Five Years on from Macondo

Joseph Keefe, Contributor

Joseph Keefe contributes to New Wave Media titles as needed....

May 28, 2015

An interview with NOIA’s Randall Luthi provides unique perspective on where the offshore energy business has been, where it is now, and where it could be headed next.

It is a predictable but at the same time, an important anniversary to examine: five years beyond the Deepwater Horizon oil spill, which began on 20 April 2010 on the BP-owned, Transocean-operated Macondo Prospect in the Gulf of Mexico. Widely considered to be the largest accidental marine oil spill in the history of the energy industry, oil flowed from the sea floor for 87 days until capped in mid-July. The environmental impact is well documented, the ultimate impact of the incident on the offshore and oil industries today has been profound, lasting and without a doubt, it made the offshore business safer.
Randall Luthi, President of the National Ocean Industries Association (NOIA), a Washington-based advocacy group dedicated, among other things, to the safe development of offshore energy, sat down with MarineNews in April to look back, and then ahead at what might come next. His perspective, reflective of the more than 300 NOIA member companies providing environmental safeguards, equipment supply, gas transmission, navigation, research and technology, shipping and shipbuilding to the offshore industry, gives an idea as to where we are and what’s been done to get us there.

Exploration & Development
Today, 85 percent of the OCS remains shuttered to exploration and development, including the entire Atlantic Coast, Pacific Coast, and the Eastern Gulf of Mexico. Despite efforts to change that reality, Luthi says that nothing has changed, explaining, “We are currently in the 2012- 2017 program. That has no additional areas open. What Interior did was release the draft proposed program for the 2017 to 2022 five-year program. In that, there is at least possibility of studying the southeast Atlantic for 2021. That’s great news. It’s at least made it through the Interior’s review process. We want to make sure that Interior does not drop this as a potential lease sale.”
NOIA’s other concerns include the 50-mile barrier (shore to offshore) that Luthi says has no real scientific reason to it. What it does do is make the initial leases far more expensive to develop. And then more expensive to get the oil, should you find any, from offshore to shore.
The southeast Atlantic region, says Luthi, hasn’t been looked at for about 30 years. “We really don’t know what’s there. We have old seismic data which indicates there could be something, and there might be great resources inside that 50 mile buffer, but we’ll never know because we don’t have the option to look, because of the buffer,” he insists, adding, “Beyond this, that sale is a long ways away – 2021. We would actually suggest that they have two sales and one earlier than 2021.” But, that’s unlikely to happen. Still, Luthi says, “We need to be able to move faster on that.”

The Arctic
The latest Arctic rules put forth by the Obama Administration are based in part on some of the problems that Shell had in the transportation of one of its drill rigs. But, says, Luthi, Shell has learned from those events and has taken advantage of that new knowledge, adding, “Arctic conditions really aren’t ‘frontier’ conditions. Canada and Norway have been operating in these conditions for years and we can take that knowledge and apply that to Northern Alaska – there shouldn’t need to be a whole lot of new regulations. The regulations are out there, we know what they are, but the reality is that they likely won’t be finalized until after this year’s drilling season. So, Shell is proceeding on the basis that they will be able to finish those wells that they started years ago.” Beyond this, most companies aren’t basing their decisions on what the market price is right now; they are taking the long view.

The Environment – well containment systems
Five years out from Macondo, industry is far more ready for the next ‘big’ event, should it come to that. To complement the surface response, industry has invested in two deepwater containment systems designed to handle up to 100,000 barrels of liquids and up to 200 million cubic feet of gas a day in depths down to 10,000 feet. Two companies – the Marine Well Containment Company and HWCG LLC (formerly Helix Well Containment Group) – are providing this service, where previously, there had been none. With equipment positioned strategically along the U.S. Gulf Coast, this means that today, instead of a case of months to cap a spill, it’ll be days or perhaps a week.
Marine Well Containment Company (MWCC) is an independent company with headquarters in Houston, Texas. In July 2010, Shell, Chevron, ConocoPhillips and ExxonMobil committed to providing a new containment response capability for the U.S. Gulf of Mexico. Today, the company has 10 member companies and represents unprecedented industry collaboration.
MWCC’s Containment System can cap or cap and flow a deepwater well control incident in deep water. The system includes two Modular Capture Vessels (MCVs), which can each capture up to 50,000 barrels of liquid per day, three capping stacks, enhanced subsea equipment and additional ancillary equipment. The MWCC Containment System, developed in cooperation with regulators from the Bureau of Safety and Environmental Enforcement (BSEE) and the U.S. Coast Guard, not only safeguards the U.S. Gulf of Mexico but allows new permits to be issued.
Similarly, HWCG is a consortium of 16 deepwater operators in the Gulf of Mexico who share the common goal of expanding capabilities to quickly and comprehensively respond to a subsea incident to protect people, property and the environment. All members contribute to a robust Mutual Aid program, creating a shared pool of assets, personnel, and technical resources for use during an incident. The membership reflects a diverse group of global offshore operators, representing about half of oil and gas operators in the Gulf of Mexico.

