Tag Archives: offshore drilling

The U.S. Government, Brought to You By Big Oil

Long may she wave: The flag of the United States of Oil

Oil companies have begun to “weigh strategies to fight off tougher regulations” in the wake of BP’s spill to end all spills, the New York Times reported earlier this week. Supposedly, the companies are nervous because of President Obama’s angry takedown of the oil industry last week, as well as rumblings in Congress, where there are now efforts “to extend bans on new offshore drilling, strengthen safety and environmental safeguards and raise to $10 billion or more the cap on civil liability for an oil producer in a spill.”

Frankly, I don’t buy it. I’m quite willing to believe, as the Times story says, that the petroleum industry’s lobbyists have kicked into high gear. But I can’t believe the companies are really all that worried. Ever since John D. Rockefeller founded Standard Oil in 1870, the federal government has pretty much given the oil men exactly what they wanted, when and where they wanted it–from oil depletion allowances to tariff protection to cheap leases on the federal public domain (which includes the outer-continental shelf in the Gulf of Mexico, site of the Deepwater Horizon disaster). Periodic government attempts to contain or regulate the industry have been little more than temporary annoyances, rather than major obstacles to Big Oil’s power or profits. This is hardly surprising, considering the kind of influence the oil companies wield at all levels of the U.S. government.

In 1911, for example, the U. S. Supreme Court found that Standard Oil, which was then controlling 85 percent of the industry, had violated anti-trust laws and conspired against the public good. “For the safety of the Republic,” the Court declared, “we now decree that this dangerous conspiracy must be ended” within six months. Standard Oil was broken up into a few dozen closely related smaller companies–the only result being that the nation’s energy lifeline was controlled by a cartel instead of a monopoly.

Another serious stab at regulation began in 1938 with the passage of the Natural Gas Act, which again tried to combat monopolistic pricing by giving the Federal Power Commission (predecessor to Federal Energy Regulatory Commission) the authority to set “just and reasonable rates” for the transmission or sale of natural gas in interstate commerce. In 1954, in the Phillips decision, the Supreme Court held that the federal government should also regulate the price of natural gas at the wellhead–that is, at the point where the gas comes out of the ground. For the better part of a decade, the government fiddled around doing nothing, but then in the early Kennedy administration, the FPC came up with an area pricing plan. Although the focus here was on gas, everyone knew it was a warning shot at the oil industry, which owned and controlled most of the natural gas. To price gas, it would be necessary to get at the oil industry internal documents, revealing such things as the amounts of reserves, costs, and the like.

Immediately, the big oil and gas companies warned we would run out of gas if prices were not raised to stimulate greater production. In 1974, during the (largely manufactured) energy “crisis,” the FPC took the first steps to undercut its own proposed regulations by giving in to industry and hiking prices. Under Jimmy Carter, the government began the formal process of deregulating gas, a policy which carried forward under Reagan and both Bush’s as part of the Republican right wing’s drive against regulation. Once the government gave in, the gas shortage disappeared and today we are supposedly awash with gas. All this was accomplished by industry manipulation of production and reserve figures—the same thing that has happened during all oil “shortages.”

In the wake of the BP disaster, it’s become abundantly clear that the oil industry itself has been writing the rules for offshore drilling, and not federal regulators at the Interior Department’s Minerals Management Service. “Nearly 100 industry standards set by the American Petroleum Industry are included in the nation’s offshore operating regulations,” McClatchy reported last month. “The API asserts that its standards are better for the industry’s bottom line and make it easier to operate offshore than if the Minerals Management Service set the rules.”  

The Washington Post reported on Thursday that the MMS approved “categorical exclusions’’ from environmental review for BP’s offshore wells in the Gulf, including the Deepwater Horizon. Congressional probes already suggest Minerals Management worked in collusion with BP and other oil firms to increase offshore production without regard to safety or environmental standards. Over the last month, the litany of MMS’s failures, and its more than “cozy” relationship with the oil industry, has been extensively documented by the press (including MJ’s Kate Sheppard, here and here).  With government oversight of this caliber, we ought to stop wondering how a disaster like the Deepwater Horizon spill could happen, and start wondering where it’s going to happen next.

