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Gulf of Mexico Oil Spill

Volume 719: debated on Monday 14 June 2010


My Lords, with the leave of the House I will repeat a Statement made by my right honourable friend the Secretary of State for Energy and Climate Change in another place. The Statement is as follows.

“The House will wish to join me in expressing our deepest sympathy for those bereaved or injured in the explosion on 20 April, and for all the individuals and communities affected by spilling oil, or fearing that they will be affected over the days and weeks to come. Our thoughts must be first with them. On 20 April, an explosion and subsequent fire on board a drilling rig operated by Transocean, under contract to BP, in the Gulf of Mexico tragically killed 11 workers. On 22 April, the rig sank. On the seabed, 1,600 metres below, substantial quantities of oil were leaking into the ocean. The blow-out preventer, which should have sealed this leak, failed. The causes of the accident are now subject to a US presidential commission of inquiry and to civil and criminal investigation.

There has never been such a large leak of oil so deep in the sea. Attempts by BP, working under the direction of the US authorities, to seal the leak were not successful. The company then pursued a strategy of capturing as much oil as possible. In recent days, more than 15,000 barrels a day of oil have been recovered. However, it is also now thought that the leak is worse than previously thought. The US Government’s estimate of the daily flow of the leak is now 35,000 to 40,000 barrels per day. BP hopes to be able to increase significantly the amount of oil it is capturing, but very large quantities of oil continue to be released into the sea. Moreover, the leak will not be fully stopped until August at the earliest, when the first relief well which BP is already drilling should enable the original well to be plugged. There is also an enormous operation to address the impact on the environment of oil already in the water. Working under US Coastguard Admiral Thad Allen, over 2,000 boats have been involved, skimming the water and using dispersant chemicals. Thousands of workers and volunteers onshore are removing oil and maintaining coastal defences. The House will wish to join me in paying tribute to those involved in this work.

We understand and sympathise with the US Government’s frustration that oil continues to leak at the rate it does. To appreciate the scale of this environmental disaster, each week a quantity of oil equivalent to the total spillage from the Exxon Valdez is escaping into the Gulf of Mexico. The US Administration have said that BP is doing everything asked of it in its effort to combat the spill. We of course look to the company to continue in this and will do everything we can to help. The key priority must be stopping the environmental damage. In their phone conversation at the weekend President Obama reassured the Prime Minister that he has no interest in undermining BP’s value, and that frustrations in America have nothing to do with national identity. We have offered the US authorities dispersant chemicals, and will respond quickly and sympathetically to any request from the US authorities for help.

Honourable Members will remember that in 1988 the Piper Alpha rig in the North Sea exploded, with 167 fatalities. Following that disaster, our regulatory regime was significantly tightened, and we split the functions of licensing and health and safety in the UK. The US has announced that in future in the US these functions will be dealt with by separate organisations. We hope that we have useful experience to offer of building and operating such a system. Officials from my department and the Health and Safety Executive have been discussing this with their US counterparts. Here in UK waters, it is my responsibility to make sure the oil and gas industry maintains the highest possible standards. I have had an urgent review undertaken.

It is clear that our safety and environmental regulatory regime is already among the most robust in the world. The industry’s record in the North Sea is strong. However, with the beginning of exploration in deeper waters west of Shetland, we must be vigilant. Initial steps are already under way, including doubling annual environmental inspections by DECC to drilling rigs. I will review our new and existing procedures as soon as detailed analysis of the factors which caused the incident in the Gulf of Mexico is available, building on the work already begun by the newly formed Oil Spill Prevention and Response Advisory Group. Given the importance of global deep-water production during our transition to a low-carbon economy, I will also ensure that lessons and practice are shared with relevant regulators and operating companies.

I now turn to the position of BP. It is hugely regrettable that the company’s technical efforts to stop the spill have, to date, been only partially successful. I acknowledge the company for its strong public commitment to stand by its obligation to halt the spill, and provide remedy and payment of all legitimate claims. As BP’s chairman has said, these are critical tasks for BP, which it must complete to rebuild trust in the company as a long-term member of the business community in the United States, in the United Kingdom and around the world. BP remains a strong company. Although its share price has fallen sharply since April, the company has the financial resources to put right the damage. It has exceptionally strong cash flow, and will continue to be a major employer and vital investor here and in the USA. In many ways, BP is effectively an Anglo-American company, with 39 per cent of its shares owned in the US, against 40 per cent in the United Kingdom.

