mohana|
|Thursday, 03 June 2010 22:31|
The current unfolding saga of the subsea blow-out in a BP-operated oil well in the Gulf of Mexico begs many questions, not least: what happened? And when we look at the answer to that, the next question is: why doesn’t this happen more often? This article explores the answers and draws comparisons with similar oil and gas incidents in the Asia-Pacific region. The global oil and gas industry is huge; 82,000 oil and gas wells were drilled in 2009. Drilling for oil is a remarkable feat, considering the natural, physical challenges which man must overcome to access the reserves of fossil fuel. Oil can be trapped in reservoirs that are hundreds of metres – kilometres, even – under rock; this rock can lie as much as several kilometres beneath sea level; and, when the oil is struck, the temperature of the oil can be as high as 200° Celsius (enough to melt much of the traditional equipment used in drilling) and the pressures around 200 bar (or 3000psi, which can crush the aforementioned equipment). So, is it any wonder that there are accidents given these conditions? When they do happen the commonly used term is a “blow-out”, used to describe an uncontrolled release of either oil or gas resulting from a failure of the drilling system’s pressure control. Images of fountains of oil spring to mind – and such “gushers” used to be fairly common in the industry.
Now however, there are relatively few uncontrolled blow-outs in the industry, for several key reasons: the first is that the extreme conditions often defeat drillers until, that is, they develop the sophisticated and robust technologies required to overcome them; the second is that the oil and gas is a high risk sector and as such it deploys rigorous health and safety measures; and thirdly, there is vast experience shared amongst the personnel who work in the oil and gas industry. As a result of these three factors, drilling companies now deploy “blow out preventers”, a valve system specifically designed to control and prevent any high pressure releases when drilling for oil and gas. But, as we have seen in recent weeks, these blow-out preventers do not always do what they should.
In the case of BP, the blow-out happened in 1600metres of water and at 150 bar (over 2000psi) and the company is now dealing with two leaks (having already repaired one) in different places on the subsea infrastructure. The deepwater conditions are making repairs very difficult and the global media is speculating anxiously about the volumes of oil being released into the Gulf of Mexico. Official estimates stand at about 5,000 of barrels a day, which incidentally is about one to two per cent of the volume of oil discharged by ships into the oceans annually. And although the oil continues to spew from the depths of the Gulf of Mexico, it is safe to say that BP is under immense pressure from almost every angle to stem the flow as quickly as possible and at whatever cost, in order to minimise the damage to the environment and ecosystems along the coast of the United States of America.
Meanwhile however, in the Asia-Pacific region, other blow-outs have happened in recent years and have not generated anywhere near the same volume of media frenzy and public outrage as the current BP crisis. Perhaps because the companies which have been responsible are not international “oil giants” and thus aren’t subjected to the same stakeholder scrutiny as BP. Or maybe it’s because the media in America are so efficient at raising awareness of such incidents. But whatever the reason, we should not assume that just because we haven’t heard about blow-outs in the rest of the world they don’t happen.
From August to November 2009, oil leaked into delicate marine ecosystems as a result of a blow-out in the Timor Sea, off the northern coast of Western Australia. The Montara oil spill happened under the watch of PTT, the Thai state-owned oil company, whilst the sub-contractor Seadrill was operating the rig which malfunctioned. It took five attempts to stop the leak on the Montara well, during which time enough oil was released to threaten the diverse wildlife that inhabit and migrate through the surrounding waters. In addition, the livelihoods of as many as 7,000 Indonesian fishermen were affected as oil reached the seas surrounding Timor and Sumba. PTT reports that it has a theory about what went wrong on the Montara well and it will not comment further. The report from the investigation into the incident is due to be published in June this year, but the untold damage to the environment may take years to fully understand.
As reported in previous CSR Asia blogs and newsletters, yet another blow-out in Asia causes concern – the Sidoarjo mud volcano in Indonesia. A report published in February 2010 said that “the strongest evidence to date” linked the local energy firm, PT Lapindo Brantas to the mud volcano in East Java. Since 2006, hot mud has been escaping in huge volumes (30,000m3 a day, equivalent to more than ten Olympic-sized swimming pools) in a region near Surabaya, Indonesia’s second-largest city , and the flow has displaced nearly 60,000 people from their homes. PT Lapindo Brantas denies that its onshore drilling activities caused the eruption of mud and instead blames an earthquake that occurred 250km away in Yogyakarta. However, scientists have found that in its efforts to control the flow of mud, PT Lapindo Brantas pumped heavy mud into its oil well and partially stemmed the flow, thus linking the drilling activities inextricably to the cause of the disastrous mud volcano and suggesting a blow out of enormous consequences. The local villages and infrastructure remain threatened by the sporadic eruptions even today.
The blow-outs caused around the world by drilling for oil and gas may be rare, but they can have monumental impacts on the surrounding environment, as seen in the Gulf of Mexico, in Timor Sea and onshore in East Java.
And so, as this article started with questions, it will end with more: Should we hold the oil companies responsible for such accidents down their supply chain? In each case, the oil and gas operator (BP, PTT and PT Lapindo Brantas) sought to blame either their subcontractors or forces of nature for the accidents on their activities. This deflection tactic is unacceptable for many other industries. For example, apparel companies were taken to task for abuses of labour rights in their supply chains in the 1980s and as a result many big names address this issue in earnest today. Equally, food and consumables manufacturers are expected to source palm oil from sustainable plantations only. Why then should the oil industry be exempt from the mishaps in its supply chain?
Another consideration regards the risk of such oil and gas exploration: is it acceptable? It must be worth it to the oil companies, which are prepared to undertake such ventures. So what makes it worthwhile for the companies, other than the demand and the price paid by the consumer? Whilst many members of the public are horrified by the unfolding BP situation, do they recognise their own role in creating the demand for oil and its many derivatives?
And finally, a bigger question is perhaps more worrying: as man pushes the boundaries of oil exploration (to recover every last drop on the planet), we will encounter yet more challenging physical conditions: deeper water, higher pressure and more extreme temperatures. This does not bode well for the number of blow-outs that might occur, nor does it look good for Asia-Pacific, which features heavily in the plans for deepwater drilling. As demand for oil continues, and the risk of more blow-outs and damage to ecosystems and populations increase, what will be the true price of oil?