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Conflicts caused by the price of a barrel of oil

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Conflicts caused by the price of a barrel of oil

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From the Atlantic to the Pacific, Argentina to the Philippines, here are the six areas of conflict -- all tied to energy supplies -- that have made news in just the first few months of 2012:

* A brewing war between Sudan and South Sudan: On April 10th, forces from the newly independent state of South Sudan occupied the oil center of Heglig, a town granted to Sudan as part of a peace settlement that allowed the southerners to secede in 2011. The northerners, based in Khartoum, then mobilized their own forces and drove the South Sudanese out of Heglig. Fighting has since erupted all along the contested border between the two countries, accompanied by air strikes on towns in South Sudan. Although the fighting has not yet reached the level of a full-scale war, international efforts to negotiate a cease-fire and a peaceful resolution to the dispute have yet to meet with success.

This conflict is being fueled by many factors, including economic disparities between the two Sudans and an abiding animosity between the southerners (who are mostly black Africans and Christians or animists) and the northerners (mostly Arabs and Muslims). But oil -- and the revenues produced by oil -- remains at the heart of the matter. When Sudan was divided in 2011, the most prolific oil fields wound up in the south, while the only pipeline capable of transporting the south's oil to international markets (and thus generating revenue) remained in the hands of the northerners. They have been demanding exceptionally high "transit fees" -- $32-$36 per barrel compared to the common rate of $1 per barrel -- for the privilege of bringing the South's oil to market. When the southerners refused to accept such rates, the northerners confiscated money they had already collected from the south's oil exports, its only significant source of funds. In response, the southerners stopped producing oil altogether and, it appears, launched their military action against the north. The situation remains explosive.

* Naval clash in the South China Sea: On April 7th, a Philippine naval warship, the 378-foot Gregorio del Pilar, arrived at Scarborough Shoal, a small island in the South China Sea, and detained eight Chinese fishing boats anchored there, accusing them of illegal fishing activities in Filipino sovereign waters. China promptly sent two naval vessels of its own to the area, claiming that the Gregorio del Pilar was harassing Chinese ships in Chinese, not Filipino waters. The fishing boats were eventually allowed to depart without further incident and tensions have eased somewhat. However, neither side has displayed any inclination to surrender its claim to the island, and both sides continue to deploy warships in the contested area.

As in Sudan, multiple factors are driving this clash, but energy is the dominant motive. The South China Sea is thought to harbor large deposits of oil and natural gas, and all the countries that encircle it, including China and the Philippines, want to exploit these reserves. Manila claims a 200-nautical mile "exclusive economic zone" stretching into the South China Sea from its western shores, an area it calls the West Philippine Sea; Filipino companies say they have found large natural gas reserves in this area and have announced plans to begin exploiting them. Claiming the many small islands that dot the South China Sea (including Scarborough Shoal) as its own, Beijing has asserted sovereignty over the entire region, including the waters claimed by Manila; it, too, has announced plans to drill in the area. Despite years of talks, no solution has yet been found to the dispute and further clashes are likely.

* Egypt cuts off the natural gas flow to Israel: On April 22nd, the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company informed Israeli energy officials that they were "terminating the gas and purchase agreement" under which Egypt had been supplying gas to Israel. This followed months of demonstrations in Cairo by the youthful protestors who succeeded in deposing autocrat Hosni Mubarak and are now seeking a more independent Egyptian foreign policy -- one less beholden to the United States and Israel. It also followed scores of attacks on the pipelines carrying the gas across the Negev Desert to Israel, which the Egyptian military has seemed powerless to prevent.

Ostensibly, the decision was taken in response to a dispute over Israeli payments for Egyptian gas, but all parties involved have interpreted it as part of a drive by Egypt's new government to demonstrate greater distance from the ousted Mubarak regime and his (U.S.-encouraged) policy of cooperation with Israel. The Egyptian-Israeli gas link was one of the most significant outcomes of the 1979 peace treaty between the two countries, and its annulment clearly signals a period of greater discord; it may also cause energy shortages in Israel, especially during peak summer demand periods. On a larger scale, the cutoff suggests a new inclination to use energy (or its denial) as a form of political warfare and coercion.

