Blowhard and the starry eyed suckers at the MED

Written By: - Date published: 10:30 am, July 6th, 2010 - 9 comments
Categories: Mining - Tags: , , ,

A few weeks ago I wrote a post about some of the risks New Zealand will face when off-shore oil exploration goes ahead. Now Gordon Campbell has published an excellent article at Werewolf that looks at the issue in a lot more depth….

At the time of writing, the International Maritime Organisation was meeting to try and finalise an update of its Code for the Construction and Equipment of Mobile Drilling Units but at present, there are no binding international rules, standards or practices for oil rig platforms.

Therefore, when Energy Minister Gerry Brownlee is giving out assurances that industry best practice will be observed and would be enforced with respect to the likes of Petrobras and Exxon-Mobil, he is uttering empty assurances in a void. At the level of technical expertise, no one knows how to devise BOPs (blowout preventers) guaranteed to work at such depths and in such open sea conditions. In addition, there are no international or local framework of design standards and operating procedures that can be enforced, even if there was a will to do so.

The issue is that there is neither a “best practice” that Gerry Brownlee foolishly seems to assume exists, nor is there much certainty about effective technical means to prevent  blowouts at the depths where  oil exploration is currently happening.

Essentially, New Zealand is crossing its fingers and hoping that the rest of the world will have solved most of these problems in the next three or four years, before Petrobras or Exxon Mobil really get down to serious business. Trust Big Oil surely by then, it must know what it is doing. People in the Nigerian delta and Ecuador who have had to live for decades with the wholesale destruction to their habitats caused by the current best practices of Big Oil would probably tell us this would be very unwise.

Campbell has a look at the rather complicated structure of agencies that currently administer off-shore exploration and mining. The leases and collection of royalties are managed by the Crown Minerals Division of the Ministry of Economic Development (MED). But regulation and cleanup is handled by Maritime NZ, who seem to be able to handle diesel spills – not gaping breaches into oil and gas domes. Moreover there is evidently a lot of rough-shod idiotic interference from higher in the MED when it comes to mining. You get the impression that Brownlee and his minions have bugger all idea what a risk assessment is, when they are being dazzled by large illusory numbers.

For instance, Exxon-Mobil are going to explore the Great Southern Basin in the roughest seas around NZ. In the event of a blowout, the large fishing industry out of Bluff would likely be devastated. This is a company that isn’t exactly known for its prompt response for economic damage to other industries.

Exxon-Mobil hasn’t been noticeably concerned in the past. Twenty one years after the Exxon Valdez went aground and spilled its load, oil seepage is still visible in the areas most affected courtesy of a drunken captain oil tanker who on one dark night in 1989, spilled his tanker’s cargo onto the pristine Alaska coastline, thus ruining the local marine environment and the fishing industry that depended on it.

In 2008, Alaska’s battle with Exxon-Mobil ended up in the US Supreme Court, to test whether Exxon-Mobil really did have to cough up the $2.5 billion in punitive damages awarded by lower courts. New Zealanders could well benefit from pondering just how Exxon-Mobil mounted its defence if only to learn what kind of creature we have now invited into one of our most ecologically valuable and vulnerable regions.

In the wake of the Alaskan oil spill, Exxon-Mobil did pay an initial $500 million in compensatory damages. This was quite separate from the $5 billion punitive damages penalty it had also originally faced, and which bounced around the US court system for 14 years afterwards. Lower courts reduced that punitive award to $2.5 billion, a figure that represented about four weeks of Exxon-Mobil’s 2008 annual profits. Exxon-Mobil refused to pay anything at all in punitive damages. Basically, its bottom line offer was to meet the cost of a basic clean-up, and move on. (In the case of the massive pollution in Ecuador, Chevron/Texaco struck exactly the same deal : it paid for a basic cleanup, then cut and ran. Ecuador is still chasing Chevron for $27 billion in compensation.)

Yet all that we have from the starry eyed people at the MED and Brownlee is that they’re looking at industry “best practice”. You’d have to say that without a substantive regulatory framework in place, that the “best practice” for the oil companies consists of doing bugger all to repair economic damage and then walking away at the earliest opportunity. The government hardly has any leverage. As it stands at present

..the maximum penalty under section 244 of the Maritime Transport Act tops out at $200,000.

Brownlee and the MED must look like born-again suckers to the oil companies of a type that they haven’t seen for decades. That isn’t a disincentive, that is a license to pollute.

But of course the starry eyed idiots at the MED are probably gazing  in rapture at the industry estimates of production and consequent revenue. Sadly, the amount is peanuts compared to the risks to existing industries.

Basically, the royalty regime in New Zealand requires companies to pay the Government 5 per cent of the value of the oil or 20 per cent of accounting profits, whatever figure is higher. Though this royalty and tax inducement regime is extremely generous by international comparison, Gerry Brownlee seems intent on making it even more attractive, as this report in April indicates:

The Government was consulting the industry over a new regime which could do more to encourage explorers by setting up special low tax rates and greater provision for write-offs for exploration.

