BP’s crisis is no Three Mile Island

June 11, 2010

The catastrophic blowout at Macondo has sliced 40 percent off BP’s market capitalisation, and led analysts to speculate about lasting reductions in deepwater drilling and the resulting impact on both long-term oil supply and the fate of climate change legislation.

The underlying fear is that Macondo is the oil industry’s Three Mile Island, an accident that turned public opinion against nuclear power for three decades.

Investors are right to fear the long-term impact on the company. But they exaggerate the impact on the wider industry and the prospects for climate change legislation. BP however faces a very changed operating environment in future.


Deepwater and ultra-deepwater petroleum wells are just one of a suite of advanced technologies energy producers have been using to extend the peak in conventional oil production.

In its 2008 World Energy Outlook, the International Energy Agency (IEA) estimated worldwide deepwater and ultra-deepwater reserves at 200 billion barrels. This is relatively small compared with conventional oil reserves (2.1 trillion barrels) let alone total hydrocarbons (6.3 trillion barrels, excluding unproven methane hydrate technology) (http://graphics.thomsonreuters.com/ce/HYDROCARBONS.pdf).

Even complete loss of deepwater and ultra-deepwater oil production would have only a marginal impact on total energy supply in the decades to come.

In any event, it seems unlikely deepwater exploration and production will be abandoned. Most policymakers recognise there is no practical alternative. Lukewarm public support for climate change legislation shows how little appetite there is for measures significantly increasing the cost of fossil fuels or forcing reductions in energy consumption.

The industry actually has a good track record of operating in extremely challenging environments at huge depths and under massive pressures with few accidents. One reason Macondo has stirred such intense passions is because it is so unusual.

The public, regulators and the industry itself have become used to the miracle of pulling oil up from deep below the surface without any real understanding of the engineering challenges involved. It has bred complacency.


Deepwater drilling will continue, probably under a tougher permitting and inspection regime, with additional fail-safe and disaster-recovery systems, adding to the industry’s costs. But higher safety and compliance costs will not materially affect oil prices going forward.

Extra compliance might add $2-3 to the price of a barrel of deepwater oil, but this is inconsequential compared with the vast expense of conducting seismic surveys under miles of seawater, mud and salt; rig hire; and the exploration risks of drilling dry wells.

Anyway, oil prices are set at the margin by the highest-cost form of production, and deepwater and ultra-deepwater are not the marginal source of supply. Other technologies such as tar sands, shale oil, and in the medium-term gas-to-liquids (GTL) and coal-to-liquids (CTL) are all more expensive and will set prices, not deepwater.

If it does happen, slower development of deepwater resources would have its biggest impact in the three-six year timeframe, when other technologies are still relatively immature and unable to fill the gap.

For the moment, however, oil resources look comfortable in the medium term. The banking crisis and worldwide recession in 2007-09 have shifted the global economy onto a lower and slower growth trajectory, freeing up energy resources and improving the medium-term supply-demand outlook.

Macondo would have had an enormous impact if it had occurred in H1 2008. In the current environment, with spare capacity, the industry can absorb the potential loss of supply more easily.

In the near term, Macondo complicates the passage of climate change legislation pending before the U.S. Senate. But the impact should not be exaggerated. The bill’s prospects were already poor and it has been heavily watered down.

The emerging deal would have seen the Obama administration and congressional Democrats open up more offshore areas to drilling in exchange for at least some Republican and energy industry support for the modified cap-and-trade provisions set out in Senator John Kerry’s re-named American Power Act.

That deal looks an increasingly hard sell, one reason President Barack Obama and senior officials are furious with BP.

Even before the spill, however, it was far from clear the drilling-for-climate deal would secure the necessary 60 votes in the Senate to move forward.

(1) Despite revisions to cap-and-trade, delaying its introduction for manufacturers and promising greater offshore acreage, there has been no lessening of hostility from Senate Republicans. The only Republican to support the compromise initially, South Carolina’s Senator Lindsey Graham, had already dropped his sponsorship under pressure from the party leadership and conservative activists.

