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Recent Tragedies Have Long-Term Consequences, Say Energy Execs

The oil and gas industry long has had an image problem, but the consequences from the Macondo well blowout -- as well as recent onshore gas pipeline explosions and well blowouts -- may take years to repair, executives said at the Offshore Technology Conference earlier this month.

The Department of Energy's Christopher Smith, deputy assistant energy secretary, noted that "blowout preventer" (BOP) has become a part of the language since the Deepwater Horizon disaster. "Fracking" also is a familiar term because of the nationwide controversy over hydraulic fracturing.

"These terms have entered into the public consciousness in a way that is going to be a net negative for industry and for government as we try to advance our goals," Smith told the audience. The deepwater drilling accident "did raise doubts..."

As the Obama administration moves to allow more drilling, it's "trying to strike a balance between expanding access to domestic energy resources and safely regulating their development," Smith said.

Chevron Corp.'s David Payne, vice president of drilling and completions, said it will take a long time before the public has a better impression of the energy industry. "We have not regained that trust," he said. And the damage is not only in North America.

"Our license to operate comes from the people in whatever country we work in, and when we lose the trust of those people, we lose our license to operate," he said. Most people "don't understand our business."

The forensic technical analysis of the Macondo well BOP was a punch in the stomach to the energy industry, said the experts. Det Norske Veritas concluded in its report that basically the Macondo well's drill pipe wasn't within range of the blind shear ram blocks designed to close the BOP.

The BOP "essentially operated as it was supposed to operate," said Smith. "It was wired correctly...Things that were supposed to close closed...But the problem was that the design specifications for that BOP did not foresee the range of failure modes it would have to operate under in order to truly mitigate a disaster of this type."

Determining what failed when the Macondo well exploded is essential, said Payne. Ensuring that onshore water supplies are safe during drilling operations is essential as well.

"There are big questions," he said. Of the well blowout in the deepwater, he said the industry needs to know what failed within the well, "what worked and what didn't" and then share what it's learned. Until those issues are resolved -- and the public is placated -- repairing the industry's reputation will be monumental.

Since the deepwater tragedy the Department of Interior has introduced new safety and environmental regulations for offshore operators. The Environmental Protection Agency and the Energy Department also are studying shale gas development, and specifically hydraulic fracturing issues.

The recent accidents, including Japan's tsunami and earthquake, which triggered a nuclear disaster, pushed "energy safety...to the forefront of industry challenges," said Kuwait Petroleum Corp. CEO Farouk Hussain Al Zanki.

But image aside, the industry still has to find the resources. And "the task ahead is daunting," said ExxonMobil Corp.'s Stephen Greenlee, president of the exploration unit.

To keep pace with projections that worldwide energy demand will jump by more than one-third by 2035 is difficult, Greenlee told the audience.

"As we look at it, it can be a bit overwhelming."

However, the world has more than 7.6 trillion boe in resources to tap, which is "more than adequate," said Greenlee. And the industry, he said, time and again has proven it can develop new technologies to bring new resources to market.

Looking for renewable alternatives "at the moment is the right thing to do, but looking for [them] to replace hydrocarbons is impractical," said Chevron Corp.'s Ali Moshiri, president of the Africa and Latin America exploration and production company.

The United States easily could expand its energy supplies and reduce emissions by improving efficiencies in buildings, houses and vehicles, Moshiri noted. Higher oil prices also create incentives for the energy industry to innovate and develop resources that otherwise would be uneconomic to produce.

However, Moshiri and other experts cautioned that U.S. leaders should not react in ways that could stunt the development of necessary energy supplies.

"You can't be emotional about our business based on gas prices," the Chevron executive said.

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