* Argentina seizes YPF: On April 16th, Argentina's president, Cristina Fernández de Kirchner, announced that her government would seize a majority stake in YPF, the nation's largest oil company. Under President Kirchner's plans, which she detailed on national television, the government would take a 51% controlling stake in YPF, which is now majority-owned by Spain's largest corporation, the energy firm Repsol YPF. The seizure of its Argentinean subsidiary is seen in Madrid (and other European capitals) as a major threat that must now be combated. Spain's foreign minister, José Manuel García Margallo, said that Kirchner's move "broke the climate of cordiality and friendship that presided over relations between Spain and Argentina." Several days later, in what is reported to be only the first of several retaliatory steps, Spain announced that it would stop importing biofuels from Argentina, its principal supplier -- a trade worth nearly $1 billion a year to the Argentineans.

As in the other conflicts, this clash is driven by many urges, including a powerful strain of nationalism stretching back to the Peronist era, along with Kirchner's apparent desire to boost her standing in the polls. Just as important, however, is Argentina's urge to derive greater economic and political benefit from its energy reserves, which include the world's third-largest deposits of shale gas. While long-term rival Brazil is gaining immense power and prestige from the development of its offshore "pre-salt"petroleum reserves, Argentina has seen its energy production languish. Repsol may not be to blame for this, but many Argentineans evidently believe that, with YPF under government control, it will now be possible to accelerate development of the country's energy endowment, possibly in collaboration with a more aggressive foreign partner like BP or ExxonMobil.

* Argentina re-ignites the Falklands crisis: At an April 15th-16th Summit of the Americas in Cartagena, Colombia -- the one at which U.S. Secret Service agents were caught fraternizing with prostitutes -- Argentina sought fresh hemispheric condemnation of Britain's continued occupation of the Falkland Islands (called Las Malvinas by the Argentineans). It won strong support from every country present save (predictably) Canada and the United States. Argentina, which says the islands are part of its sovereign territory, has been raising this issue ever since it lost a war over the Falklands in 1982, but has recently stepped up its campaign on several fronts -- denouncing London in numerous international venues and preventing British cruise ships that visit the Falklands from docking in Argentinean harbors. The British have responded by beefing up their military forces in the region and warning the Argentineans to avoid any rash moves.

When Argentina and the U.K. fought their war over the Falklands, little was at stake save national pride, the stature of the country's respective leaders (Prime Minister Margaret Thatcher vs. an unpopular military junta), and a few sparsely populated islands. Since then, the stakes have risen immeasurably as a result of recent seismic surveys of the waters surrounding the islands that indicated the existence of massive deposits of oil and natural gas. Several UK-based energy firms, including Desire Petroleum and Rockhopper Exploration, have begun off-shore drilling in the area and have reported promising discoveries. Desperate to duplicate Brazil's success in the development of offshore oil and gas, Argentina claims the discoveries lie in its sovereign territory and that the drilling there is illegal; the British, of course, insist that it's their territory. No one knows how this simmering potential crisis will unfold, but a replay of the 1982 war -- this time over energy -- is hardly out of the question.

* U.S. forces mobilize for war with Iran: Throughout the winter and early spring, it appeared that an armed clash of some sort pitting Iran against Israel and/or the United States was almost inevitable. Neither side seemed prepared to back down on key demands, especially on Iran's nuclear program, and any talk of a compromise solution was deemed unrealistic. Today, however, the risk of war has diminished somewhat -- at least through this election year in the U.S. -- as talks have finally gotten under way between the major powers and Iran, and as both have adopted (slightly) more accommodating stances. In addition, U.S. officials have been tamping down war talk and figures in the Israeli military and intelligence communities have spoken out against rash military actions. However, the Iranians continue to enrich uranium, and leaders on all sides say they are fully prepared to employ force if the peace talks fail.

For the Iranians, this means blocking the Strait of Hormuz, the narrow channel through which one-third of the world's tradable oil passes every day. The U.S., for its part, has insisted that it will keep the Strait open and, if necessary, eliminate Iranian nuclear capabilities. Whether to intimidate Iran, prepare for the real thing, or possibly both, the U.S. has been building up its military capabilities in the Persian Gulf area, deploying two aircraft carrier battle groups in the neighborhood along with an assortment of air and amphibious-assault capabilities.
How Energy Drives the World
One can debate the extent to which Washington's long-running feud with Iran is driven by oil, but there is no question that the current crisis bears heavily on global oil supply prospects, both through Iran's threats to close the Strait of Hormuz in retaliation for forthcoming sanctions on Iranian oil exports, and the likelihood that any air strikes on Iranian nuclear facilities will lead to the same thing. Either way, the U.S. military would undoubtedly assume the lead role in destroying Iranian military capabilities and restoring oil traffic through the Strait of Hormuz. This is the energy-driven crisis that just won't go away.

