First published in the The Independent on Sunday, 9 May 2010

Even as the first oil from BP’s stricken Macondo well in the US Gulf of Mexico washed ashore this weekend, and as the clamour against the company mounts, experts claim the slick will be nothing like as catastrophic as forecast – for either the environment or the oil industry. However some analysts maintain the accident could still seriously impact the global oil supply later this decade.

The fate of the Louisiana coastline is in the hands of BP engineers working to place a cofferdam, or 100 tonne steel and concrete funnel, over the worst leaks, using remote-controlled submarines a mile down on the seabed. If the operation succeeds early next week, as BP hopes, it should capture around 85 per cent of the leaking oil, sharply reducing the potential impact. “Once they have the cofferdam in place they’re almost home and dry”, says Dr Simon Boxall, an oil spill expert from the University of Southampton, “if they succeed, this won’t even make it into the top 100 oil spills by volume”.

So far around 100,000 barrels, or 4.2 million gallons, have leaked from pipework damaged when the Deepwater Horizon rig exploded and sank last month, less than half the amount spilled from the Exxon Valdez disaster in 1989. If the cofferdam fails, the impact would be much worse. BP is already drilling a second well to intercept and plug the first just above the oil field itself, 13000 feet below the seabed, and that might take three months. If so, at the current rate the oil spill could reach 450,000 barrels, almost 19 million gallons, just under twice the Exxon Valdez. But even that would only rank within the top 50 spills. “It could clearly do a lot of damage and that’s terrible”, says Dr Boxall, “but when people claim this is the oil industry’s Chernobyl, it’s really nothing like it”.

The rising backlash against deepwater drilling – anything over 500 meters, far too deep for divers to work should anything go wrong – is unlikely to impact the industry as much as the noise on Capitol Hill would suggest, because it is too vital to the oil supply. According to analysts Douglas Westwood, deepwater oil production has soared from under 2 million barrels per day in 2000 to 8 mb/d in 2010, almost 10% of global consumption, and must rise further as onshore and shallow offshore production declines. “They can’t ban deepwater because the industry has nowhere else to go”, says chairman John Westwood. 500 deepwater wells were drilled last year, costing up to $100 million each, and Douglas Westwood predicts $167 billion will be spent on deepwater development to 2014.

Deepwater drilling has provided some substantial discoveries recently, such as BP’s Tiber field in the Gulf of Mexico, thought to contain some 3 billion barrels of oil. But such is the industry’s desperation it will also chase tiny fields at depths unheard of a decade ago. The Macondo field at the centre of this crisis probably contains less than 50 million barrels – an oilfield minnow. A BP spokesman admitted “the easy stuff is done first. We’re now onto the stuff that is technically, politically or economically difficult because that’s what’s left”.

If an outright ban is unlikely, deepwater drilling will be far more tightly regulated, as happened after the Piper Alpha disaster in 1988. Then British North Sea production slumped for several years as safety equipment and procedures were upgraded, before recovering. The difference is that many forecasters now predict a global oil supply crunch by the middle of this decade, so any pause in US deepwater drilling could have magnified consequences.

According to analysts Newedge USA, if the moratorium on new drilling President Obama announced after the accident drags on, the global oil supply could suffer a shortfall of 500,000 to 1 mb/d by 2016-2018. Head of research Antoine Halff told Bloomberg “They wouldn’t be able to offset depletion with new drilling”. With many forecasters predicting peak oil in around 2015, this could only make matters worse.

BP’s market capitalization has fallen £15 billion pounds or 12% since the accident, reflecting the predicted costs to the company. Even if its cofferdam succeeds this week, the company will be neck deep in litigation for for decades. Costs across the industry are also bound to rise, but it looks as if hostility to deepwater drilling will soon be overshadowed.

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  • CORRECTION: This article was written on the presumption the 5000 barrels per day estimate was roughly right. It is now increasingly clear that it was a gross underestimate. But I stand by my assessment of the slick’s likely impact on Gulf of Mexico oil production and the industry more widely.

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