There has been much speculation in the press about the impact on UK pension funds and whether the company will pay a quarterly dividend. This is entirely a matter for the BP directors, who will no doubt weigh all factors and make a recommendation to their shareholders that is in their best interest—which of course includes the best interests of many UK pension funds. Many citizens have real and legitimate worries about their pensions, but I reassure the House that not only is BP financially sound but pension funds that hold BP shares generally also hold a very diverse portfolio of assets. Their exposure to a single company, even a company as economically important as BP, is limited.

In concluding my Statement, I wish again to express the Government’s profound sympathy to those in the US affected by this accident and its aftermath. The priority must be to address the environmental consequences of this spill. Our concentration is on practical measures that can help in this. This disaster is a stark reminder of the environmental dangers of oil and gas production in ever more difficult areas. Coupled with the impact of high-carbon consumption, this highlights yet again the importance of improving the energy efficiency of our economy and the expansion of low-carbon technologies. We must and will learn the lessons of these terrible events”.

My Lords, that concludes the Statement.

My Lords, I start by thanking the Minister for giving advance notice of the Statement and for keeping the House informed of developments. I join him in expressing sorrow for the 11 people who died in the original accident, for those who are injured and for the many communities affected. It is a reminder of the dangers that come with life in the oil and gas industry, as we saw in the North Sea last year and, as he said, in the Piper Alpha tragedy so many years ago. We owe a great debt of gratitude to those who work in such a crucial industry. I also join him in expressing concern about the environmental impacts of the spill, which cannot be underestimated. The efforts being made to try to minimise the damage are to be applauded and supported. I agree that the key priority must be to stop the environmental damage. I am glad that this country has offered help to the US authorities. Has that help been accepted? Does the Minister acknowledge that his department’s international energy division has enormous experience and expertise to offer in that regard?

I wish to ask the Minister more specific questions arising from the Statement. First, given the scale of the spill and its consequences, there can be no question that those responsible must be held accountable. However, that accountability should be judged and discharged fairly. I have noted his comments on the position of BP. Does he agree with me that all the companies involved—Transocean, Halliburton, BP and others—should be subject to investigation, and that finger-pointing at BP alone is unhelpful? I echo his remarks about BP’s importance and strength as an international company.

Secondly, does the Minister agree with me that any process of learning lessons needs to look not just at the actions of private companies but at those of the United States Minerals Management Service and at the general level of regulatory standards for deep- water drilling in place in the US and around the world? Will he comment on his specific understanding of the regulatory standards in place in the Gulf of Mexico, and whether they were relaxed in any way?

Thirdly, in the review that he has announced of the UK’s licensing regime, including that for drilling in deep waters such as west of Shetland, will he confirm that not only will the lessons of the incident in the Gulf of Mexico be fully learnt but that our own regulatory and licensing capacity will be enhanced, not diminished? Is it not ironic that we learnt only over the weekend of the coalition’s review of health and safety law? It is very easy to sneer at and criticise the Health and Safety Executive, but I am proud of its achievements since the passage of the Health and Safety at Work Act. Will the Minister assure me that this review will not undermine the effectiveness of the Health and Safety Executive in the North Sea? I pay tribute to the work of the Minister’s department, based in Aberdeen, which licenses oil and gas in the UK continental shelf. I had the privilege of visiting the department’s office in Aberdeen on a number of occasions and was impressed by the commitment, dedication and hard work of its staff. Will he assure the House that the requirement to ensure an effective licensing regime in the North Sea will be fully taken into account in any budgetary cuts envisaged in his department?

Fourthly, does the Minister agree with me that the central lesson of what happened in the Gulf is that the world cannot simply rely on digging deeper and deeper for oil? Following the Prime Minister’s call with President Obama, I was disappointed that there was not a clearer message from both sides of the Atlantic on the need to make the transition to a post-oil economy. In that context, does the Minister agree with me that the best thing that could emerge from this tragedy is a renewed push towards low-carbon energy, with Europe moving to 30 per cent emissions reductions, America passing a climate and energy Bill and the securing of an international treaty at Cancun in December?