Failure to devise any sort of meaningful regulation of the oil and gas business means that we really don’t know what the industry does, or where or how. Information on the country’s reserves are left in the hands of the companies, not the federal government. Since the US Geological Survey, which is supposed to map the public domain never had the money to do the job right, large parts of the public lands have not been thoroughly mapped by anyone but the companies that exploit it. Relying on industry data has resulted time after time in false information–as in the case of gas in the 1970s energy crisis–to inflate or deflate the amounts of oil and gas reserves.

Beyond failing at its own oversight function, the workings of the MMS also make it difficult for independent analysts to assess what is really going on. Earlier this week, a coalition of scientific societies underlined the problems in a letter to Interior Secretary Ken Salazar:  

Without a transparent and ethical process for dealing with scientific research and scientific conduct, the science that is performed at DOI may be called into question. This will not only harm the reputation of DOI, but will threaten the conservation of the nation’s treasured natural resources.  To ensure that science is being used properly to implement natural resource decisions, science should not be suppressed, scientific misconduct should be punished, and scientists who report suppression or other scientific misconduct should be afforded whistleblower protections.  Additionally, the science that informs natural resource decisions must be clear, transparent, and subject to independent peer review.

Such changes are unlikely to be implemented even in the wake of the BP spill. The secrecy surrounding federal energy policy was underscored by the confidential meetings organized by Dick Cheney with the oil and gas industry, as part of the Vice President’s “task force” to design a new national energy policy in the early years of the Bush Administration. Those meetings, the details of which remain hidden from the public—their confidentiality supported by the courts—are the most glaring recent example of energy policy formed in secret, and in collusion with the energy industry. In other words, in America, the oil companies not only write their own regulations and perform their own oversight; they also set energy policy and draft laws.

In addition to having their way with the executive and legislative branches of government, the oil companies have largely triumphed over the judicial system as well. Government policy plays into oil company interests not only by letting them do as they please, but also in limiting their liability when things inevitably go wrong. On “Meet the Press” last Sunday, White House energy advisor (and former Clinton EPA head) Carol Browner repeated the pledge that BP would pay all cleanup costs for the spill. This is true, as far as it goes, and BP too has promised to pay for the cleanup. But you can just see lawyers haggling in court over what constitutes a cleanup cost.

In addition to the outright cleanup costs, BP also  faces cost of  up to a total of  $75 million for damages not associated with the oil spill itself—such things as fishing and tourism. That amount would be woefully insufficient in this case. Finally, some of the $1.6 billion stashed in Oil Spill Liability Trust Fund could be spent in a cleanup. This fund is made up of industry taxes of 8 cents per barrel, and there is a cap of $1 billion on how much of that can be withdrawn. The House  recently undertook efforts to raise the cap and increase the industry taxes going into  the Oil Spill Liability Trust Fund. But since this Trust Fund is created by taxing oil, you can be sure that one way or another, the cost will be passed on to consumers, rather than coming out of oil company profits.  

Finally, the Supreme Court could decide to give a special parting gift to BP, as they did to Exxon following the Valdez spill. In that case, an Anchorage jury brought in a verdict of $5 billion in punitive damages against Exxon. In 2008, after nearly two decades of litigation, the Supreme Court reduced the damages to $500 million–a tenth of the original verdict. The decision, written by Justice Souter, cited ”the need to protect against the possibility…of awards that are unpredictable and unnecessary, either for deterrence or for measured retribution.” It’s hard to believe five Supreme Court Justices believed that $5 billion wouldn’t be a more effective “deterrent” to future negligence than $500 million. But apparently, the highest court in the land wanted to make sure that a jury of citizens didn’t go overboard in demanding responsible behavior from America’s favorite industry.

BP’s Image Coated in Sludge After Years of Greenwashing

For the last decade, BP has been busily engaged in a multi-million dollar greenwashing campaign. Changing its name from British Petroleum to just BP, the company adopted a new slogan, “Beyond Petroleum,” and began a “rebranding” effort to depict itself as a public-spirited, environmentally sensitive, green energy enterprise, the very model of 21st century corporate responsibility.