All of these disputes have one thing in common: the conviction of ruling elites around the world that the possession of energy assets -- especially oil and gas deposits -- is essential to prop up national wealth, power, and prestige.

This is hardly a new phenomenon. Early in the last century, Winston Churchill was perhaps the first prominent leader to appreciate the strategic importance of oil. As First Lord of the Admiralty, he converted British warships from coal to oil and then persuaded the cabinet to nationalize the Anglo-Persian Oil Company, the forerunner of British Petroleum (now BP). The pursuit of energy supplies for both industry and war-fighting played a major role in the diplomacy of the period between the World Wars, as well as in the strategic planning of the Axis powers during World War II. It also explains America's long-term drive to remain the dominant power in the Persian Gulf that culminated in the first Gulf War of 1990-91 and its inevitable sequel, the 2003 invasion of Iraq.

The years since World War II have seen a variety of changes in the energy industry, including a shift in many areas from private to state ownership of oil and natural gas reserves. By and large, however, the industry has been able to deliver ever-increasing quantities of fuel to satisfy the ever-growing needs of a globalizing economy and an expanding, rapidly urbanizing world population. So long as supplies were abundant and prices remained relatively affordable, energy consumers around the world, including most governments, were largely content with the existing system of collaboration among private and state-owned energy leviathans.

But that energy equation is changing ominously as the challenge of fueling the planet grows more difficult. Many of the giant oil and gas fields that quenched the world's energy thirst in years past are being depleted at a rapid pace. The new fields being brought on line to take their place are, on average, smaller and harder to exploit. Many of the most promising new sources of energy -- like Brazil's "pre-salt" petroleum reserves deep beneath the Atlantic Ocean, Canadian tar sands, and American shale gas -- require the utilization of sophisticated and costly technologies. Though global energy supplies are continuing to grow, they are doing so at a slower pace than in the past and are continually falling short of demand. All this adds to the upward pressure on prices, causing anxiety among countries lacking adequate domestic reserves (and joy among those with an abundance).

The world has long been bifurcated between energy-surplus and energy-deficit states, with the former deriving enormous political and economic advantages from their privileged condition and the latter struggling mightily to escape their subordinate position. Now, that bifurcation is looking more like a chasm. In such a global environment, friction and conflict over oil and gas reserves -- leading to energy conflicts of all sorts -- is only likely to increase.

Looking, again, at April's six energy disputes, one can see clear evidence of these underlying forces in every case. South Sudan is desperate to sell its oil in order to acquire the income needed to kick-start its economy; Sudan, on the other hand, resents the loss of oil revenues it controlled when the nation was still united, and appears no less determined to keep as much of the South's oil money as it can for itself. China and the Philippines both want the right to develop oil and gas reserves in the South China Sea, and even if the deposits around Scarborough Shoal prove meager, China is unwilling to back down in any localized dispute that might undermine its claim to sovereignty over the entire region.

Egypt, although not a major energy producer, clearly seeks to employ its oil and gas supplies for maximum political and economic advantage -- an approach sure to be copied by other small and mid-sized suppliers. Israel, heavily dependent on imports for its energy, must now turn elsewhere for vital supplies or accelerate the development of disputed, newly discovered offshore gas fields, a move that could provoke fresh conflict with Lebanon, which says they lie in its own territorial waters. And Argentina, jealous of Brazil's growing clout, appears determined to extract greater advantage from its own energy resources, even if this means inflaming tensions with Spain and Great Britain.

And these are just some of the countries involved in significant disputes over energy. Any clash with Iran -- whatever the motivation -- is bound to jeopardize the petroleum supply of every oil-importing country, sparking a major international crisis with unforeseeable consequences. China's determination to control its offshore hydrocarbon reserves has pushed it into conflict with other countries with offshore claims in the South China Sea, and into a similar dispute with Japan in the East China Sea. Energy-related disputes of this sort can also be found in the Caspian Sea and in globally warming, increasingly ice-free Arctic regions.
Michael Klare is a TomDispatch regular, professor of peace and world security studies at Hampshire College, and the author, most recently, of The Race for What's Left: The Global Scramble for the World's Last Resources. To listen to Timothy MacBain's latest Tomcast audio interview in which Klare discusses global energy conflicts, click here or download it to your iPod here.
The seeds of energy conflicts and war sprouting in so many places simultaneously suggest that we are entering a new period in which key state actors will be more inclined to employ force -- or the threat of force -- to gain control over valuable deposits of oil and natural gas. In other words, we're now on a planet heading into energy overdrive.

