It is not particularly difficult to see why the costs associated with the processes of recovery and post-recovery movement and storage of crude oil is such an astronomically costly exercise. What, all too frequently, are the devastating effects of oil spills, makes clear just why oil companies ‘shell out’ astronomical sums of money to optimise safeguards against oil ‘spills’. As has become increasingly apparent to even the casual observer, the consequences of these spills are, frequently, not only financially costly but environmentally ruinous. Fixing the damage can mean the end of the line for oil companies not adequately prepared to foot the bills associated with cleanups as well as compensation and there have been instances in which the costs must be measured not by one-time payments, but in costs that can extend over a considerable period of time, arising sometimes, out of protracted litigation.
These considerations mean that oil companies must not only be well-insulated against being ‘caught out’ by oil spills through the strictest safety regimes and expensive insurance coverage but must also be financially prepared to face lawsuits not only from affected countries but from communities within those countries that might have been impacted in one way or another by the spills.
This is a road which the US super major, ExxonMobil, currently spearheading Guyana’s oil-recovery programme, understands only too well. Even now, the company can hardly pretend that it has put entirely behind it, the March 1989 Exxon Valdez incident when one of its oil tankers ran aground in Prince William Sound, Alaska, spilling 11 million gallons of oil and leaving behind a devastating environmental scar. Indeed, there is every reason to believe that what, these days, constitutes ExxonMobil’s ‘safety manual’ would have been drawn from the lessons learnt from the Exxon Valdez tragedy.
The January 15 oil spill which occurred off the Peruvian coast and which, reportedly, affected an area of Peru said to be the size of Paris, France’s capital, is as good a recent example of the phenomenon of oil spills and what can be their consequences for oil companies. In this instance, Spanish oil company Repsol S.A, which stands directly in the ‘firing line’ here, has reportedly set the cost of cleaning up and repairing at around US$65 million, an estimate which the company says is based on “what we have seen so far.” Here, Repsol is reflecting its awareness of the fact that the overall costs of ‘cleaning up’ the oil spill is likely to go beyond removing the visible pollution effects of the oil spill. Long after those are completed, that company is likely to be faced with litigation deriving from the effects on the lives and livelihoods of individuals and communities in various parts of Peru. Indeed, it appears that Repsol has already anticipated this and has already stated that whatever the overall ‘cleanup cost’ the “major part” of that figure will be covered by insurance companies. In the instance of Peru, a spill of just over 10,000 barrels is believed to have occurred.
Beyond the financial costs associated with post-oil spill cleanups, the physical and environmental manifestations of the oil spill can also attract relentless ‘flak’ towards oil companies by governments, affected communities and environmental lobbyists. This is being evidenced in the instance of Repsol through public pronouncements that seek to present the company as indifferent and uncaring. So loud has been the clarion call for fines and compensation that Repsol has already gone on record as saying that “if responsibility or guilt is defined we will attend to all fines as required.” All of this arising out of an oil spill, the actual occurrence of which reportedly lasted around ten minutes.
Repsol, however, does not appear prepared to shoulder all of the burden for the Peru oil spill The company has reportedly blamed the tragedy on the owner of the vessel which, whilst unloading crude at one of Peru’s refineries, experienced what is described in the sector as an “uncontrolled movement”. The oil company is reportedly readying itself to file a multi-million dollar lawsuit against the shipping company.
While the Peruvian authorities have reportedly confirmed that 79% of the post-spill rehabilitation work has been completed, Peru itself will feel the effects of the occurrence long after the Repsol cleanup personnel have packed up and left. Cleanup activities on the surface of the sea as well as repairs to some of the damaged beaches are likely to be completed by the end of February, Still, it will take, perhaps, many more months for the beaches to return to their original state, a circumstance that will result in loss of tourist income.
Far-reaching implications like those associated with permanent or at least long-term environmental despoliation and the economic and health impacts on directly affected communities persist way beyond the actual occurrences. These include not only the further costs associated with environmental restoration but what, sometimes, is the retardation of flora and fauna in the affected years to a point where the extent of their likely full recovery cannot be calculated at this time. Beyond these, it is impossible to accurately determine the longer-term health effects of oil spills on affected populations.
The incremental addition of technology to operations associated with oil recovery and storage is altogether justified when consideration is given to the high-risk pursuits involved therein. The need for Repsol to engage with the Peruvian authorities in the task of ensuring that the Spanish company fully discharges its responsibilities is a reality which the company dare not shirk. Other oil recovery operations in the hemisphere, including ongoing ones, offshore Guyana, Suriname and Brazil cannot afford to run the risks associated with failing to learn the lessons provided by the very recent experiences of Peru and Ecuador and more than three decades earlier, the 1989 Exxon Valdez incident.
