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.

MARGINAL SUPPLY IMPACT

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).