Shrinking feeling for Big Oil

The oil is still seeping, flowing or gushing out of the seabed of the Gulf of Mexico — pick your adjective depending on who you’re listening to — but the repercussions of the Deepwater Horizon disaster are clearly going to go on for some time. It’s not a good time to be BP in the US, particularly in Texas or Washington DC.

The share price of Britain’s biggest company is falling off a cliff, pension fund managers are starting to make angry noises and BP chief executive Tony Hayward is doing himself no favours at all. Commenting that he’d ‘like his life back’ was not tactful; that’s not the sort of thing to say in the aftermath of an incident which killed people, and the hundreds of people trying to block the leak and clean up the spill, none of whom are on Mr Hayward’s salary, would also like their lives back.

BP’s engineers are also looking increasingly desperate. With the failure of the ‘top kill’ and ‘junk shot’ procedures, the option of cutting the leaking pipe and attempting to cap the stump is extremely daunting. Comparisons with other blowouts, such as the Montara incident off Western Australia last year, are facile. In that case, a top kill operation and relief wells were successful, but the operation was performed in very shallow water. The depth, pressure and sheer distance of working at the bottom of the Gulf of Mexico makes it a much more difficult prospect.

In the meantime, US authorities are beginning a criminal investigation amid talk of seizing BP’s US assets until the leak is repaired. It’s certain that there will be heavier regulation of oil industry activities; the Minerals Management Service, which overseas the environmental impact statements of oil companies’ exploration activities, will be shaken up. It’s going to be more difficult and more costly to drill for oil in the US and off its coast.

Many will say that’s a good thing, and that the Deepwater disaster proves it was far too easy to drill without appropriate safeguards. But the consequences in the US market could well go further than that. The Obama administration is keen on reducing the dependency of the US on foreign oil, but the market is huge — America consumes a quarter of the world’s oil but has only three per cent of its reserves. If the government is serious about reducing imports, it’s going to have to look for ways to plug a huge energy gap.

Is this an opportunity for engineering? Unlike the UK government’s belt-tightening policy, Obama is increasing funding for research, with alternative energy generation high on the priority list. If the Gulf of Mexico is the catalyst for a surge in activity in this area, the oil industry could find itself in a very uncomfortable position.