Methods to Enhance the Predictability of Petroleum Offshore Liability

Energy Strategy Reviews 8 (2015) 66e71 Contents lists available at ScienceDirect Energy Strategy Reviews journal homepage: www.ees.elsevier.com/esr Methods to enhance the predictability of petroleum offshore liability Vlad Ivanenko Independent Energy Consultant, Ottawa, Canada ARTICLE INFO ABSTRACT Article history: Two major accidents in the energy sector e the Macondo well blowout in the U.S. coastal Received 10 May 2014 waters in 2010 and a series of equipment failures at the Fukushima I Nuclear Power Plant Received in revised form in Japan in 2011 e proved that the existing liability regimes are incapable to assign sys- 4 September 2015 Accepted 10 September 2015 tematically the responsibility for accidental pollution damage and third parties’ losses. The paper reviews the offshore spill data, petroleum liability regime that has developed in Canada over time and proposes three methods aimed at enhancing the post-accident JEL codes: regulatory predictability in petroleum offshore. K13 Ó 2015 Elsevier Ltd. All rights reserved. L71 Keywords: Energy Accident Offshore Liability 1. Introduction Large discrepancy between the legal terms Economic theory does not provide clear and actual payments has raised the question of guidance on how to manage the financial In 2010 and in 2011 witnessed two major why the generic liability regime fails to provide consequences of a catastrophic proportion. energy accidents: the Macondo well blowout guidance following a major energy accident. For example, Bennear [1] finds that while the in the U.S. coastal waters and a series of re- Three venues of analytic interest have theory of management-based regulations leases of radioactive materials at the emerged. Regulators have initiated reviews of provides the basis to respond to regular Fukushima I Nuclear Power Plant in Japan. In the administrative procedures debating how to offshore incidents, it fails in the case of low- both cases, the facilities’ operators were reduce the probability of accidents in the light probability, high-consequence event like the surprised to discover that their actual pay- of new evidence (see, e.g., Refs. [14,16,17]). Macondo well blowout. Based on the analysis ments for accidental pollution damage and Legal experts discussed the subtleties of of existing offshore regimes, general eco- third parties’ losses far exceeded the limit of ongoing juridical arguments furnished to iden- nomic principles and available historical liabilities prescribed in the regulations. For tify responsible parties, their victims, and the data, the paper explores the sources of reg- example, while the U.S. Oil Pollution Act of appropriate amount of compensations (such as ulatory unpredictability in the existing liabil- 1990 limits the operator’s payment to $ 75 [8]). Finally, economists concentrated efforts ity regime and suggests three methods, the million, the well operator BP plc incurred on the identification of potential gaps in the use of which would inform the operators expenses totaling $ 13.9 billion on February energyregulatoryregime thatgovernsthe post- about the costs of offshore catastrophes that 28, 2015 [2]. Similarly, the Japan’s 1961 Act accident assignment of financial responsibility they could face. on Compensation for Nuclear Damage sets the (e.g., Refs. [1,12]), but such studies are few.1 The paper starts with a brief overview of limit at 120 billion yen per plant, but the data on offshore spills’ frequency and costs Fukushima plant’s operator Tepco paid 4.4 followed with a description of the offshore trillion yen on November 25, 2014 [15]. liability regime as it has developed in Can- 1 It is unclear why the events have been largely shun- ada over time. This description allows ned within the profession. Petrolia [12] suggests that the sketching a liability regime generic to the U.S. regulators have gradually moved away from using world. After reviewing the pitfalls present economic valuation of damages prompting the courts to E-mail address: [email protected]. stop engaged economic experts in the hearings. in the regime, the paper suggests three http://dx.doi.org/10.1016/j.esr.2015.09.001 2211-467X/Ó 2015 Elsevier Ltd. All rights reserved. V. Ivanenko / Energy Strategy Reviews 8 (2015) 66e71 67 Fig. 1. Number of medium (7e700 tons) and large (>700 tons) spills per decade from 1970 to 2013 [10, Fig. 4]. principles, the use of which results in spe- wells, to estimate the cleanup costs and factors liability regime provides additional benefit of cific policy recommendations. The conclu- that affect them across the geographic areas. exposing hidden factors at play. sion summarizes the discussion and He finds that the costs per ton rose in 1970e80, According to the Canada Oil and Gas Land highlights issues that no liability regime can but stabilized since 1990s. Table 1 gives the Regulations of 1961, the federal government resolve in principle. average cleanup costs per ton for different re- has authority for issuing exploration licenses gions. Similarly to [10] Etkin notes that the for maritime areas. However, as the eco- 2. Historical evidence on frequency and costs of large accidents are highly variable. nomic benefits of offshore development costs of offshore oil spills Two tentative conclusions can be drawn became obvious, provinces challenged the from the data. First, the number and the federal government’s right to manage Public regulators and industrial associa- severity of smaller, more predictable spills offshore projects. In the end, two provinces, tions maintain the databases on offshore oil are falling in time. Second, the costs vary Nova Scotia and Newfoundland and Labrador, spills either because of their mandate to significantly across the regions and for very have signed with the federal government ac- large spills. cords on joint management of offshore re- monitor the pollution or due to their business 2 needs to estimate the expected costs of sources (Accords). On their ratification, the full administrative authority over the cleanup and damage compensation. For both 3. Canadian legislation as an example of offshore projects has been transferred types of data, the heterogeneity of reporting the offshore liability regime e norms and the reporters’ reluctance to reveal respectively to the Canada Nova Scotia Offshore Petroleum Board (CNSOPB) and the accidents hinders the comparison of cases National offshore liability regimes share CanadaeNewfoundland and Labrador and across jurisdictions and in time. Yet, the the same main aspects implying the existence Offshore Petroleum Board (CNLOPB) appoin- available evidence allows coming up with of a worldwide generic system. A brief ted jointly by the federal and provincial some tentative conclusions. description of one of such systems, developed governments. The federal government con- ITOPF [10] maintains a database of global in Canada, illustrates its salient features. tinues to hold responsibilities for offshore oil spills from tankers, combined carriers and Canada’s convoluted history of offshore barges that contains information on acci- projects elsewhere but no projects operate in dental spillages since 1970. According to those areas. The process of granting a concession on ITOPF, the number of spills per decade Table 1 decreased steadily for each size category e Average cleanup cost per ton spilled (in 1997 U.S. $) offshore exploration and development starts large spills (>700 tonnes) and medium (7e700 [6, Fig. 2]. with an expression of interest from a business entity seeking the resource extraction for tonnes), for which evidence is hard to hide e Region US$/ton commercial purposes. The boards call for from 1970 to 2013 (see Fig. 1). The same United States $73,156 downward trend is noticeable for the quan- Asia $16,006 nomination of fields and bidding over them at tities of oil spilled with the caveat that trend Europe $8596 Canada $6147 is susceptible to very large spills that happen Former USSR $2929 infrequently thus rendering impossible their South Pacific $2441 2 The accords with the two provinces are the Cana- statistical analysis. Latin America $2158 daeNova Scotia Offshore Petroleum Resources Accord Africa $1078 Etkin [6] uses the International Oil Spill Implementation Act, the CanadaeNewfoundland Database, which includes spills from offshore Atlantic Accord Implementation Act. Download English Version: https://daneshyari.com/en/article/1029801 Download Persian Version: https://daneshyari.com/article/1029801 Daneshyari.com.

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