With BP spill under control, US looks at drill ban

[August 16, 2010]  NEW ORLEANS (AP) -- Now that the worst offshore oil spill in U.S. history has effectively been stopped, the White House is considering an early end to its moratorium on deepwater drilling.

But four months after the explosion of the Deepwater Horizon, regulators have only started to make good on promises to overhaul drilling. Tough measures are stalled in Congress. A $1 billion emergency response network proposed by the industry won't be operational for another year.

And while doomsday scenarios from the BP spill, like oil washing up the East Coast, have not come to pass, there are no guarantees that drilling will be any safer once it does resume.

What's changed is "not enough to make a big difference," said Charles Perrow, a Yale professor who has studied the spill in the Gulf.

Interior Secretary Ken Salazar has halted deepwater drilling until Nov. 30, saying the BP spill demonstrated the industry wasn't prepared for a massive underwater blowout. He's ordered rigs to re-examine their equipment and safety procedures, and next month plans to order new safeguards for blowout preventers.

Before drillers can return to the deep water, however, Salazar said the industry should be able to show that it's capable of responding to and containing future blowouts.

Some energy experts, engineering consultants and Gulf Coast leaders joined Big Oil to ask Salazar to change his mind. Drilling was safe before the BP spill, they said, and Gulf communities that depend on the industry were suffering unfairly.

That argument appears to have gained traction, even among people most affected by the spill, now that BP is close to plugging the well for good.

Billy Nungesser, president of hard-hit Plaquemines Parish, La., said he's seen attitudes change in his community now that the deepsea disaster is easing. Even though oil has been washing ashore for months and he's fought constantly with BP and the government over their response, Nungesser thinks the ban should be lifted. Offshore drilling means jobs.

According to the most recent state data, the oil and gas industry supports more than 320,000 jobs in Louisiana and generates more than $12.7 billion in household earnings.

George Hirasaki, a Rice University engineering professor who was involved in the oil containment effort in the Bay Marchand field off Louisiana after a rig burned in the early 1970s, agrees.

"I think what is needed is improved standards and procedures, and not just restrictions on drilling," Hirasaki said.

As Salazar continues to weigh the evidence, others close to President Obama are questioning the ban.

William K. Reilly, a former Environmental Protection Agency administrator who co-chairs the president's commission investigating the oil spill, said in an interview with The Associated Press that he doesn't understand why rigs that have passed inspections can't resume drilling even while the Bureau of Ocean Energy Management conducts a broader review of safety offshore.

The group also asked the Washington-based Bipartisan Policy Center to look into the "wisdom of using a moratorium" for preventing spills in the aftermath of the BP disaster, according to a copy of the letter obtained by the AP.

The moratorium bans exploratory drilling but not production. At an estimated 1.66 million barrels of per day, Gulf oil production accounts for about 30 percent of domestic output. However, the government estimates 2011 production at just 1.54 million barrels per day -- equal to 2009 levels -- in part because no new wells are currently being drilled.

By contract, the U.S. is expected to import 9.11 million barrels per day this year. Opponents say the moratorium will only boost the need for foreign oil, but the government currently forecasts a drop in imports next year because of increased production onshore in the U.S.

Meanwhile, the offshore drilling industry is facing its biggest overhaul in decades.

Shortly after the April 20 rig explosion, Salazar ordered rig owners to re-evaluate their emergency procedures and re-examine safety equipment.

A slate of other measures, including a requirement that blowout preventers have additional backup safety equipment, is expected next month. Other regulations could be announced in the next 12 months.

Congress also is considering measures that could make the Gulf one of the strictest places on the planet for offshore drillers to work.

Bills in the House and Senate would lift the $75 million cap on liabilities for economic damages -- such as lost wages, shortened fishing seasons or lagging tourism. If that becomes law, smaller drillers probably would be forced out of the Gulf, analysts said.

It "pushes the smaller guys out," Argus Research analyst Phil Weiss said. "They're going to be afraid of the risks."

BP essentially waived its rights under the cap. As of Aug. 5, it had spent more than $6 billion on the spill, about $303 million of that on claims payments to more than 40,000 individuals and businesses. And BP is expected to pay billions more as hundreds of lawsuits work their way through the court system.

A bill that passed the House includes a provision that would shut out anyone with a poor safety record -- like BP -- from gaining new permits. But the Obama administration may hesitate to limit BP's ability to operate in the Gulf. A $20 billion compensation fund established for victims' of the oil spill may use revenue from BP's oil and gas drilling as collateral, according to details released this week by the White House.

"Let's face facts," says Nungesser. "BP needs that oil coming out of the ground. Anybody tells you differently is lying to you."

While driller Diamond Offshore moved a couple of rigs out of the Gulf, and another 30-some rigs are idle or doing other work, economists say job losses resulting from the moratorium so far have been fewer than predicted by the industry.

In Louisiana, the staging site for most of the deepwater Gulf industry, there were 595 first-time claims for jobless benefits in the 099mining sector in June and July, according to the Louisiana Work force Commission. That sector consists almost entirely of the petroleum industry.

Even so, the region still could lose tens of thousands of jobs if the moratorium continues, said David Dismukes, associate executive director for the Louisiana State University Center for Energy Studies.

Still, the decision on the moratorium will come down to safety. Four top oil companies -- Shell, Exxon, Chevron and ConocoPhillips -- are pitching in on a rapid-response spill containment system, a step towards meeting Salazar's requirement that the industry demonstrate a better response capability.

Some pieces will be ready around year's end but others won't be ready for another year or so. Salazar has said a fully operational system wasn't a perquisite for lifting the ban.

But experts like Perrow, the Yale sociologist, wonder what's the rush, given the devastating impact that this one spill has had. He says the U.S. would benefit if it waits for the government to write new rules that increases scrutiny of drilling operations. The industry also needs to find ways to keep rigs from drilling too quickly and putting their wells at risk of a blowout, he said.

"They don't want accidents, they're expensive," Perrow said.

[Associated Press; By CHRIS KAHN, DINA CAPPIELLO and HARRY R. WEBER]

Kahn reported from New York. Cappiello reported from Washington.

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