Blinded by the Light: Putting BP’s Gulf of Mexico Oil Spill into Context

Posted in The Strategist on July 16th, 2010

This week’s announcement by BP that the most recent effort to cap its stricken underwater oil well in the Gulf of Mexico looked promising – eighty-eight days after the explosion that started the whole mess – provides a fresh vantage point from which to consider this disaster. In particular, three things have struck me as this saga has unfolded: (1) society’s continuing fascination with acute, highly visible environmental events; (2) our short memories in placing these events in historical context; and most urgently (3) the relationship between BP’s business practices – in the Gulf and elsewhere – and the broad public interest, and the ways in which the public interest has recently been compromised by BP and the regulators, investors, and others who support the company. Let us consider each of these three points in turn.

Society’s fascination with highly visible environmental events

The Gulf oil spill is an example of an acute environmental event – sudden, dramatic, something that captures our attention. So much so that it has quickly been characterized as the worst environmental disaster in American history. I’ll comment on the historical dimensions of the disaster shortly, but for now, it is the societal interest in this type of disaster that interests me – especially when compared with other, lower profile – but equally high impact – environmental risks.

On the one hand, it is easy to see why we pay attention to events like the Gulf oil spill. Psychologists tell us that these events shatter our sense of the normal. Suddenly, we are confronted with the realization that things are not as safe or as stable as we thought. Whether gripped by fear over the fate of family and friends; the loss of jobs; short and long term impacts on the environment; or the erosion in confidence in business; we are all shaken and unsure when confronted with something on this scale. We are scarred – emotionally and psychologically. Canadians know this well. In February of 1982, the Ocean Ranger, a large oilrig, sank off the coast of Newfoundland killing all 84 crewmembers. Lisa Moore brilliantly explores the emotional impact of this – the worst offshore drilling accident in Canadian history – on the family of one of the crewmembers in her recent novel, February.

But what of lower profile or less visible environmental incidents? Do these not scar us too? The answer, of course, is that they do, but in different and less immediately apparent ways. At one end of the continuum are the environmental, social and economic consequences of oil disposed of improperly by “do-it-yourselfers”. Lest anyone think this a trifle, The United States (U.S.) Environmental Protection Agency estimates that 348 million gallons of oil are spilled in this way each year in the U.S. – more than the highest estimate for the volume of the BP spill. At the other end of the continuum is the erosion of our global life support system as the protective skin of the atmosphere breaks down due to anthropogenic climate change. While the scale and impact of these two examples is quite different, what unites them is the absence of a single, catalytic event that we can all see. But this shouldn’t blind us to their importance. In both cases there is a very real social cost; it just gets paid out in smaller increments. So too, with the inexorable accumulation of persistent organic pollutants in the environment, the loss of agricultural land to urban sprawl, the rapidly deteriorating air quality in our big cities, or the acidification of the world’s oceans. We can’t see these threats in the same way that we see oil gushing into the Gulf of Mexico, but they are still there, all around us, and closing down the room we have to maneuver our way toward a solution.

As a society we have trained ourselves to respond well when something bad happens. To borrow an analogy from the business world, this is a core competency of the human species. But what of these less visible environmental threats? It is here too that we can take the true measure of our fitness as stewards of the planet. Gary Polakovic underscored the importance of keeping a sense of proportion when assessing less visible environmental threats in a recent Los Angeles Times article: “Images of a blazing oilrig and glop-coated birds skew our sense of proportion and risk”. We should, of course, respond decisively when sudden disaster strikes, but we should also strive to increase our awareness of the less obvious environmental threats that too often go unnoticed until it is too late. By way of example, researchers at Cal State Fullerton have recently shown that nearly 4,000 people die prematurely from smog each year in California. It doesn’t happen in one sudden, jarring event and is therefore lost in the vast media ocean, but this shouldn’t mean it lacks what risk managers call “materiality”. David MacFarlane, in a provocative essay for The Globe and Mail over a decade ago likened the situation to Oscar Wilde’s novel, The Picture of Dorian Gray, and in doing so, gave voice to my fears of being “blinded by the light” of highly-visible, acute environmental incidents and issues and ignoring other threats:
The Picture of Dorian Gray addresses a bigger subject than vanity: it is about the difference between appearance and reality. Which, at the end of this century, is the point on which almost all environmental debate turns.

