An unrelenting gush of oil with no end in sight is a globalization nightmare, killing marine life and livelihoods. Recently, this is what happened along the United States’ Gulf coast, when a BP platform began leaking oil, and hopefully the episode will transform energy, environment and trade politics in places far from the Gulf coast.
The BP spill divided two longtime allies, sparking fierce populist anger on both sides of the Atlantic. As corporations and multiple layers of government fumbled to control the oil, American citizens blasted BP, which was known as British Petroleum before 1998. Meanwhile, investors confront paying up for distant disasters, the energy industry anticipates new regulations and costs, neighboring nations wait for oil to wash up on their shores and developing nations review drilling arrangements with foreign firms.
The US already negotiated a plan with BP, the world’s fourth largest company, to withhold dividend payments until the end of the year and set aside $20 billion in escrow as a starting point to pay for damages and hustle more clean-up equipment to Gulf.
As the crisis continued, charges and countercharges flew across the Pond thick and fast. British politicians and commentators charged that the US, seeking discount prices for oil, cut corners on oil-drilling safety regulations, allowing the disaster. The fact is, as of December 2009, American and British investors held roughly equal shares of BP stock, about 80 percent in all. So the suspension of dividend hurts investors on both sides of the Atlantic. Contrary to media reports, the impact on British pension funds was negligible. BP represents less than 2 percent of the typical UK pension fund portfolio.
Still, investors and policymakers scrutinize prices, habits and regulations around the globe. For example, a gallon’s worth of BP gas costs about $6.50 in England. American consumers pay less than half that price.
The oil spill catastrophe highlighted how good governance and vigilance protect the environment and safeguard the interest of investors. Neither American nor British regulators required the state-of-the-art remote equipment for deep sea drilling that might have stopped the flow of oil after the explosion. The BP experience suggested that other oil firms can anticipate similar punishment by foreign governments for future mishaps. Exxon-Mobil Corporation, the world’s second largest firm, claimed a “diverse” geographic portfolio in its 2007 annual report: Two-thirds of its projects are beyond the “Americas” – and the bulk of “key exploration captures” listed that year are offshore in Australia, Greenland, Canada, Libya, Indonesia, New Zealand and the Gulf of Mexico.
The disaster demonstrated how oil is a global affair. The BP, or Deepwater Horizon, drilling rig was built in South Korea for drilling firm R&B Falcon, based in Texas, which was purchased by Transocean, based in Switzerland, partly for tax reasons. The rig was insured for $560 million – and major insurers are based in the US, Switzerland and the UK.
Costs for insuring drilling vessels and operations, let alone neighboring properties, could now rise by as much as 50 percent, some analysts predict. Europe sent gear to aid in the clean-up and technology for robots and autonomous underwater vehicles that attempt repairs was developed by researchers in Norway, Scotland, Japan, Singapore, the UK and the US.
The crisis also spotlighted the oft-mentioned US addiction to oil. The US economy depends on oil, using 25 percent of the world’s supply for more than 40 percent of its total energy demands. The country has one fourth of China’s population, but uses nearly three times more oil.
“For decades, we have talked and talked about the need to end America’s century-long addiction to fossil fuels,” Obama noted in an Oval Office address. Yet, development of alternative fuels is far on the horizon, hardly keeping pace with economic growth in the developing world. The International Energy Agency reports a wide range in the 2004 share of renewables, warning of varying calculations: 40 percent in Brazil; 15.6 percent in China; 4.2 percent in the US; and 1.5 percent in the UK.
Meanwhile, despite rhetoric about ending dependence on foreign oil, about 57 percent of petroleum used in the US is from foreign sources, according to the US Department of Energy. Top countries supplying the US include Canada, Mexico, Saudi Arabia, Nigeria, Venezuela, Iraq, Angola, Algeria, Colombia, Brazil, Russia, Ecuador, the UK, Kuwait and Congo. The department promises, “Our dependence on foreign petroleum is expected to decline in the next two decades,” but that depends on “the increase in crude oil production in the Gulf of Mexico and elsewhere.”
Ocean waters remain a lucrative target for oil companies. Six years ago, BP’s deepwater facilities technology team estimated that more than half of its field development would be in deep water by 2012. “It’s therefore imperative we get our technology right, and that it works first time,” David Brookes foreshadowed in 2004, labeling depth, pressure and temperatures as challenges. “Intervening to remedy problems in these water depths is a very costly business.”
Reliance on foreign oil, deep-sea domestic drilling and
fossil fuels is unsustainable. Business leaders have called for a new US energy strategy, with increased research investments from $5 billion to $16 billion, as well as a hike in green cards for foreign engineers to work on the project.
Only higher prices for consumers force a change of habit. Obama’s demands, along with new regulations and insurance conditions for BP, will hike global crude-oil prices. Higher prices prompt conservation, reducing demand and permanently changing consumer behavior, as Saudi ministers repeatedly remind fellow OPEC members. Members of the US Congress, facing election in November, however, tend to be keener on theatricals than on passing an energy bill. Oil companies, after all, dominate the business world – seven out of top 10 Fortune’s Global 500 are oil and gas firms and remain major contributors to political parties.
Meanwhile, the US moratorium on offshore drilling could encourage governments to rethink regulations for deepwater Chinese leases off the coast of Brazil, Argentina, Africa, the Middle East and Cuba. Already, Brazilian oil and government officials have expressed interest in oil rigs stalled in the Gulf of Mexico for offshore wells deeper than BP’s.
The world confronts a stark choice. Consumers can keep making bargains with oil and gas giants, minimizing regulations in exchange for low prices, allowing those who profit from declining fossil fuels to poison oceans and air shared by all. Or consumers can make sacrifices – imposing regulations and carbon taxes, requiring disaster preparation and development of sustainable sources of fuel.
Energy is the foundation to a modern way of life. Delays in conservation and development of renewables can only lead to more of the chaos recently on display in the Gulf of Mexico.
Susan Froetschel is a journalist and the author of three mystery novels, the most recent being “Royal Escape.” This commentary is reprinted with permission from YaleGlobal Online (www.yaleglobal.yale.edu). Copyright © 2010, Yale Center for the Study of Globalization, Yale University.
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