Is Mexico Prepared for an Offshore Disaster?

Wed, 01/25/2012 - 15:56

Since the 2010 Macondo well blowout, preparing for the worst-case scenario at offshore production sites has been high on the list of priorities for offshore regulators around the world. Juan Carlos Zepeda Molina, President of the CNH, believes that one of the largest consequences of the accident in the US sector of the Gulf of Mexico was that it became clear that oil companies had not invested enough in safety and containment: “Instead, companies were investing in new exploration and production technologies. The reason for this is simple: companies get results and profit in these areas. There is a clear link between investing in such technology and having more profits. But I don’t have that link when I am talking about safety. Where is my profit? How do I see my profit and loss change if I invest in new containment capabilities? Who cares?” This situation, Zepeda Molina believes, has had a serious impact on the preparedness of companies and countries to deal with a major offshore disaster.

In 1979, Mexico suffered its own well blowout at the Ixtoc-1 well. Zepeda Molina makes the point that the Ixtoc-1 and Macondo incidents were remarkably similar: initially the only solution to contain Macondo’s blowout was the same technology used 30 years before to contain Mexico’s Ixtoc-1 spill, which was relief wells. “Why has the technology changed so rapidly in other areas in the oil sector and not in safety and containment? Again, companies are driven by profits, and investing in safety does not provide clear profits.” Zepeda Molina believes that this situation cannot be changed by creating a culture of safety, but only through providing the right incentives, both positive and negative, to oil companies. This has influenced CNH policy in risk management strategies, insurance policy and contingency planning in its dealings with Mexico’s NOC.

One of the key features of Zepeda Molina’s strategy to ensure that Pemex is fully prepared for an offshore disaster is to make sure that the company is insured. The NOC is currently covered for oil spills, well containment failures and blowouts. A separate insurance policy will be purchased for deepwater. Zepeda Molina says that at this point, the CNH is not forcing full insurance on Pemex, but rather encouraging them to develop their own insurance strategy. He believes that this will force the company to see the benefit of investing in containment and safety, as extra safety measures will serve to bring down insurance costs. “If you allow a company to self-insure, it will not be forced to see the price of risk in the market. It is important to force companies to go out there and face the risk. Some people say safety is a cultural problem; I believe there is a lack of incentive to adopt safety measures, because the correct regulation is not in place.”

Preparing for an offshore disaster does not mean simply focusing on the deepest wells, according to Javier Estrada Estrada, a Commissioner at the CNH. Rather, it is a matter of assessing experience and technical expertise according to the demands of a well. “Sometimes you can drill at 1,900m, and even at this water depth the well is not so risky, either because it is a gas well, or a geological structure that is well known to the operator. However, some wells can be high risk even in shallow waters. Some oil wells are considered high risk at 600m water depth, and sometimes even at 60m,” Estrada Estrada says.

He believes that Mexico is relatively well-prepared for an offshore disaster, as it has increased its risk awareness since the Ixtoc-1 disaster of 1979. “It is not just the oil industry that has learnt to prepare itself for offshore oil spills, but many other people, including the navy and local government,” he says. “Today, the question we have to ask ourselves is whether, as an industry, we need to prepare for another incident the size of Macondo. Is it possible that a spill this large could happen again?”

Estrada Estrada says that it is not surprising that the CNH is asking this question, as the likelihood of another accident like Macondo occurring are low. Additionally, he says that technologies have now been developed as a result of Macondo to dampen the flow of oil from a well blowout, so hopefully such a large accident will never happen again.