Follow TomDispatch on Twitter @TomDispatch and join us on Facebook.

Copyright 2012 Michael T. Klare

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6 Global Conflicts That Have Flared Up Over Oil and Gas

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Refiners and oil executives are beginning to look at the threat that electric cars pose to the future of diesel and gasoline as the vehicles gain staying power.

The issue is being raised more as China and Europe announce they will phase out liquid fuels and shift vehicle fleets to all-electric cars, trucks, and buses.

In addition, companies are pledging to begin producing more electric cars. Volkswagen, the largest global automaker by sales, announced that it will sell an electric version of all 300 of its car models by 2030.

Some oil CEOs say the issue is not getting enough attention, but it should.

"Seventy percent of oil consumption is as a transportation fuel. So, if you move those numbers in the long-term it can cause titanic shifts," said Dan Eberhart, an oil executive who owns Canary, one of the largest oil drilling wellhead manufacturers in the country.

Eberhart, who donates to President Trump and has ventured deeper into energy policy in recent months, is working on a book on the long-term implications of the electric car on the demand for oil.

He believes that most news outlets miss the significance of the electric car on refiners and oil producers.

They "bifurcate the electric car story and they relate it to the automobile companies, and 10 minutes later they talk about oil prices," he explained. "But they never connect the two."

The issue is gaining the attention of the refinery industry, which is starting to examine the impact in their long-term planning scenarios.

The refiners aren't being "squeezed" by electric vehicles, yet, according to Stephen Brown, vice president for federal affairs at the large independent refiner Andeavor, formerly Tesoro. "But [we] need to look 15-25-30 years down the road and to work with market forces rather than government mandates supported by subsidies, which is all that EVs have going for them right now."

BP's 2017 energy outlook looked at the reduction in fuel demand due to electric vehicle penetration. The company expects fuel demand to rise, but how much depends on the speed at which electrification takes place, driven by increasingly stringent fuel economy regulations in the U.S. and around the world.

While the oil giant expects fuel-efficiency regulations and the growth of electric cars to push down oil demand significantly by 2035, BP is betting that increased demand from developing nations will offset that drop.

Brown estimates that as much as 4.8 billion gallons of gasoline will be displaced in the U.S. by 2025 because of electric vehicles. In 2016, about 143.37 billion gallons of gasoline were consumed, an historically large amount, according to federal data.

Brown said much of future demand will hinge on regulations governing mileage standards.Trump is looking to redo strict fuel economy standards by the Obama administration. Trump may slow the pace of the regulations, but Brown doesn't see the rules vanishing.

The International Energy Agency, an inter-governmental agency that includes the U.S., reported this year that electric vehicle sales worldwide landed at 750,000 in 2016, which is about 1 percent of sales - the same percentage as in the U.S. But in some countries such as Norway, the penetration rates are as high as 29 percent. Norway has the highest market share of electric vehicles in the world, according to the energy agency.

The agency expects the number of electric vehicles on the road to reach as many as 20 million by 2020 and between 40 million and 70 million by 2025, from 2 million last year.

More aggressive scenarios using different policy targets, including the Paris climate agreement goals, could see the vehicle number jump much higher by 2030.

The cars just experienced their largest sales year in the U.S. since 2011, reaching 170,000 vehicles sold through November, based on a study compiled by energy security think tank Secure America's Future Energy. The study compiled sales numbers taken directly from the automakers.

The group supports policies that reduce dependence on foreign sources of oil to free the U.S. from global energy markets that make it vulnerable to price spikes. Electric cars are one way to get to that goal by relying on electricity instead of oil for fuel.

Electric vehicles saw that success even as overall vehicle sales, particularly light-duty trucks and SUVs, fell from last year.

"Total light-duty vehicles sales are down, and gasoline prices are still pretty low and yet we're seeing this growth in this EV market," said Leslie Hayward, the group's vice president of communications strategy and content. "We see that as a really positive sign."