(2) Coastal Democrats were more or less united in their hostility to more offshore drilling well before Macondo. Ten coastal-state Democratic senators wrote to Kerry in March to oppose putting drilling into the climate and energy bill.
They included Bill Nelson (Florida), Robert Menendez and Frank Lautenberg (New Jersey), Sheldon Whitehouse and Jack Reed (Rhode Island), Barbara Mikulski and Ben Cardin (Maryland), Ted Kaufman (Delaware), and Ron Wyden and Jeff Merkley (Oregon).

“While technological advances have attempted to lower the environmental and economic risks of drilling, experience has shown that no technology is foolproof … Far from being a thing of the past, spills occur with alarming frequency”, they wrote, with what now seems like horrible prescience.

With industrial and coal-state Democrats opposed to raising the burden on manufacturers and coal-producers, coastal Democrats opposed to drilling, and Republicans leery of a potentially unpopular compromise, the climate bill has a mountain to climb, and is running out of time before the mid-term elections.


While Macondo will not have much impact on the wider industry, the effect on BP itself could be far more severe.

Since the problems with Exxon Valdez (1989) and Brent Spar (1995), BP’s rivals Exxon and Shell have largely avoided major accidents. Both were searing experiences, prompting an overhaul of internal controls and safety culture.

In contrast, BP’s North American operations have been plagued by a string of accidents and scandals — including the Texas City refinery explosion (which killed 15 and injured 170 others in 2005); the sinking of the celebrated Thunder Horse platform (2005); and leaks and corrosion on its Alaskan pipeline network. (2006)

BP pleaded guilty to felony charges in the Texas City case, and was sentenced to $50 million fine and three-years probation. As BP American Chairman Bob Malone accepted at the time “If our approach to process safety and risk management had been more disciplined and comprehensive, this tragedy could have been prevented”. BP also received a fine and probation for Alaska.

The company has also paid a civil monetary penalty of $303 million for attempting to manipulate the propane market (2004). The settlement beguilingly concluded “all criminal investigations of BP America on matters related to propane, gasoline, crude oil and other commodity trading”, implying the CFTC was looking at other issues as well.

The incidents may or may not reflect shortcomings in management and culture. Maybe the company has just been unlucky. But the number of them in quick succession is beginning to look disturbing. Rightly or wrongly, BP North America is being singled out by U.S. officials as a problematic part of the industry.

Deepwater drilling will undoubtedly resume, under a tougher inspection regime. But BP may cede ground to its less accident-prone peers and will come under fierce pressure to change its operating and management practices.

It is that fear markets are reflecting with the collapse in the share price. The direct costs of the clean up are only one of the company’s problems.

BP’s number one priority now is to make sure that the next time a well blows, it belongs to someone else.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

There are similarities as well as differences between Deepwater Horizon and Three Mile Island. The similarities involve the powers that be lying after the fact to downplay the extent of their respective disasters and the enormity of ensuing long-term effects, which would lead one to conclude that similarly casual (when it comes to the lives of others) individuals are in charge of both situations at corporate and government levels.

The difference is that the noxiousness of the escaping carcinogens from Three Mile Island and the inevitability of more such incidents led correctly to a moratorium on nuclear power plants in the United States, whereas in the case of Deepwater Horizon all that is really necessary once the incredible mess has been cleared up is that attainable safety standards and procedures are never again bypassed.

In both cases, it is unlikely that those responsible will ever remunerate in full those whom they’ve harmed because a) the culpable executives are stingy, unprincipled scoundrels who tend to litigate rather than act decently; and b) because in the case of Three Mile Island, the damage will continue for more than a million years, and is thus difficult to fully assess. Not so in BP’s case. Or rather, not necessarily so – a lot here depends on BP.

Posted by HBC | Report as abusive

TOTAL MEDIA BLACKOUT ON GULF OIL SPILL and FAA Closes Airspace over the Gulf
http://www.nwofighters.org/total-media-b lackout-on-gulf-oil-spill-and-faa-closes -airspace-over-the-gulf/

Posted by Ezineeros | Report as abusive

Well, obviously the journalists fear for their jobs too!