We are Dorian Gray, because in many ways our reflection looks to us as young and innocent as always: the sky seems often blue, the water seems generally clear, the grass seems to grow. But perhaps this is only an illusion. Perhaps the picture we keep locked away has already begun to change to something ‘withered, wrinkled, and loathsome of visage’.

The historical significance of the Gulf Oil Spill

With respect to the historical significance of the Gulf oil spill, the media coverage has reminded me of the adage “those who forget history are doomed to repeat it”. As bad as the Gulf spill is, and may yet become, there are many other U.S. disasters that should provide important context and learning when measuring its historical reach. By way of example, how many readers, I wonder, know of the Johnstown Flood, or the Dust Bowl? On May 31, 1889, heavy rains caused a poorly maintained dam to burst in southwestern Pennsylvania, sending a wall of water 14 miles downriver to the town of Johnstown, killing over 2,200 people. As for the Dust Bowl, Ted Steinberg, a historian at Case Western Reserve University, put it well in a recent New York Times story with his assertion that it “is arguably one of the worst ecological blunders in world history”. Poor farming practices in the early 20th century stripped away native grasses that held moisture and soil in place across the High Plains of the United States. A drought that began in 1930 quickly exposed the folly. Clouds of dust spurred by strong winds buried homes and cars, destroyed crops, choked farm animals to death and sent children to hospital with pneumonia. And there was no relief; the dust would persist for years. By the mid-1930s, Dust Bowl Refugees, as they came to be known, abandoned the region. By 1940 more than two million people had left the Great Plains States. There are more recent examples too:

Love Canal, a neighborhood in Niagara Falls, New York, became a cause celebre in 1978 following the discovery of 21,000 tons of toxic waste buried beneath the neighborhood by the Hooker Chemical Company.

The Three Mile Island accident in 1979, a partial core meltdown of a nuclear generating station near Harrisburg, Pennsylvania, was the most significant accident in the history of the American commercial nuclear power generating industry. The Nuclear Regulatory Commission would not review an application to build a new nuclear power plant in the U.S. for nearly three decades following the accident.

Times Beach, Missouri, a small town of 2.240 was completely evacuated in 1983 due to the largest civilian exposure to dioxin in U.S. history. No one ever moved back.

The Exxon Valdez oil spill in 1989 dumped millions of gallons of crude oil into Prince William Sound, Alaska, a region renowned for salmon, seal, sea otter and seabird habitat.

While it is something of a fool’s game to try and rank these and other environmental disasters, as a society we seem to have short memories and focus to an excessive degree on whatever disaster we are living through now. Worse, we don’t necessarily learn from the historical record – something that shapes, for better or worse, our perceptions and attitudes toward business practices and the public interest.

BP’s recent business practices and the public interest

To be sure, there is much to admire in the history of the company we know today as BP. And like many of its peers in the oil and gas industry, BP has been justly rewarded for its entrepreneurial moxie. Profits in 2009 topped $16.5 billion, making it the world’s 4th most profitable company according to Fortune Magazine. Of late, however, several accidents and near misses suggest that there is a disconnect between BP’s stated intent with respect to safety and the environment and reality. And this disconnect has directly led to the worst of all outcomes – the loss of life. It has also threatened the lives of other BP employees and contractors; compromised environmental quality; and eroded financial value for all who hold shares in the company. Put simply, the broad public interest has been cast aside in the rush for growth and profit. How else to square BP’s good words on safety – “safe and reliable operations are integral to BP’s success, and we strive continuously to improve our safety” – with the drama of the past eight-eight days, and indeed the past five years? Equally, for a company that claims it “strives to minimize the environmental impact of its activities”; recent events suggest quite the opposite. In fact, they suggest a systemic failure to learn from mistakes.