Rigs to Reef
Capping wells isn’t the only place where environmental progress is being made. NOIA has been involved with the ‘rigs to reef’ program almost since its inception and has been one of its biggest supporters. The program was intended, in part, to help rig owners being pressured by the federal government in the wake of Macondo. The government felt that the idle iron was not being moved off the ocean bed quickly enough. But, says, Randall Luthi, what that federal pressure did at the same time was put quite a bulge in the process.
“That’s because companies were evaluating what structures to leave in place and which ones to remove, or to be towed to a reef site or partially left in place. But, when they applied for the permits, they found that they needed two federal permits and one state permit before you could actually enter the rigs to reef program. It took so long to get those permits that the stakeholders were running out of time. And so, rather than put the structure into the rigs to reef program, industry players were simply forced to take it out,” Luthi told MarineNews.
Ultimately, that resulted in unhappy commercial and recreational fishermen who come out to where there had once been a great place to fish and no longer was there a structure there. Luthi adds, “This disconcerted them, so we participated – along with BSEE, BOEM and state agencies with industry – in a couple of workshops in the last couple of years and the permits are being moved more quickly and states are giving permission more quickly.”
Nevertheless, structures toppled because of a storm are unlikely to be allowed to be left in place. Luthi believes that a scientific assessment would best determine if the structure is or is not a safety hazard. Also impacting the program is that sometimes, scrap value is quite high, and some companies prefer to take the structure apart, bring it in and sell it. But, Luthi adds, “It’s a good program and we support it. We hope more companies will decide to participate.”

Real Change: Real Effort, Real Proof
Randall Luthi insists that the past five years have brought much change. He says, “The industry – oil and gas – has always been concerned about safety. But, I think Macondo made the industry refocus and re-emphasize the importance of safety, from top to bottom. So, what it did do is help industry refocus on a true culture of safety. It’s always been important, but now, it is first and foremost on everyone’s mind.” Luthi adds that the change isn’t all talk – there are metrics to back it all up.
The Presidential Oil Spill Commission’s follow-up report, for example, offers that the offshore energy industry is safer than it was at the time of Macondo. Luthi also adds that a very interesting and valuable collaboration between federal regulators and the industry has evolved as the new regulations have come out. He explains, “I think there’s been a lot better communication between industry on what works and what does not work. On the industry side alone, the Center for Offshore Safety was stood up. This is a group of dedicated individuals whose sole mission to ensure that offshore energy is developed safely while at the same time be on the cutting edge of technology. They are working hard to make sure that the audits that are now required by the federal regulators are performed correctly.” Also according to NOIA, industry is trying to establish a relationship with those in academia with the Offshore Energy Safety Institute. This is a collaboration of industry, federal and university officials and they are just now starting to get their feet under them, but the concept is that this group will eventually identify areas that might need additional research. “As we look to the future in deeper waters, as we see higher pressures, higher temperatures and make sure that these things are done safely, this will be an important part of that effort,” adds Luthi.

Federal Regs: too much, just right, or not enough?
Randall Luthi says the answer is all three, actually. “You’ll hear all three, as it continues to be tested out. For some things, it’s just too early to tell. For instance, the safety and environmental management systems (SEMS) are now just beginning to be audited and see how well they work. So I think have a period of time to get everyone up to speed, as much as industry and yes, the federal government would like them to be.” And, all the regulations that were spawned from the Macondo well accident aren’t yet out. The release of the blowout preventer and well containment regulations are still pending, for example. Luthi cautions, “We have to see what those rules entail before making judgments on them. One thing is for sure: it takes a lot more time and paperwork to get the permits processed through the permitting agency. It’s a tough balance there, you know, is it really safer or are we just pushing more paper? As we go forward, industry will continue to voice its concern as well as its support for these regulations. We’ll begin to see how they work better in the future.”

Lessons Learned & Crude Oil Export
The decision to export oil is inextricably tied to a robust exploration and production program here at home. At least, that’s how Randall Luthi couches the conversation. “I think we have to look at it carefully. If the United States has a good energy policy that assures that we have a robust exploration program, we’ll have the ability to have excess oil to export. Part of that is the offshore world and that’s why the Atlantic sale is so important. And, if we can open up more of the OCS it would be a great thing for our economy and our energy situation.”
It’s also helpful, says Luthi, to look back at what happened in the mid-1980’s when the last ‘oil crunch’ took its toll on the offshore industry. There are lessons to be learned, but, he adds, it doesn’t make the current situation any easier to overcome. “That’s always a difficult situation because it is such a market driven business, he said, continuing, “One of the things that changed is that it takes fewer people to produce the same amount of oil and gas as it did 10 to 15 years ago, simply because of technology. So the new technology will help to reduce the numbers that need to be laid off and hopefully everyone realizes that it is a cyclical situation. It will be interesting because the United States is in a very different situation than it was in the 1980’s. In the 1980’s, and once things started to pick up, it was OPEC that was bringing a lot of the oil back onto the market and we came m ore and more dependent on foreign energy. This time, we (the United States) are in a position to do that and we will.”
Today, less than 50 percent of the oil we use today is imported and our primary trading partner in that regard is Canada – not OPEC. Luthi says that will make all the difference. “Once we have a reliable and steady exploration and production policy in place here, then oil should be used as a commodity. It’s like food or grain – if you have enough, it should be traded and exported – but you need to make sure that you keep the supply up here at home.”