The Statement emphasises the need to expand low-carbon technologies. Does the Minister agree with me that we need to play our part by maintaining, not cutting, the industrial policy support for the low-carbon transition, including the money for Sheffield Forgemasters, ports for offshore wind and support for tidal and wave power? Why are the proposed loans to a number of key companies in that sector now in jeopardy? Will he commit to report further to this House on the important matters contained in the Statement?

I thank the noble Lord for an excellent speech, as we would expect from someone who has only recently left the department. I will pass on his tributes, which will be warmly received, as I passed on their tributes to the noble Lord at an earlier Question Time.

The noble Lord asked whether help had been accepted. The answer is yes. We have had a very good dialogue across the water since this dreadful event occurred. This is amplified by the fact that the American Government will adopt the excellent measure that we initiated—both Governments were very heavily involved in this to their great credit—of separating the Health and Safety Executive from licensing. That is a fundamental issue. As yet, our help in providing such things as detergents has not been accepted—I think because the Americans feel that they have that in hand. As to our future regulatory standards, the Minister and the department have carried out a very quick and detailed review. I am sure the noble Lord will be pleased to hear that we have seen nothing which suggests that we do not have very high standards in all that we have done in the North Sea. The previous Government should also be congratulated on all the fine work that they have done in that regard. However, we have set up OSPRAG to review the aftermath of this incident. That body has practitioners from the industry and is chaired by Mark McAllister, the chief executive of Fairfield, an oil operating business. They will have already met and are earnestly reviewing the situation.

I make no comment on budgetary cuts until after the Budget—noble Lords would not expect otherwise. However, I completely agree with the noble Lord—this was made clear in the Statement—that we must accelerate the development of low-carbon energy that he so carefully pronounced.

My Lords, I thank the Minister for repeating the Statement. He will be aware that many of BP’s US assets, particularly those in the Gulf, came via the takeovers of Amoco and ARCO. Is there any evidence to suggest that these operational assets were not properly integrated within the BP structure and have been managed almost as a quasi-independent operation? Can I push the Minister further on the US regulatory regime, because there is a view in the industry that the US has failed to learn from the lessons of others, particularly those learnt in the North Sea? I understand that some aspects of drilling this particular well would, for example, have been illegal in the North Sea.

I thank the noble Lord for his two questions, both of which were extremely valid. I can state categorically that there is no evidence that this project was not managed properly. I think that I am right in saying that Transocean is the largest contracting operator in the world. It has great experience and this was very much an integrated programme. On US regulation, as I have mentioned, I am sure that there will be a lot of deep thinking—as there always is after such a tragic and dreadful environmental disaster—by the US Government, who will be searching deeply for the changes that they should make. We commit to keeping noble Lords advised on those developments.

My Lords, whatever the ultimate cost of this tragedy to the oil companies concerned, can the Minister give a broad indication as to the extent to which those companies are covered by their various insurers?

Obviously, I cannot go into specific detail as to insurance coverage; that is for the companies and their balance sheets. I admit that I used to be in the insurance business and have a rough idea of what is going on. I am sure that some insurance salesman will be keen to sell a little more as a result. The message that we have received from the London insurance market is that the insurance companies are there to pay for the losses, which they have already estimated. They are in the process of providing for those losses and, indeed, have already paid north of half a billion pounds-worth to some of the companies involved.

My noble friend put his finger on a broader point. Only 65 per cent of the oil well was owned by BP; 25 per cent was owned by an American company called Anadarko and 10 per cent by Mitsui. As regards the drilling well itself, Transocean was the drilling contractor, Cameron was the manufacturer of the blow-out preventer, Halliburton was responsible for the cement casing, and we should give great credit to BP that it has stood up to be counted through these very difficult times and has been prepared to stand in the spotlight. It has behaved extremely properly in this regard, as one would expect of a major multinational corporation.

My Lords, I thank the noble Lord, Lord Hunt of Kings Heath, for an excellent exposition of the consequences, and I am grateful to the Minister—especially for his last comments. Perhaps I may ask for his response on two aspects. First, the Statement in another place mentioned that the payment or not of the dividend from BP, which concerns pension funds on both sides of the Atlantic and will further affect the share price in one way or another, was a matter for BP and did not concern this Government. I should welcome the noble Lord’s comments on the fact that that is clearly not the attitude of the gentleman to whom the Prime Minister spoke on the telephone over the weekend, given that President Obama made it very clear that it is very much the business of the White House as to whether BP pays a dividend. How will this Government stand up and be counted on behalf of the pensioners of Britain?

