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U.S. panel eyes more self-regulation for oil
August 18, 2010 / 10:18 PM / in 7 years

U.S. panel eyes more self-regulation for oil

<p>Drill ships and response vessels work in the Gulf of Mexico off the Louisiana coast line while attempting to drill relief wells at the Deepwater Horizon Oil Spill wellhead July 27, 2010. REUTERS/Sean Gardner</p>

WASHINGTON (Reuters) - The White House oil spill commission could push for the oil industry to create a self-regulating agency that would fill a gap in the sector’s oversight exposed by BP’s massive oil spill, a co-chair of the panel said on Wednesday.

A structure modeled on the nuclear industry’s Institute of Nuclear Power Operations, or INPO, would allow oil companies operating offshore to hold their counterparts more accountable, commission co-chair Bill Reilly told Reuters.

“An INPO-like facility very strongly backed by a regulatory authority, by the government, could really fill that gap,” Reilly told Reuters in an interview.

He stressed that any self-regulating agency would not be a substitute for a strong federal regulator, but instead would act as supplement to those rules.

Any measures that the commission proposes would be in addition to tough new legislation passed by the House in July, but that still needs to get through the Senate.

Prior to its massive oil spill that battered the Gulf coast for months, BP (BP.L) (BP.N) had a reputation in the oil industry for taking safety risks, Reilly said.

“There was a sense for some time that BP did not have adequate attention to safety and environment,” he said. “Yet the industry ... didn’t have any way to influence BP with respect to that problem.”

Charged with issuing recommendations on the future of offshore drilling, the seven-member commission is strongly considering a structure similar to the nuclear sector’s agency for offshore oil producers.

Such a regulatory regime would be a sweeping overhaul for an industry that once prided itself on safety, but is struggling to regain its footing with a suspicious public after the largest oil spill in U.S. history.

At its second public hearing next week, the presidential panel will examine the details of how such an agency might work within the oil and gas industry.

The nuclear industry’s agency was established by nuclear companies in 1979 following the recommendations of a presidential commission after the Three Mile Island nuclear plant accident that sent shockwaves through the sector.

The industry-funded institute conducts regular evaluations of nuclear plants, establishes performance objectives and helps train nuclear plant employees.

Spurred by the BP oil spill, oil companies are also weighing the implications of setting up a self-regulating agency.

“It’s something the industry will be taking a look at and considering and seeing if there’s an opportunity that could work down the road,” said Erik Milito, of the American Petroleum Institute, the main oil industry trade group.

Reilly, a former Environmental Protection Agency head, said during his time on the board of Texas-based Energy Future Holdings Corp, which operates a nuclear plant, he was impressed by the respect in the nuclear industry for INPO evaluations.

A new oil oversight body may be tasked with inspecting the safety of the massive offshore rigs, affecting companies from Exxon (XOM.N) to the drilling leader Transocean (RIG.N).

Some believe an industry-backed watchdog would be necessary if companies are forced to share in costs of accidents and spills, as some lawmakers have proposed.

It may be difficult to gain public support for such an agency, however, especially as critics charge it was the government’s cozy relationship with oil companies that helped lead to the Gulf spill.

“The industry sort of regulating itself is probably not going to sell very well with the American public,” said Ken Medlock, an energy fellow at the Baker Institute at Rice University.

Instead, Medlock said another outcome would entail a tax on oil companies that would support an expanded government offshore regulatory agency.

Reilly said he believes if the nuclear industry could overcome public misgivings, then the oil industry can also.

“If there was an industry that was even less in favor in the past 30 or 40 years since Three Mile Island, it’s that industry,” he said. But INPO “has been accepted and proved itself effective,” Reilly added.

Editing by Lisa Shumaker

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