Because otherwise they’d write the truth, the whole truth and nothing but the truth!

Instead of which, the mainstream media continues to downplay the size of this catastrophe and assume that the general public are gullible idiots.

This is now several steps too far but never fear, the Truth always outs in the end and heads will roll!

Posted by GforGoddessG | Report as abusive

HOW much oil is under the Gulf? Has anyone asked?

Posted by johnwwayne | Report as abusive

No, it’s not Three Mile Island. It’s Chernobyl – considering the scale of environmental catastrophe.

Posted by anonym0us | Report as abusive

Just remember Reuters is the company that once had a writer refeer to OPAC a proven funder of terriost, as a CLUB.

*a recent post
OPEC: a terrorist origination?
“Saudi costs for producing oil are the lowest in the world: according to Ali Al-Naimi, (Saudi oil minister) the cost to produce one barrel is less than $2.” ( a direct quote)
Saudi Arabia reportedly (??) needs to sell oil for at least $55 dollars a barrel to cover the cost of running the country. Fossil fuels finance 75 percent of the country’s entire domestic spending budget. For the above references click article (Bottom pg 2, top pg 3)

Question: does this include the hundreds of Millions, even Billions of dollars dispersed yearly to the Thousands of Saudi princes to finance their Preposterous, Extravert lifestyles???
Not to mention the Millions ( Billions??) of dollars of extortion paid to terrorist organizations.
Where did You think all that money was coming from?

Posted by charlesy | Report as abusive

in case you didn’t get the previuos referance.
Reuters is a PAID apologist of the oil imdustry.

Posted by charlesy | Report as abusive

we’ve had discussions up the ying yang. what we need Now is a LEADER.
there is an old saying, “if you can’t lead, get behind me and push”
if there R a thousan boats out there get two thousand. if there are a thousand people on the beaches get five thousand.
if the president thinks he’s too bright to get his feet wet and his hands dirty then get the Vice president out there.
Get Someone OUT in FRONT of this mess and MAKE something happen,
Talk about it LATER!!

Posted by charlesy | Report as abusive

Who cares!!! My boyfriend thinks the same with me. He- is eight years older than me, lol. We met online at an age gap dating site[ S E E K C O U G A R (C 0 /M)_]—a nice and free place for Younger- Women and Older Men, or Older Women and Younger Men, to interact with each other. Maybe you wanna check out or- tell your friends

Posted by zoeyue82 | Report as abusive

Are you kidding me John? This article makes no sense. 3MI was a disaster to the industry because it was a disaster, and this is no different. This isn’t about hydrocarbon needs or reserves just as well as 3MI not being about us running out of plutonium. The disaster at hand is just that. For decades to come, that region will be polluted, and the economics of tourism and fisheries will be in turmoil. You do realize that there is a human scale to all of this rather than just oil economics right? Look past the need to write a sympathetic fluff piece and get to the real meat an potatoes thank you. I never thought I’d say it but I do believe Reuters has lost its objectivity. You should be ashamed of yourselves, or else you should sell off your BP portfolio before it is too late.

Posted by bruhager | Report as abusive

As well, this disaster will leave a lasting opinion, fear, and hate of the oil industry just as 3MI did to the nuclear industry. Don’t kid yourself, because it has already happened.

Posted by bruhager | Report as abusive

One of these days you journalists are going to wake up and realize the proles have finally awakened from their ignorance and the propaganda no longer works.

From the looks of these responses, it’s already happening.

Posted by Marie1 | Report as abusive

Just more London based Reuters spewing complete and utter BS!

This thing is not even remotely contained and this nonsensical moron is trying to draw parallels.

Give me an F’ing break- complete tripe- you guys wouldn’t have made believable stories for Pravda!

Posted by mynamehear | Report as abusive

[…] Untitled (http://blogs.reuters.com/great-debate/2 010/06/11/bps-crisis-is-no-three-mile-is land/) Complete loss of ultra/deepwater oil production would have only a marginal impact on total energy supply […]

Posted by pinboard June 13, 2010 — arghh.net | Report as abusive

In contrast, BP’s North American operations have been plagued by a string of accidents and scandals — including (1)the Texas City refinery explosion (which killed 15 and injured 170 others in 2005);(2) the sinking of the celebrated Thunder Horse platform (2005); and (3)leaks and corrosion on its Alaskan pipeline network. (2006).