Secondly, the Statement mentioned, and we read last week about, the possibility of criminal proceedings coming out of this. Will the attitude of the United Kingdom to any request for extradition of people who might be indicted be, I trust, the same that the Americans would apply to any request to extradite people from America to Bhopal in India?

The noble Lord poses some interesting questions. He knows as well as I do that BP is a $100-billion company with a $35-billion cash flow—even after the recent reduction in its share price. It is in a strong balance-sheet position to suffer the losses from this horrendous disaster. The noble Lord may also know that BP pays its dividend quarterly, unlike many corporations. The BP board has agreed, and is committed, to a review of that position before 27 July and we are in that period. The noble Lord would not expect me to comment on criminal proceedings, would he? I am afraid that that is a matter for the law courts, not me. Doubtless we will follow the issue with interest. As regards the Government, I admire the way that the Prime Minister, David Cameron, has handled this matter; he has dealt with it in a calm and steady dialogue, rather than volatile rhetoric. In these circumstances, we have to be very careful to follow that path, because there is an awful lot at stake, as I hope I mentioned in the Statement.

My Lords, will regulation of novel technologies be looked at? The disaster happened at the very limits of the technical abilities that we are considering, and other technologies are particularly worrying. The development of unconventional gas fields, using geological processes which have not been tried or tested, could cause untold damage. Therefore, I hope that the Minister will look very carefully at unconventional gas. I hope that he will also recognise that many of us have been impressed by President Obama’s level-headed approach, considering the view taken by the British press. We are not talking about a disaster just in cash terms; this disaster could lead to the extinction of a number of species. The brown pelican may well be brought to the edge of extinction. If an American company had brought about such a disaster—although I am not saying that BP alone brought it about—in the North Sea, the political pressure from the press to point the finger of blame would be extremely strong. In the light of such enormous pressure, the attitude of the American President is to be commended.

I thank the noble Lord, my coalition colleague, for his kind remarks. I was rather heartened by the recent pictures that I saw in the papers of the effort being put in to saving the pelicans, although I do not know how true they are, because you can never believe everything you see in pictures. That effort has been paid for by someone, and I suspect that BP has a strong hand in ensuring that it takes place, because it is deeply committed to restoring the Gulf to where it was. New technologies will of course be looked at carefully. This demonstrates that the world is searching high and low for carbon-intensive energy, and we are moving towards scraping the barrel. As I said earlier, we have to accelerate our low-carbon development because this is a massive environmental wake-up call, so of course we will be looking at the new technology.

As I also said earlier, I think that the rhetoric and conversation between President Obama and our Prime Minister was exactly what one would want to hear following this recent tragedy, in that it was calm, sensible and not inflammatory, as has been reported. That is what is required in solving any problem.

My Lords, I think it would be as well to recall the remarks of the American ambassador for fisheries and oceans, Mr Bolton, who commented four years ago that many parts of the Gulf of Mexico were ecologically dead due to the vast quantities of nitrogen coming down the Mississippi. Enormous areas of that ocean are in a very bad state. I do not want to go into what is tiny or trivial; an integrated approach is important to the whole ecology of the Gulf of Mexico in the context of this accident and indeed other incidents. In the UK we have the Natural Environment Research Council, and I strongly recommend the Minister to get in touch with it. We have excellent scientists who are able to take an overall view and from that we can perhaps then get a more rational approach.

My Lords, one of the great things about a debate such as this is that one learns so much. I am very grateful for the noble Lord’s comments on nitrogen flowing from the Mississippi; it is true that we have a very heavily polluted world. As I said earlier, if nothing else, I hope that this will be a massive environmental wake-up call, and I should like to take up the opportunity of meeting the noble Lord’s colleagues.

My Lords, perhaps I may take the Minister back to day one for a moment. The cause of this accident was the failure of the blow-out preventer. Do we know whether it was a failure of the equipment, which was owned and provided by Transocean and was therefore the responsibility of that company, or whether it was a failure of the fitting of the blow-out preventer, which I understand was done by Halliburton, as was the concreting? Either the equipment or its fitting failed, and that will be a very important point for the future. I simply ask whether we know that already or whether we have yet to find out.