Exhibit A: On March 23, 2005, 15 people died and more than 170 were injured in America’s worst industrial accident in a generation – a fire and explosion at BP’s Texas City refinery. The plant was America’s second-largest refinery, processing 460,000 barrels of crude oil a day into gasoline. But the facility, built in 1934, was poorly maintained and starved of capital investment. The United States Chemical Safety Board concluded that the explosion was “caused by organizational and safety deficiencies at all levels of BP”. (Revisiting Texas City in 2009, inspectors from the Occupational Safety and Health Administration found more than 700 safety violations.)

Exhibit B: On July 11, 2005, Thunder Horse, a BP oil platform in the Gulf of Mexico nearly sank. A check valve that had been installed backwards and caused the vessel to flood during Hurricane Dennis hobbled the billion-dollar rig. After fixing that particular mistake, BP discovered another problem – failures in the welding of pipes in the underwater manifold had caused cracks and breaks. Had the well been active, the damaged pipes would have caused a major oil spill.

Exhibit C: One year after the Texas City disaster, there was a spill of 267,000 gallons of oil from BP’s network of pipelines in Prudhoe Bay, Alaska. It was the worst spill ever on the North Slope, and once again, it could have been prevented. Investigators found widespread corrosion in several miles of under-maintained and poorly inspected pipes. Hardly the kind of finding one would expect in a company that puts so much stock in “safe and reliable operations” and claims to “minimize the environmental impact of its activities”.

One might reasonably expect that BP would have learned from these mistakes, but as the U.S. House Energy and Commerce Committee noted in its preliminary inquiry into the Gulf oil spill, “it appears that BP repeatedly chose risky procedures in order to reduce costs and save time and made minimal efforts to contain the added risk”.

In my work as an advisor to many energy and other businesses I routinely talk about the strategic imperative of securing social license to operate, and social license to grow. If a business loses the support of key stakeholders – employees, investors, regulators, non-government organizations, the public-at-large – its ability to operate, much less grow, is severely restricted. BP might yet recover from the Gulf oil spill and other recent disasters (shares in the company recovered 5.5% of their value on the London Stock Exchange on July 16), and one can only hope that if the company does recover it moves forward with a greater sense of humility and a heightened regard for the public interest. To assist in this, it is vital that BP’s stakeholders hold the company’s feet to the fire and demand better performance on safety and the environment. Which, ultimately, is nothing more than a commitment to walk the company’s good talk. As well, the regulatory community needs to summon the fortitude to levy penalties for corporate malfeasance that are sufficiently steep for a company making billion dollar profits to take notice and make the necessary changes in operating practices.

Finally, as we strive to make sense of the Gulf disaster and place it in context, we need to remember and learn from the historical record and not be preoccupied with whatever event we are living through now. This does not mean that we compromise in our response efforts. Rather, it means that in answering the inevitable questions “How did this happen?” and “How do we do better in the future?” we are guided by the experiences and lessons of the past – which means, incidentally, that there is a process that consciously extracts the learning from previous disasters and near misses and brings them to the fore when a new project is proposed. After BP’s experience with Thunder Horse in 2005, for example, one might have reasonably assumed that Deepwater Horizon would be subjected to intense regulatory scrutiny as part of the approval process. And this approval should have included provision for responding to the kind of spill that has transfixed the world these past three months. We may never know how much, or how little, oversight was brought to bear by BP management and the regulatory community on Deepwater Horizon, but a higher standard must be exercised going forward.

We should also never lose sight of the fact that other, less visible threats to our environment, our economy and our society are all around us. They don’t grab headlines, but we ignore them at our peril.