More Safety for Offshore Oil and Gas in Europe

Authors

• Farid Baddache

  Former Managing Director, BSR

The Gulf of Mexico oil spill is having a ripple effect on energy companies operating in Europe. The European Union is looking at ways to make existing regulation more stringent for offshore operations. In their recent Communication, the EU Commissioner for Energy says the EU needs “to make sure that a disaster similar to the one in the Gulf of Mexico will never happen in European waters.” This Communication will shape the agenda for a comprehensive regulatory framework set to be proposed in early 2011.

More stringent regulation will primarily impact energy companies operating in the North Sea, where about 90 percent of offshore platforms in Europe are operating. But the new state-of-the-art practices will also need to become the norm throughout the EU and its waters.

Supporters of environmental protection see this as a good step to protect our world and biodiversity, as the EU will issue new requirements for testing and for independent certification of safety equipment. Independent experts will evaluate supervisory authorities concerning offshore licensing, inspections, and compliance monitoring. In addition, the EU is putting an emphasis on improving the availability of emergency response capacities notably by building a network of stand-by oil pollution response vessels covering each relevant region. These are early examples, as the EU intends to become more specific about new requirements and regulations before summer 2011.

Businesses or governments focused on the bottom line of their activities can also get behind these new developments. First, stricter health and safety rules will no doubt cost less in the long run than the estimated US$20 billion spill response fund that BP had to set aside to fund cleanup and compensation payments. Second, governments need to collect taxes. With BP’s profitability taking a hit due to the oil spill, they will pay significantly less taxes to the United States and U.K. governments over the next few years. In other words, lack of stringent regulations has hit the revenues of both countries by about US$10 billion. So, when the EU works on more stringent regulations, the EU works also on its own ability to reduce risks of budget backlash for its member countries.