It’s going to take more than a name change and a clever ad campaign to erase the image of oil spreading across the Gulf Coast from BP’s offshore rig, and dead wildlife washing up onto its beaches. Even as it magnanimously agreed to cover the costs of cleaning up the mammoth spill, BP on Monday was still insisting that it wasn’t at fault for the accident that caused it–blaming it instead on the offshore drilling contractor that operated the rig, which exploded and then collapsed. So much for corporate responsibility.

Even before the Deepwater Horizon disaster, BP’s green image was nothing more than a scam. While making miniscule investments in things like solar power, biofuels, and carbon fuel cells that backed its PR claims, BP continued to work relentlessly to expand its oil and gas operations. In the last decade, the world’s second largest producer of fossil fuels, the company drilled (and spilled) vast quantities of oil and gas on Alaska’s North Slope and in the North Sea. It positioned itself to rip up Canada’s tar sands to extract its dirty oil, and grabbed a 50 percent interest in Iraq’s rich Rumaila oil field. BP boasted the highest number of explosions and other accidents at its U.S. refineries (several of them deadly), and made the Multinational Monitor’s 10 Worst Companies lists in 2000 and 2005, based on its environmental and human rights record.

But BP clearly believed that green was in the eye of the beholder. The company’s move toward green marketing began in 1997, when it quit the industry’s climate change denial group, the Global Climate Coalition, and acknowledged a possible link between global warming and the use of fossil fuels. By 2000, the vertically integrated multinational—which explores, extracts, transports, refines, and sell fuels through its myriad gas stations–had bought up Amoco, Arco, and Burmah Castrol. It united them under the BP brand with a feel-good flowering sun logo, and hired the advertising firm of Ogilvy & Mathers to launch a $200 million rebranding campaign.

As Ogilvy executive John Seifert described it in 2002, then BP CEO John Browne—or, to use his full title, Lord Browne of Madingley–“came to me with a dream proposal. He said, ‘I want this company to be a force for good in this world. Build that image and I will hold the company accountable to it,’” The problem, Seifert said, was, “No other industry is more loathed and distrusted by the public than the energy industry, and yet no other industry is more critical to modern survival. The reality is that no matter how much consumers resent energy companies, they still drive their cars and leave on the lights and turn the other cheek.” His solution was a campaign that “bridges the us/them barrier, that brings the consumer into the debate so that we can address the problem together.”

By 2004, BP was running its “BP on the Street” nationwide ad campaign, featuring of what one BP executive described to Adweek as “a radical conversation with consumers about the paradox of the need for energy and the cost for getting it.” TV spots showed ordinary looking people being asked questions like, “What would you rather have, a car or a cleaner environment?” Says one woman, “I can’t imagine being without my car. But that compromise is very hard to make where we are.” Then the punch line flashes on the screen: “We voluntarily introduced cleaner fuels, six years before EPA mandates … these low-sulphur fuels reduce ozone pollution….It’s a start.” Whew. Thank goodness for BP, saving us from making those tough choices between preserving the polar ice caps and taking the bus.

Other ads had the appearance of being hard-hitting—including one that asked people what they would like to say to oil company executives. “Think about your children,” one woman says. “They’re breathing the air I’m breathing, that you’re breathing, and it’s bad. And down the line, they will suffer. And you know, think about that. You know, if you have alternatives, invest the money in alternatives. You’ll still make money. It won’t make you a Communist. It’ll just make you a better human being.”  The television and print ads always ended with a plug for BP as “a global leader” in clean energy production. (Some examples appear at the end of this post.)

Accompanying the ad campaign was a series of public pronouncements from Lord Browne, who had been dubbed the “sun king” and the “green oilman,” and was also reputed to be Tony Blair’s favorite businessman. Browne announced a plan to reduce company-wide greenhouse gas emissions, and another to invest $8 billion in alternative energy and greenhouse gas abatement projects–an impressive figure that was actually a pittance relative to BP’s overall budget.