The group understands that refiners are worried, but it points out that the electric car is still in its "absolute infancy," Hayward said. Nevertheless, SAFE does not want to see the U.S. follow China and Europe, which are setting firm dates for switching to all-electric cars because it could hurt consumer choice and stifle recent sales gains, Hayward said.

"We're seeing what's happening in certain cities and countries around the world where they have these outright bans projected by whatever decade on conventional gasoline or diesel vehicles, and we actually don't think that that's good policy, at least not in the United States in terms of energy security," Hayward said.

"This could easily backfire," she said. "You can see consumers just totally rejecting this kind of thing. You're also forcing companies to deploy a technology on an imposed timeframe, rather than creating incentives for a technology to develop and then be able to compete appropriately because consumers want them, rather than being forced to buy them."

Hayward's group supports subsidies for electric cars. But concerns other than subsidies need to be considered if sales of electric cars continue to increase.

"If the electric car keeps gathering more and more steam, you're basically opting out of the road usage tax because the road usage tax is funded by the [National Highway Traffic Safety Administration], which is the gas tax," Eberhart said.

His point is that less or no gasoline use means no money for funding roads and highways.

"So, the electric car people, they're not only getting the $7,500 credit, right now. They're getting essentially a waiver on the road usage tax," he said. Some states have mulled imposing a tax on the vehicles, but have not. There also has been talk of using a mileage tax instead of a fuel tax to fund road projects.

Meanwhile, major companies in the utility sector and auto industry are joining forces to map out an electrification transition plan for the U.S.

A bipartisan commission co-chaired by the car company Audi and the electric utility National Grid started in October to develop a "pathway and recommendations" to cut energy use in the transportation sector 50 percent by 2050.

The bipartisan efficiency group Alliance to Save Energy chartered the national commission formed by business, government, and other leaders.

The leads include Scott Keogh, president of Audi's U.S. branch, and Dean Seavers, president of National Grid. The commission includes Democratic Pittsburgh Mayor William Peduto and Republican Mayor Betsy Price of Fort Worth, Texas, in addition to other officials from a range of automakers and utilities, federal agencies, environmental groups, infrastructure providers, and public transit.

"The sector is undergoing a transformational change - ranging from the increased viability of alternative fuels such as electrification to advanced vehicle technologies, automation and shared mobility - offering enormous opportunities to improve energy efficiency," according to a statement announcing the panel.

Kateri Callahan, president of Alliance to Save Energy, said she is meeting with Energy Department officials this week to brief them on the commission, as the group includes federal labs and Energy Department staff. Her group will be lobbying Congress to hold hearings on the effort. Both GOP and Democratic lawmakers are honorary members of her organization's board.

The improvements that come from electrifying the transportation sector, in addition to cutting energy use, will "create jobs, improve energy security, boost competitiveness, save businesses and consumers money, and reduce emissions," according to the electrification commission.

"We're at an inflection point, and we have an opportunity, as an industry and a sector, to leverage that transformation for the benefit of society," Keogh said.

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Rise of electric vehicles threatens oil industry

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Refiners and oil executives are beginning to look at the threat that electric cars pose to the future of diesel and gasoline as the vehicles gain staying power. The issue is being raised more as China and Europe announce they will phase out liquid fuels and shift vehicle fleets to all-electric cars, trucks, and buses.

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Even before oil prices began to drop in the summer of 2014, day rates for drilling rigs had begun to sag due to overcapacity in the market. Since then, as the price of oil has dropped by 70%, offshore operators have put tremendous pressure on their suppliers, asking them to help reduce the total costs of offshore production and keep their barrels competitive. Drillers saw their rates cut in half, and customers began asking for the lowest-cost rigs available, questioning the value of the more technologically advanced rigs and pushing drilling contractors to offer sixth-generation rigs at fifth-generation rates.

This decline in activity hit the drilling industry hard, with the top five contractors losing $35 billion in market capitalization between the third quarter of 2014 and the third quarter of 2015, and credit rating agencies lowering the debt rating for offshore drillers across the board.

These developments pose an existential threat for offshore drillers, who need access to capital to build rigs, along with some degree of certainty about activity in order to develop their scenario-based plans for building and stacking decisions on the fleet.