Firstly you don’t get that money until they actually start pumping. As the BP disaster in the Gulf of Mexico shows, exploration can cause damage, even prior to the government receiving significant revenue.

Also, as Campbell points out, even the US has a lack of skills in simply measuring the extraction of oil and gas for revenue assessment. The NZ government certainly doesn’t have this capability. That makes our lack of a clearly defined framework for exploration and extraction, with a total lack of effective inspection, into a license to scam the people of NZ.

As history has taught us, without a working regulatory framework in place to constrain the oil-giants from their various tricks, they will in all likelihood simply walk away from any disaster after doing a cursory cleanup. The cleanup and consequences of a single major disaster would be pushed on to taxpayers for generations to come. At present, and for the foreseeable future, the NZ government simply doesn’t have the skills, capability or legal framework to prevent that from happening.

At this point it’d be a lot safer and probably more lucrative to leave the oil in the ground until the oil companies successfully work out how to drill for it and extract it safely. There is always going to be a demand for oil as a organic raw material for uses apart from burning it. We also need to build up the framework and skills inside of government to extract it safely and for the benefit of our citizens.

Quite simply, Brownlee is proceeding like a bull-headed idiot.  But we already knew that about him anyway – he is another of the many dumb cannons in the government arsenal.

9 comments on “Blowhard and the starry eyed suckers at the MED”

  1. Croc 1

    Excellent article Lynn.

    I would like to point out other potential environmental effects as well.

    This is a map of the basin here:

    In the case of an oil blowout:

    These are prime Hoki fishing grounds, and the closure of these grounds would also have a major impact on the economies of Nelson and Lyttleton.

    Ulva Island Marine Reserve in Stewart Island could be devastated, as would the Stewart Island fishery and tourist industry.

    This area is also prime habitat for New Zealand sea lions and Hoiho penguins. Both populations are in near catastrophic freefall.

    The South-East coast is also prime habitat for Hector’s dolphins, another endemic species whose numbers are in serious decline.

    This could also effect New Zealand sea lion breeding grounds around the Auckland Islands if a spill was to drift far enough and devastate the New Zealand squid fishery.

    • lprent 1.1

      I had a pile of other potential effects if there was a blowout in other areas in the drafts.

      But it blew out the word count to over ~1800 words so I cut them out while editing it back to ~1200. Even at that the post is way too long. I’m just not that good at keeping my posts down to our own guidelines… *sigh*

      I picked the southern basin because of Exxon and its rather disgraceful behavior over the Exxon Valdez aftermath.

  2. Draco T Bastard 2

    Oil industry in NZ needs to be government owned and highly regulated. No ifs, buts or maybes on that. It’s the only way we have of ensuring that it benefits NZ and that it’s actually accountable to the people of NZ.

    • insider 2.1

      Are you happy to fund the risk too? the 19 out of 20 wells that deliver nothing? NZ gets substantial benefits now wiht no financial risk

      • Draco T Bastard 2.1.1

        If the “financial” returns weren’t greater than the “financial” input then private companies wouldn’t be investing either. So, yeah, I have no problems with the government doing the financing.

        Of course, this article isn’t about the “financial” risk but the very real physical risk that the private companies have proved, beyond reasonable doubt, that they aren’t willing to take and will do everything in their power to avoid and to push that risk onto the taxpayers and people of the areas that that they destroy for their own personal and selfish aggrandisement.

  3. coolas 3

    Soundly researched journalism from Gordon Campbell. Brilliant.

    This is a benchmark & so sad MSM haven’t the means/will/courage to meet his standard.

  4. insider 4

    there were a few factual errors I noticed last week when I read it. Sloppy but not fundamentally flawing it.

    My problem with it was his rapid conversion of hypothetical scenarios into indisputable fact, which are then an opportunity to meander and pontificate. and some assumptions that again are converted to fact to support his position.

    That said I agree that not all risks can be fully anticipated or covered. There is a risk-cost balance. No right answer to that. It should be pointed out thought that the regime is pretty much the same as that established by Labour after their review of the Crown Minerals Act in 2004ish (??) so to personalise it to Brownlee is pretty unfair. Duynhoven and Parker were more than happy to press the flesh and parade Exxon’s interest when they came calling

    • lprent 4.1

      I agree that Labour were pretty slack as well. However at least I have a reasonable amount of confidence that once the situation with the safety mechanisms and depth was pointed out, then they’d do something.

      However Brownlee is quite literally a bull in a china shop. He has been been running roughshod over other ministries, eg DOC, and has this horrible tendency to assume that opposition doesn’t have a point. Moreover it was apparent during the schedule 4 ‘debate’ that he was just damn sloppy. The numbers and figures he was sprouting were almost entirely fictional.

      Opps gotta go and cook breakfast.. I’ll catch up with this later.

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