The gimmicks appeared to work. In 2001, BP had already been chosen as the “company that does most to protect the environment” in a survey by the Financial Times that polled not only corporate executives but also activist groups and the media. “There appears to be near consensus,” the paper reported, that BP “has made exceptional efforts to replenish environmental resources, develop alternative fuels and communicate with stakeholders.” As for the general public, a 2007 “green brands survey” found that BP was perceived as more green than any of the other petroleum companies, and also headed the list of companies that had “become more green” in the previous five years.

And what else was going on at BP while it was supposed to be “becoming more green”?

  • In 2004, BP engaged in a “massive manipulation” of the U.S. propane market. The Commodity Futures Trading Commission ordered the company to pay $303 million in criminal penalties and restitution to victims of its trading abuses.
  • In 2005, a devastating explosion and fire at a BP refinery in Texas BP killed 15 workers and injured 170 others. In 2007, BP was fined $50 million for environmental damage causes by the refinery blast. In 2009, the Occupational Safety and Health Administration levied an additional fine of $87 million fine–the largest in OSHA’s history–for the company’s “failure to correct potential hazards faced by employees.”
  • In 2006, more than 260,000 gallons of crude poured onto the Arctic tundra from a BP pipeline near Prudhoe Bay—the worst onshore spill in Alaskan history. Whistleblowers had already revealed that BP ignored warnings about leaking and corroded pipelines and had tried to cover up earlier, smaller spills, and Congressional investigations found that negligence and cost-cutting were factors in the 2006 disaster. BP was fined more than $20 million.
  • In 2007, the U.S. Justice Department announced a fine of $303 million against BP for “massive manipulation” of energy markets in 2004.
  • Also in October 2007, the U.S. Minerals Management Service fined BP for a series of violations related to a near-blowout at an offshore rig in 2002. The violations included inadequate training of BP workers in “well control.”

During the period that all of these human and environmental catastrophes were going on, BP sales rose from $192 billion in 2004 to $240 billion in 2005, and then to $266 billion in 2006. The company’s profits fell in 2007 following the disasters and fines, but began rebounding as soon as BP announced massive layoffs. The dapper Lord Browne of Madingley, however, resigned after reports faulted his leadership in contributing to the accidents–and after he was found to have lied to a court about his relationship with a former male escort.

BP’s new CEO, Tony Hayward, had been head of Exploration and Production for BP since 2003. According to the New York Times, Hayward “promised to refocus the company and change the culture, emphasizing safety.” In the last few years, BP has spent less time promoting itself as a green company and more time depicting itself as safe, competent, and forward-thinking–a claim that has now proven even more preposterous than the greenwashing was.  

The Times article remarked that for Hayward, “the accident threatens to overshadow all of the efforts he has made to burnish the tattered reputation of the company.” In a meeting with BP executives in London following the spill, Hayward reportedly asked, “What the hell did we do to deserve this?”

Tony Hayward himself has the answer, since according to the Times, “He also expanded the company’s already aggressive exploratory efforts in the deep waters of the gulf.” In fact, “last year, the same platform that has now sunk to the sea floor drilled the deepest well in history, opening one of the largest new fields in the world.” New information is emerging every day on the many ways in which BP cut corners when it came to safeguards on the rig–some of them implicated in the current disaster. 

Hayward got a 40 percent pay increase in 2009 based on BP’s “improved performance.” And just recently, the company announced earnings of $5.6 billion for the first quarter of 2010, more than double the same quarter last year. The disaster in the Gulf, of course, has not been good for BP’s share prices. But a Morningstar oil stock analyst blithely told the New York Times that the worst oil spill in U.S. history “will test Tony and his ability to respond to this situation.” She confidently concluded, “Certainly, BP will survive this.” 

Whether the Gulf Coast will survive it is, of course, another question. If it were up to me, I’d gladly trade the future of BP for the life of one sea turtle.

Dude, where’s my fuel? 2006 ads from BP’s greenwashing campaign.

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