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Scenarios: Tighter regulations to follow Gulf oil spill
May 18, 2010 / 11:46 AM / in 7 years

Scenarios: Tighter regulations to follow Gulf oil spill

WASHINGTON (Reuters) - The U.S. Congress is turning its focus this week to the federal government’s response to the Gulf of Mexico oil spill, but the offshore oil drilling industry is far from off the hook.

Congressional pressure on federal agencies, especially the Interior Department’s Minerals Management Service, is likely to lead to tighter rules for the oil and natural gas sector.

The Senate Homeland Security committee kicked off a series of hearings examining the government’s role in the cleanup of the massive oil leak threatening the U.S. Gulf Coast on Monday with testimony from Homeland Security Secretary Janet Napolitano.

Interior Secretary Ken Salazar and Environmental Protection Agency chief Lisa Jackson are scheduled to answer lawmakers’ questions regarding the rig disaster on Tuesday.

Executives from BP Plc and Transocean Ltd will also face more congressional grilling this week.

BP is already facing legislation that would make the company pay more for the economic damages resulting from the rig accident. Meanwhile, the White House last week offered its own legislative plan to pay for the spill.

Following is a look at some of the new laws and regulations that may result from the spill.

REGULATING THE INDUSTRY

Facing attacks for not doing enough to prevent the rig disaster, the Interior Department last week announced it would change the way it oversees offshore drilling.

In addition to separating the Minerals Management Service’s oil royalty collection and safety inspection roles, the department is reviewing environmental permitting procedures for offshore oil production.

As part of the shift, the Obama administration has asked for an additional $29 million to pay for more inspections of offshore platforms and a review of procedures.

The overhaul is expected to lead to stricter regulations of offshore drilling. With the agency coming under heavy fire for allowing BP to bypass some environmental studies, there will likely be more stringent environmental analysis and oil spill response plans.

Regulators will also likely establish more rules regarding the equipment and techniques used in offshore oil production. The current focus on faulty blowout preventers and well cementing procedures as a possible causes for the accident will likely lead to more standards in those areas.

RESTRICTING OFFSHORE DRILLING

Interior has placed a moratorium on any new offshore drilling permits until at least May 28 when a safety review is due to be completed. Any significant extension of this moratorium could have a major impact on offshore drilling companies and lower projected Gulf oil production.

Senate Homeland Security and Governmental Affairs chairman Joseph Lieberman said on Monday that until questions surrounding the preparation and response efforts for this deepwater oil spill are answered, the government should not allow any new deepwater wells to be permitted and drilled.

Some lawmakers from coastal states have also called for a complete halt to offshore drilling in any new areas, saying the risk is just too great for coastal economies.

Still other lawmakers are still looking to expand offshore drilling, but with additional protections in place. The Senate climate bill released last week would allow U.S. states to prohibit offshore oil activity within 75 miles of their coasts.

MAKING OIL PAY

Lawmakers in both chambers have proposed bills that would raise the amount of money BP would be required to dole out for economic losses caused by the spill to $10 billion from the current cap of $75 million.

U.S. Senate Majority Leader Harry Reid on Monday said a $10 billion liability limit would be “inadequate,” however.

While it is unclear exactly how much the cap will be lifted, it is almost certain that BP and other oil companies drilling offshore will be responsible for covering much more than $75 million in economic losses in the future.

There are also likely to be changes to the federal Oil Spill Liability Trust Fund, authorized for use in the aftermath of the Exxon Valdez disaster. Lawmakers are considering raising the 8 cent per barrel fee the industry pays to support the fund by 1 to 25 cents.

The White House proposal released last week would increase this per barrel fee by 1 cent.

Democratic Senator Frank Lautenberg of New Jersey has introduced legislation that would impose an annual fee of $10 for every acre leased for offshore drilling to raise money for clean energy transportation technology. Lautenberg said the fee could raise $1.8 billion a year.

The additional fees and liability risks could hurt smaller oil and natural gas operators offshore that may not be able to handle the costs.

Editing by Cynthia Osterman

Our Standards:The Thomson Reuters Trust Principles.
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