Will the BP spill transform the oil business?
I was asked to appear on Radio 4’s special programme BP: Beyond the horizon and the Macondo disaster. Would it transform the firm and the oil business? I’m clinging to the idea that it won’t much, but with one big caveat. Here’s the crib I prepared….
(1) The caveat.
The next months of severe weather may produce horrible new auguries. We’ll see. If the Macondo spill is or causes or triggers an unparalleled ecological disaster all bets are off. However, even if the Gulf suffers quite severe effects, there will be a colossal argument as to how much of the damage is from the present spill. It may be that the conclusion settles down to this: the Gulf has needed better care for several decades, and there is a limit to how much BP should made to pay for historic damage which its accident has worsened.
(2) It is likely that BP was in the process of becoming, under Tony Hayward, more of an engineering company. The next few months will reveal the degree to which this was true, and if, and then why, this message failed to reach the Macondo operation. It doesn’t seem very likely that BP was very far from being as technically competent and as safety-conscious as other majors.
(3) It is likely that all oil companies will have to prove themselves increasingly safety-aware, just as all regulators will have to show themselves cleverer at their work. This will impose new costs on exploration and much else. But these won’t be transformative, surely?
(4) If BP loses its current CEO and Chairman, or either one, as sacrifical lambs, that may slightly effect the company for better or worse, but in itself wouldn’t be a transformation.
(5) As BP cashes in some assets to fund its liabilities in the Macondo aftermath, that may improve rather than damage its financial prospects (make it a more coherent or profitable firm, for instance). It may not amount to a transformation so much as a valuable readjustment.
(6) In the bigger picture I can’t see how the Macondo spill will hugely change the logic of the USA’s desire to shift from a 60-odd percent oil import dependency and back to the historic 30 percent dependency. The foreign sources of oil and gas are not getting notably more secure or agreeable as the years pass. The spill won’t much dent the US’s appetite for home-sourced oil.
(7) People who want the US to embrace high-cost fossil fuels as a response to climate change have latched onto the Macondo spill though damage to the Gulf Coast is not related to climate change (or not much, yet). Even if the link was made, and the US citizen accepted a tax-hike to European levels (none of which is immediately probable), demand for oil would be high, and demand for Gulf oil (including deep-sea Gulf oil) would surely be barely dented.
(8) Taxing fuel is a tense political business. The UK adds about 70 percent in taxes to oil prices and the US about 25 percent. So notionally there’s room for manoeuvre in the US. But politicians usually set taxes at levels which maximise revenue, or at least optimise it. Very few dare set taxes at levels which change behaviour, not least because such levels would be punitively high in political terms. And there is a further dimension: if “carbon” taxes were very high, income and employment taxes would have to be reduced, so people would feel rich and maybe rich enough to pay quite a lot of carbon tax.
(9) All in all, it isn’t clear that the Macondo spill will bring about or even much encourage the political drivers for radical transformation in the US or global oil business. BP may change hugely, but that’s far from ceratin. The accident will encourage better safety measures, maybe produce a leaner and cleverer BP, maybe spur a new health regime for the Gulf coast, maybe promote more discussion and awareness of the wider risks of the oil economy, including climate change.
(10) Meanwhile, it’s important remember the men who died in the initial explosion. More generally, I should say that I write all the above with the feeling that I hate scapegoating and grandstanding, and have a strongly believe that things do getter better almost all the time, especially in the West, and especially because we take risks and learn from our mistakes.