To survive in the short term, drillers have had to shift away from their focus on pushing technical boundaries at the frontiers to creating efficiencies that will allow them to operate more effectively. Since many in the industry have adjusted their outlook based on the probability of oil remaining below $50 per barrel out to 2020, most drillers will need to work closely with their customers and suppliers to bring transformative change to the industry and allow them to continue to operate. (For more on Bain's Integrated Energy Outlook, read " What the Recent Oil Price Shock Teaches about Managing Uncertainty.")
Cost reductions and innovation
By now, everyone in the oil and gas industry has already made the easy reductions-and plenty of painful ones, too. Capex fell more than 20% from 2014 to 2015. Cuts this deep were not easy to make, yet the industry will likely see similar or greater reductions in 2016, with some operators reporting cuts of more than 40%. Most of the top five drillers have announced layoffs in recent months, shut down satellite offices and started optimizing their overall cost structure. At the same time, companies also will have to start making more structural changes to survive the low-price environment.

Drilling contractors have a critical role to play in the viability of the offshore industry. Well costs typically comprise about 40% of an offshore project, and the technical and regulatory challenges associated with drilling in deep water played a significant role in fueling offshore inflation in the run-up to 2014, just as the onshore US industry was dramatically increasing drilling productivity.

The offshore industry has historically operated in silos, but to make the necessary changes in cost and productivity, drillers will need to work much more closely with operators and their own suppliers. Some of these changes will come in the form of innovation to reduce customers' costs. For example, operators and suppliers could collaborate to streamline procurement processes and integrate technical and operational developments. Productivity matters more than ever, as offshore producers compete with shale suppliers to produce the marginal barrel. Whereas shale operators can quickly taper off their most expensive operations, offshore projects are long-term, multibillion dollar bets, which are more difficult to shut on and off, and so require a more concentrated cost-saving effort.
A blueprint for transformation
A transformation plan should help executives focus on the key parameters of success in the sector, including costs, customers and specifications (see Figure 1). The relative importance of the elements will differ for each driller, but in all cases the transformation will be stronger when drilling contractors work closely with their customers and suppliers.

Winning asset strategy. Many companies will have to reassess their portfolios, making sure they can play in the market segments most likely to see activity. Most will need to redefine their fleets to match those opportunities-and likely will have to speed up retirement of some older rigs. Operators and drillers should collaborate in developing scenarios for balancing the supply and demand of rigs over the long term to reduce the risk of fleet investments.

Operational excellence. Incompatibility of standards can account for a significant portion of costs in drilling. Operators and contractors should align on safe, effective, efficient and compatible standards to create a step change in performance.

Maximize enterprise value. Drilling contractors should be exploring options for operators to raise their financial stakes in drilling companies to secure, align with and influence a key part of their supply chain.

Technology. Operators, drilling contractors and equipment providers are working together to transform the end-to-end technology solution with smaller rigs and blowout preventers, more automated drilling and condition-based maintenance.

Some elements will take longer than others, such as designing new technology, revising the operating model and implementing an M&A plan that delivers real value. But no one can say when prices will recover, and since rig rates tend to lag market recoveries by about 18 months, a transformation is a necessary, no-regrets move that will position drillers for the next wave in the sector's cyclical nature.
Akram Alami is a partner with Bain & Company in Dubai, and Peter Jackson is a partner in Bain's London office. Both work with Bain's Global Oil & Gas practice.

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How Offshore Drilling Can Transform to Thrive in the Long Term

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Even before oil prices began to drop, rates for drilling rigs had begun to sag due to an overcapacity in the market. The subsequent decline in offshore activity is an existential threat to the drilling industry. To survive, drillers will have to work more closely with operators and suppliers to reduce industry costs.

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How a Deep-Sea Offshore Drilling Rig Works

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After 22 hours, the crew of the Maersk Interceptor have assembled and lowered 551 feet of pipes into the water. Through them, a hydraulic hammer will operate to drive these pipes 131 feet below the seafloor. From: MIGHTY SHIPS: Maersk Interceptor http://bit.ly/2biRHN1

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Deepwater Horizon Disaster: Oil Rig Blast (2010)

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Worst offshore disaster ever that left 167 dead.

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The oil platform piper alpha was destroyed by a gas leak in july 1988, and is still the worst offshore oilfield disaster to date. (In terms of human life lost)

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The Piper Alpha disaster in the North Sea, UK, which killed 167 people in July 1988, is the deadliest offshore oil rig accident in history.