3 strikes and still not out?

How was BP allowed to undertake such a high-risk project in the first place with this kind of track record?

Who’s getting rich behind this?

Posted by doctorjay317 | Report as abusive

I agree with the article. People were angry about 3MI enough to fight new nuclear plants because there are alternatives. People are angry at BP, but not enough to quit using oil products. The industry won’t be affected in the long term.

Posted by drewbie | Report as abusive

People who were relatively casual about Three Mile Island are now looking at the BP fiasco, seeing the same thing all over again only with less radioactivity.

A certain Jarvis Cocker song comes to mind. You know the one.

Posted by HBC | Report as abusive

Thunderhorse is a joint Exxon BP venture and it didn’t sink it listed badly and is in production today. Reuters get your facts right what about reminding the public of Ixtoc 1 flowing from Mexico for almost 10 months!!
Mexico claimed sovereign immunity for damages from the US!!!! That leak soiled 162 miles of US beaches!

Posted by jmils | Report as abusive

This isn’t Three Mile Island, it’s worse! 3MI did not result in one confirmed human death, while the Deepwater explosion has already claimed 11 lives. It’s a shame the corresponding public opinion doesn’t have a modicrum of discernment.

Posted by RexMax46 | Report as abusive

BP is going to pay over $50 billion when this all said and done. We just launched a Facebook competitor at story+burn.com

Posted by GreatRead | Report as abusive

Of course, the BP disaster is not like Three Mile Island. Three Mile Island accident did not kill anyone; the BP accident killed eleven people. Three Mile Island did not harm anyone in any way. Radiation release was so small in the Three Mile Island accident that one gets more radiation dose from flying across the country in a jet domestic flight. Who knows today what the human adverse effects will be from the BP disaster, but it will be very large indeed. The environmental effects could be extreme in the BP disaster, not so for the Three Mile Island accident. The Three Mile Island accident was an economic disaster to the tune of $6 Billion dollars in today’s dollars (replacement cost for a plant today). The BP disaster will be considerably more than this and bring down a huge company with a lot of layoffs of mostly very good people. The utility owning the nuclear plant survives today. The similarity between the two events is that human error caused problems to be amplified leading to failure. In Three Mile Island, safety systems composed of multiple backup systems ultimately saved the situation and prevented adverse effects on the public. This was not the case for the BP disaster because there were no redundancy of diverse safety systems. Deep sea drilling could learn a lot from the Nuclear Regulatory Commission (NRC) of the US government that places regulations on the nuclear industry and enforces such.

Posted by steinin | Report as abusive

It’s time for corporate/business punishments to exceed the gross revenue to have been derived from the incident’s resource. If they had to give over the expected revenues from the well, they would not make mistakes. If one well would break the company, then it shouldn’t be in business. Small fry shouldn’t be in big business. No more wrist slaps. Time to reform ALL businesses/types of incorporation excess.
Financial, Energy, et al, ad nauseum. Corporate aristocracy needs be tore down, rebuilt.

Posted by RRrrr | Report as abusive

Estimates vary, but they’ll still be “cleaning up” Hanford until at least 2040. At TMI, “cleanup” appears to amount largely to not talking about the extent of the core meltdown or how much radioactive gas really escaped.

Exxon hasn’t paid up all the court-ordered damages it owes on the 1989 Valdez catastrophe. BP has yet to show much comprehension of the nature and extent of damage caused by it and/or its contract partners over several recent events.

Fair enough, these disasters aren’t all the same. Just, there’s too many of them involving the same sort of happy-go-lucky amateur executives with connections in high places, is all.

Posted by HBC | Report as abusive

Just wondering if there were any fines or penalties for the management or companies responsible for the “Three Mile Island” disaster. It would be great if someone has a link they could send me respecting this information. Thank you

Posted by SpringBeck | Report as abusive