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The Gulf Spill's Lingering Questions

Author: Michael A. Levi, David M. Rubenstein Senior Fellow for Energy and the Environment and Director of the Maurice R. Greenberg Center for Geoeconomic Studies
April 20, 2011

The Gulf Spill's Lingering Questions - the-gulf-spills-lingering-questions


The landscape for U.S. energy policy looks strikingly different from a year ago, when an explosion on the Deepwater Horizon oil platform killed eleven and began a months-long oil spill in the Gulf of Mexico. But the Deepwater disaster itself was less a factor than might have been predicted. Oil is about 50 percent more expensive today--although that is due to supply and demand fundamentals and unrest in the Middle East, not the production slowdown in the Gulf. Legislation that might have expanded offshore drilling is on the backburner--though at least as much because the political deal that might have made it possible, which would have traded climate curbs for more drilling, is no longer viable. Total U.S. oil production is flat or up, despite curbs in the Gulf, because of unexpected developments with tight oil in North Dakota. Indeed, the most surprising thing about the Gulf spill is not its importance in changing the U.S. energy picture, but how marginal its influence has been.

In the immediate aftermath of the spill, pundits predicted a harsh crackdown on offshore drilling. Yet while the last year has been a rocky one, with the Obama administration accused of moving too slowly to get new drilling up and running, things appear to finally be sorting themselves out. A new spill containment system has been developed, and with that in place, new permitting in the Gulf appears to have resumed. It is too early to judge whether the situation is quite back to normal, but the trend line looks to be heading in the right direction.

Still, two big questions loom. The first concerns the future of expanded offshore drilling. U.S. oil production is no panacea for the nation's energy woes, but on the margin, it can be valuable. Alas, the debate over new drilling is likely to be rejoined in the context of shock over high gasoline prices, rather than the relatively calm context in which it might have taken place last year. It will be important to sort out offshore drilling policy carefully: New offshore production is unlikely to have a large long-term impact on world prices, but its mid-term influence could be considerably more.

The second question concerns whether industry has learned the right lessons from the spill, which clearly demonstrated the danger to the whole industry of weak regulation and poor safety practices in one company. Yet much of the sector remains instinctively opposed to robust government oversight. This is playing out most prominently elsewhere, in the natural gas industry, where many developers are fighting even modest regulatory efforts. They would be wise to look to the Gulf for a lesson: When something goes wrong in one company, the whole industry will feel the consequences.

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