Discovered in 1973 and brought on stream in 1976, Piper Alpha was one of the biggest offshore oil platforms in the UK producing more than 300,000 barrels of crude a day (about ten percent of the country's total crude production). The offshore platform started producing gas in the early 1980s and had three main gas transport risers and an oil export riser before disaster struck, destroying the entire facility causing an estimated loss of $1.4bn.

The Piper Alpha disaster occurred due to gas leakage from one of the condensate pipes at the platform on 6 July 1988. The pressure safety valve of the corresponding condensate-injection pump was removed during the day as part the routine maintenance of the pump. The open condensate pipe was temporarily sealed with two blind flanges. The temporary disc cover, however, remained in place during shift-change in the evening as maintenance work was not complete. The condensate-injection pump was not supposed to be switched on under any circumstances.

Communication errors however led the night crew staff at the platform to turn on the pump after the other pump tripped. It resulted in leakage of gas condensate from the two blind flanges causing gas ignition and serial explosions on the platform. Only 61 out of the 226 workers survived the disaster and it took close to three weeks to control the fire.

At the time of the disaster the platform was managed by Occidental in block 15 of the UK Continental Shelf, about 120 miles north-east of Aberdeen.

Alexander L. Kielland, North Sea, Norway

The Alexander L. Kielland was a semi-submersible platform accommodating the workers of the bridge-linked Edda oil rig in the Ekofisk field, about 235 miles east of Dundee, Scotland, in the Norwegian continental Shelf. The Platform, operated by Phillips Petroleum, capsized in March 1980, killing 123 people.

Only 89 out of 212 workers survived the accident and most died by drowning as the platform turned upside down in deep waters. The platform capsized after the failure of one of the bracings attached to one leg of the five-legged platform structure, after strong winds created waves of up to 12m high on the day of the accident.

Once the first broke, all bracings attached to the leg failed in succession, the platform lost one of its five legs and the entire structure tilted 30 degrees. Five of the six anchor cables snapped but the platform was stabilised for some time by the remaining single cable, which ultimately snapped.

Official investigation concluded that the root cause of the accident was an undetected fatigue crack in the weld of an instrument connection on the bracing.

Seacrest Drillship disaster, South China Sea, Thailand

The Seacrest Drillship disaster in the South China Sea 430km south of Bangkok, Thailand, killed 91 crew men on the 3rd of November 1989. The 4,400t drillship was anchored for drilling at the Platong gas field owned and operated by Unocal. The drillship was capsized by the Typhoon Gay which produced 40ft high waves on the day of the accident.

The Seacrest drillship, also known as The Scan Queen, had been operational in the Gulf of Thailand since 1981 as a drill ship for Unocal. The drillship was reported missing on 4 November 1989 and only found floating upside-down by a search helicopter the next day. The capsize was believed to have occurred so quickly that there was no distress signal and no time for the crew members to respond to the disaster.

Just six out of the 97 crew members onboard were rescued by fishing boats and the Thai Navy. Apart from the severe weather condition the seaworthiness of the drillship was questioned as the likely cause for the tragedy.

The ship also had 12,500ft of drill-pipe in its derrick, which was believed to have resulted in a unstable high centre of gravity.

Ocean Ranger oil rig disaster, Canada

The Ocean Ranger oil drilling rig disaster which occurred in the North Atlantic Sea off the coast of Newfoundland, Canada, on 15 February 1982 is one of the deadliest offshore oil rig accidents in history. The offshore oil drilling capsized and sank killing 84 crew members onboard.

The semi-submersible mobile offshore drilling rig owned by Ocean Drilling and Exploration Company (ODECO) was hired by Mobil Oil of Canada for drilling exploration well at Hibernia field at the time of accident. One of the biggest rigs built by then, the 25,000t rig was 396ft long, 262ft wide and 337ft tall, with the capacity to operate 1,500ft beneath water and drill up to a depth of 25,000ft below the seabed.

The rig was capsized due to a very strong storm which produced 190km/h winds and up to 65ft (20m) high waves. On 14 February 1982, it was reported that a porthole window had broken and water had entered into the ballast control room of the Ocean Ranger. The ballast control panel was noticed to be malfunctioning two hours later.

Crew workers abandoned the rig and moved into the lifeboat stations but only one lifeboat with 36 crew members inside could be launched successfully. At least 20 crew were reported to be in the water before the rig sank between 3:07am and 3:13am after staying afloat for about one and half hours. Out of the 84 workers who drowned, 46 were Mobil Oil employees.

