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Problems with big oil that won’t go away homeThe Observer home

The Deepwater Horizon spill, which is threatening swaths of the Gulf of Mexico’s coast, again raises questions about how rigorously safety and environmental regulations are enforced

Washington, 5am, Tuesday: a tired Tony Hayward, chief executive of BP, was finally patched on to the conference call. At the other end, a dozen journalists sat around a boardroom table at its plush headquarters in St James’s Square, London and leant in towards the squawkbox. BP had just announced a 135% increase in profits for the first quarter, but all that anyone wanted to discuss was the Deepwater Horizon disaster.

A sombre Hayward, who had spent the weekend co-ordinating the operation to contain the slick off the coast of Louisiana, recognised as much when he began the call: “Clearly a good set of results has been overshadowed by events.”

Serious as the disaster was at that stage, he would not have known just how much of an understatement that was. By the end of the week, BP admitted that more than five times as much oil – 5,000 barrels – was leaking from the sunken rig each day and the slick had hit the Louisana coast. BP’s shares had fallen by more than 6%, wiping £12bn off its market value as the environmental – and legal – repercussions hit home.

BP’s safety record is once again under the spotlight, particularly in the US. It was only in 2005 that 15 workers died when its Texas refinery exploded, and a year later a major leak occurred at one its pipelines in Alaska. The disasters hastened the departure of former chief executive Lord Browne. Hayward, who took over three years ago, promised a zero-tolerance approach on safety. Even some industry critics, such as Jake Molloy, general secretary of the Offshore Industry Liaison Committee, a major trade union for offshore workers, report that there has been a noticeable improvement in its approach in the North Sea, for example. The Deepwater Horizon disaster – even though the rig was operated by another company on BP’s behalf – has come as a hammer blow.

The disaster has also focused attention on the industry’s safety record. Companies are struggling to maintain production – and oil reserves – as “conventional” production from mature fields including the North Sea declines. This means the industry has to use new technologies and explore often environmentally sensitive regions. As Manouchehr Takin of the Centre for Global Energy Studies says: “Companies are constantly pushing the technological boundaries, and this can increase the risk [of accidents occurring].”

Not surprisingly, the oil industry – not just BP – is mounting a PR offensive in the US to reassure the public – and politicians – that offshore drilling is safe. The Deepwater Horizon accident comes at a critical time for the industry. After years of lobbying, a month ago Barack Obama agreed to open up new areas to offshore drilling, including in Alaska. Companies including Shell said they planned to start drilling in the region this summer. But this weekend, Obama announced that new no licences would be issued until an investigation into the disaster was completed.

On the face of it, the statistics on the global industry’s safety and environmental record are impressive. The American Petroleum Institute reports the amount of oil spilled in the US in the decade up to 2007 was over two-thirds less than 30 years before. According to BP, it spilt 1.2m litres of oil last year, compared with 4.4m litres in 2005. Shell’s figures show a similar improvement.

On safety too, the official data appears to indicate steady improvement. According to the International Association of Oil and Gas Producers (OGP), in 2008 the total amount of hours lost as a result of injury was the lowest on record. However, it admitted that the fatality rate increased by 4% as the number of severe cases rose, though it said the long-term trend was downwards. Certainly, most executives take environmental and safety performance much more seriously than before, knowing they face huge financial and reputational damage if they fail to do so. As one oil company executive says: “People are generally pretty careful now. They know there are plenty of regulators out there willing to chase them if they screw up.”

But the headline statistics do not tell the whole story. Molloy says that the oil companies often mask the extent of less serious accidents by assigning injured workers to office duties. This way, such incidents do not show up in the key “lost time injury frequency”.

Oil spillages are also not the only indicator of environmental damage caused by the industry. Shell’s figures show a steady increase in the amount of hazardous and non-hazardous waste it creates each year – 1.7m tonnes in total in 2008. This is in large part due to its growing oil sands business in Canada, where vast amounts of energy, water and chemicals are required to process the tar deposits. Even excluding oil sands, Shell is using a quarter more energy to find and produce each barrel of oil than it did a decade ago.

The industry’s performance outside North America is significantly worse, although the official statistics are patchy and those that are published are often of dubious quality. According to the OGP, in 2008 the fatality rate in Africa was about 50% higher than the global average; in South America, it is even higher. Russia is not much better. However, it says that over the past decade the overall trend is again downwards.

But it is highly questionable whether the industry can be relied on to provide accurate statistics, particularly on the environmental impact of its operations. Two years ago, when the Observer visited Fort McMurray, a bustling, Wild West town in Alberta at the heart of Canada’s oil sands boom, George Poitras, a former chief of the Mikisew Cree First Nation, was scathing about the industry’s claims. Oil sands operators clear vast tracts of forest to mine the tar deposits, creating deep scars on pristine land. Companies promise to “reclaim” the land, returning it to its former state by filling in the quarries and reintroducing native flora and fauna.

“Our elders back home laugh when the industry says this,” he says. “Who do they think they are – are they God or the creator? They destroy the boreal forest and they are going to put back the land to as good as it used to be? It’s impossible.”

The industry also claims that the huge toxic ponds created by the projects – made up of a mixture of chemicals and water used to process the tar deposits – are contained and do not pollute local rivers or wildlife.

Poitras disagrees: “We think that the water is poisoning our people and giving us cancer. The fish taste different and are sometimes deformed, with two jaws.” Cancer rates or deformed fish do not show up in oil sands companies’ glossy sustainability reports or figures.

In many cases, governments cannot be relied on to provide independent rigorous oversight. The Albertan government in large part relies part on Ramp, an industry-funded body that monitors the impact of oil sands operations on the aquatic environment and which is mistrusted by most environmentalists.

“It’s all self-monitoring by the industry,” according to Joyce Hildebrand from the campaign group Alberta Wilderness. In Alberta, there are only a dozen officials to make sure that operators comply with environmental regulations in a province bigger than Spain.

Because governments such as Alberta’s want to attract oil companies and taxes, it’s not surprising that many are anxious not to scare them away with tough environmental regulations. But even supposedly tough independent environmental regulators are frequently politically motivated and lack credibility.

In 2007, Shell was forced to dilute its stake in the $20bn Sakhalin II project in Russia’s far east, ostensibly over its environmental record. Rosprirodnadzor, the government environmental regulator, had claimed that Shell and its Japanese partners had broken the law by damaging forests and driving grey whales from their breeding grounds off Sakhalin island. But industry observers said that the claims were a pretext to allow the Kremlin to wrest back control of its natural resources.

Lack of thorough, independent oversight of the oil industry’s environmental impact is worrying. In many cases the damage being done to fragile ecosystems is going unnoticed. Deepwater Horizon notwithstanding, it is true that the oil industry has made significant improvements on its record on safety and oil spills compared with 30 years ago at the time of the Exxon Valdez disaster. But companies cannot be relied on to monitor the more indirect environmental impact of their operations, particularly as they move into increasingly sensitive regions such as Sakhalin and the Arctic.

Greenpeace scientist Paul Horseman says: “Companies are good at publishing glossy reports with nice pictures of smiling people in different countries. But it’s just another public relations exercise with which they try to produce the image that they doing something of value and doing it safely. It’s pure greenwash.”


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