This morning I met Iain Conn, the chief executive of refining and marketing for BP, who is on the board of BP. He gave me a very clear picture, which has been developing over time. Seven safeguards failed, so it was a most exceptional accident. As the noble Lord rightly said, the concrete casing and the blow-out preventer failed, but another five things should have locked in to prevent that happening. It is remarkable that all those safeguards should have failed. Clearly, the finger of blame will be pointed in all sorts of directions but I do not think that that will help to solve the current problem. We will doubtless be left with the presidential inquiry, which will take place afterwards. Our own OSPRAG group will review that and ensure that lessons are strongly learnt.

My Lords, first, I declare my interest as a non-executive director of Rowan Drilling, a US-based shallow-water jack-up drilling company. I was one of the Energy Ministers responsible for implementing the recommendations emanating from the Piper Alpha disaster, and I congratulate the Minister on immediately undertaking a review of the UKCS operating and drilling activity. Will he ensure that the safety case regime is at the heart of that review? Will he also reflect that the response by the British Government to the Piper Alpha disaster was measured and constructive, without emotive political rhetoric from either side of the House, and underwritten by seamless, calm and reasoned collaboration between the British Government, their agencies and the American operators in the North Sea? Does he agree that that is the most effective response, however tragic the human and environmental consequences?

I thank my noble friend Lord Moynihan for his comments; again, it is very useful to have the input of someone who has experience in this field. I well remember the Piper Alpha incident and the horrific pictures surrounding it, and I was deeply involved in the insurance loss. What was vivid in my mind—and I hope that it will be vivid in our minds at the end of all this—was the incredible effort made by people such as Red Adair in dealing with that dreadful disaster, as noble Lords will probably remember. All efforts were made from both sides of the Atlantic to ensure that the problem was solved, and that, I am reliably informed, is what is happening now in the US. BP is not alone in this; it has the full support of the oil industry companies, and that, I think, will be obvious as time passes by.

Safety is at the heart of this and must be in the future. We need to ensure that an accident such as this one or Piper Alpha does not happen again on our shores. I do not have the statistics with me but let us remember that more than 4,000 deep-water wells have been dug since 1980. Therefore, to date this has been a very satisfactory and productive development. It is dreadful that this accident has happened but one hopes that it is a freak event.

My Lords, I thank the Minister for his Statement and especially for its measured and moderate terms. However, is it not important not to get emotional about this subject, not to become personal and not to express oneself in crude terms, such as “kicking people’s asses”? Does that not let down the people of the United States of America?

As I said earlier, I am very impressed by the calm rhetoric that has been shown from this side of the Atlantic and by the response from President Obama to the conversation that he had with our Prime Minister. At our level, we have been having very constructive and positive dialogue with our respective departments in the US, trying to find a constructive way forward. Clearly, with horrendous disasters on a scale such as this that affect the environment and many people’s lives, there is bound to be volatile and probably over-the-top rhetoric. However, I am glad to say that from the Government’s point of view the matter has been dealt with calmly, and I applaud the fact that that is as the noble Lord would wish to see it.

My Lords, the Minister’s tone has been very measured and I congratulate him on setting up the OSPREY exercise, which is very useful. However, the learning curve will be travelled up only by the United Kingdom. We have an international business with British associations but it would appear to adhere to different safety standards in different parts of the world. People do what they need to do or what they can get away with, rather than having a gold standard. Once we get OSPREY and look at the picture against the experience of Piper Alpha, would it not be better to try to get international agreement which is binding on all the players so that we do not have the kind of pantomime in which people say, “Oh yes we do, oh no we don’t”, every time there is a disaster? We have learnt a lot from Piper Alpha. Let us hope that we are not too complacent about it but that, as a consequence, we feel emboldened to say to other people, “We’ve tried to get our house in order. Why don’t we try to get all our houses in order at the same time?”.

The noble Lord makes an incredibly valid point, which I hope I have answered. I should mention that the name is OSPRAG, which is difficult for me, let alone the noble Lord, to say—I have to have it written down in front of me. It stands for Oil Spill Prevention and Response Advisory Group, and I am glad that he welcomes it. As I said earlier, we are communicating at all levels with US government departments to ensure that we achieve this gold standard. As the noble Lord rightly said, the world cannot march out of tune. I think that the early steps by the US Government to separate safety and licensing are a major breakthrough. That separation was started in this country and it delivers a gold standard. I can only assume that everyone will learn a lot from this incident, as they did following Piper Alpha, and that they will adopt the very important safety standards that are now required.