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Getting tough on drillers to protect environment
Source: Agencies |
September 20, 2011, Tuesday
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Print Edition
CHINA is clamping down on offshore oil drillers after a spill by United States firm ConocoPhillips in Bohai Bay, requiring tighter controls in a campaign to beef up environmental protection standards ordered by Premier Wen Jiabao.
Firms are under orders to meet protection standards that some industry executives complain are nearly impossible. Approvals of environmental impact plans for new wells have slowed to a trickle as regulators pore over them more closely. Companies worry they will be barred from using the latest equipment if it hasn't been tested in China.
The first shot from Beijing came earlier this month, when it ordered the shutdown of the 168,000 barrels-per-day Penglai 19-3 oilfield, in which China's largest offshore oil producer, state run CNOOC Ltd, owns 51 percent. CNOOC cut its output target, though the production loss is seen as having only a minor impact on supplies to the world's No.5 crude producer.
Longer term, executives say, there will be a real impact on firms drilling in Chinese waters who are suddenly seeing offshore China as a more risky and costly place to operate.
"After the incident, companies were told by the authorities to implement 'zero risk.' There is no such thing as zero risk - human error and mechanical error always exists," said a Beijing-based foreign oil executive.
"But that means, from now on, everyone will need to pay more attention to the environment. The Chinese government is taking this opportunity to say they are also tough on the environment."
Already, according to a second Beijing-based foreign executive, authorities have slowed or put on hold Environmental Impact Assessment approvals for new wells near the Penglai field in Bohai Bay, effectively slowing drilling in the area.
"New technologies that have not been used before in China will likely be held back on safety concerns," said the second executive.
The oil executives all asked to remain anonymous.
Chinese industry experts said the shutdown order from the State Oceanic Administration after Conoco failed to seal off the leaks was in answer to both the public outcry, and to orders from the very top, the State Council.
One Chinese state oil executive said: "China has reached a point that GDP is not the only barometer, it's time to aim for more balanced development."
China's marine authority is preparing to file a lawsuit against ConocoPhillips seeking compensation for the spill, but analysts say litigation could be lengthy.
Any compensation by ConocoPhillips and CNOOC would set a benchmark for future pollution cases, said a CNOOC official.
The government has ordered thorough safety checks on all offshore oil activity between September and December, and Wen has said the government would strictly control new petrochemical projects around Bohai Bay.
Companies were also told to re-apply for certification for new equipment, said the first foreign executive. Analysts say China should seize the opportunity to revamp and tighten regulations and establish a mechanism to handle future spills.
"It is necessary for the government to have clear policy signals and a clear mechanism so that oil companies can expect what situation they will face and what punishment they will have after an oil spill," said Li Yan, who heads up climate and energy issues for Greenpeace in Beijing.
China has witnessed an increasing number of industrial pollution disasters over the past decade. Despite devastating results, state-owned companies often manage to pay relatively little in compensation.
The ConocoPhillips spill has raised the bar for both foreign and domestic firms, analysts say.
"This incident is a landmark. If a state company has another oil spill, it will be treated like ConocoPhillips and will be punished based on the new standards set this time," said Lin Boqiang, director of the Center for Chinese Energy Economics Research in Xiamen University.
Firms are under orders to meet protection standards that some industry executives complain are nearly impossible. Approvals of environmental impact plans for new wells have slowed to a trickle as regulators pore over them more closely. Companies worry they will be barred from using the latest equipment if it hasn't been tested in China.
The first shot from Beijing came earlier this month, when it ordered the shutdown of the 168,000 barrels-per-day Penglai 19-3 oilfield, in which China's largest offshore oil producer, state run CNOOC Ltd, owns 51 percent. CNOOC cut its output target, though the production loss is seen as having only a minor impact on supplies to the world's No.5 crude producer.
Longer term, executives say, there will be a real impact on firms drilling in Chinese waters who are suddenly seeing offshore China as a more risky and costly place to operate.
"After the incident, companies were told by the authorities to implement 'zero risk.' There is no such thing as zero risk - human error and mechanical error always exists," said a Beijing-based foreign oil executive.
"But that means, from now on, everyone will need to pay more attention to the environment. The Chinese government is taking this opportunity to say they are also tough on the environment."
Already, according to a second Beijing-based foreign executive, authorities have slowed or put on hold Environmental Impact Assessment approvals for new wells near the Penglai field in Bohai Bay, effectively slowing drilling in the area.
"New technologies that have not been used before in China will likely be held back on safety concerns," said the second executive.
The oil executives all asked to remain anonymous.
Chinese industry experts said the shutdown order from the State Oceanic Administration after Conoco failed to seal off the leaks was in answer to both the public outcry, and to orders from the very top, the State Council.
One Chinese state oil executive said: "China has reached a point that GDP is not the only barometer, it's time to aim for more balanced development."
China's marine authority is preparing to file a lawsuit against ConocoPhillips seeking compensation for the spill, but analysts say litigation could be lengthy.
Any compensation by ConocoPhillips and CNOOC would set a benchmark for future pollution cases, said a CNOOC official.
The government has ordered thorough safety checks on all offshore oil activity between September and December, and Wen has said the government would strictly control new petrochemical projects around Bohai Bay.
Companies were also told to re-apply for certification for new equipment, said the first foreign executive. Analysts say China should seize the opportunity to revamp and tighten regulations and establish a mechanism to handle future spills.
"It is necessary for the government to have clear policy signals and a clear mechanism so that oil companies can expect what situation they will face and what punishment they will have after an oil spill," said Li Yan, who heads up climate and energy issues for Greenpeace in Beijing.
China has witnessed an increasing number of industrial pollution disasters over the past decade. Despite devastating results, state-owned companies often manage to pay relatively little in compensation.
The ConocoPhillips spill has raised the bar for both foreign and domestic firms, analysts say.
"This incident is a landmark. If a state company has another oil spill, it will be treated like ConocoPhillips and will be punished based on the new standards set this time," said Lin Boqiang, director of the Center for Chinese Energy Economics Research in Xiamen University.
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