Glomar Java Sea Drillship disaster, South China Sea

The Glomar Java Sea Drillship disaster which took place on 25 October 1983 in the South China Sea caused the death of 81 people when the drillship capsized and sank at depth of 317ft about 63 nautical miles south-west of Hainan Island, China, 80 nautical miles east of Vietnam.

The 5,930t Glomar Java Sea drillship was built by the Levingston Shipbuilding Company of Orange, Texas, in 1975 and delivered to Global Marine. The 400ft long drillship was contracted to ARCO China at the time of the disaster. The vessel had performed drilling for ARCO in the Gulf of Mexico between 1975 and 1881, and operated off the coast of California for some time before its arrival in the South China Sea in January 1983.

Operations ceased prior to the arrival of tropical Storm Lex as it approached from the east of the drilling site. Global Marine's office in Houston, Texas, reported that the drillship was experiencing 75kt (138.9km/h) winds over the bow, but the contact was abruptly lost.

No survivors were found in the extensive search operation conducted thereafter. The wrecked drillship was found in an inverted position 1,600ft south-west of the drilling site. Only 36 bodies were found, and the remaining 45 crew members were presumed dead.

Bohai 2 oil rig disaster, China

The Bohai 2 oil rig disaster in the Gulf of Bohai off the coast of China in November 1979 is the sixth most fatal offshore oil rig disaster. It caused the death of 72 out of 76 people on board as the Bohai 2 jack-up rig capsized and toppled in the sea water.

The accident was caused by a storm which occurred while the rig was being towed. Fierce winds broke the ventilator pump of the platform causing a puncture hole in the deck resulting in extensive flooding.

The loss of stability due to flooding coupled with severe weather conditions eventually led to the capsizing of the jack-up. The accompanying tow boat could not rescue the crew members, who were also believed to lack proper training on emergency evacuation procedures and the use of lifesaving equipment.

The post-disaster investigations reported a failure in correctly stowing the deck equipment prior to towing. It was also reported that standard tow procedures were not followed given the bad weather conditions. The sunken jack-up rig was eventually salvaged with explosives by the Yantai Salvage Company in April 1981.

Enchova Central Platform disaster, Brazil

The Enchova Central Platform disaster in the Campos Basin near Rio de Janeiro, Brazil, killed 42 people in August 1984. The accident occurred due to a blowout which caused a fire and explosion at the central platform of the Enchova field operated by Petrobras.

Most of the workers were evacuated from the platform by lifeboats and helicopter except for 42 workers who lost their lives during the evacuation process. Malfunctioning of the lowering mechanism of a lifeboat caused the death of 36, while six died as they jumped from the platform into the sea. The lifeboat remained vertically suspended because of the failure of the bow hook and eventually fell 20m deep into the sea as its supporting cables snapped.

Another disaster struck the Enchova platform on 24 April 1988 as one of its 21 wells blew out and eventually ignited. The well suffered a blow out while undergoing a work-over to convert it from oil production to gas production. The fire caused by the blowout on the platform led to massive damage topside, however all the workers were safely evacuated to the nearby floating accommodation ship without a single casualty.

The platform remained on fire for a month and Petrobras eventually drilled two relief wells to control the blowout. The platform was declared a total loss and replaced by a new facility that commenced production nearly 18 months after the accident.

Mumbai High North disaster, Indian Ocean

The Mumbai High North disaster on 27 July 2005 in the Arabian Sea, around 160km west of the Mumbai coast, killed 22 people. Mumbai High North, one of the producing platforms of the Mumbai High field owned and operated by India's state-owned Oil and Natural Gas Corporation (ONGC), caught fire after a collision with the multipurpose support vessel (MSV) Samudra Suraksha.

Strong swells, pushed the MSV towards the platform hitting the rear part of the vessel causing rupture of one or more of the platform's gas export risers.

The resultant gas leakage led to ignition that set the platform on fire. Heat radiation also caused damage to the MSV and the Noble Charlie Yester jack-up rig engaged in drilling operation near the platform.

The accident caused significant oil spill and a production loss of about 120,000 barrels of oil and about 4.4 million cubic metres of gas a day. ONGC opened a new platform at Mumbai High North in October 2012.

Usumacinta Jack-up disaster, Gulf of Mexico

The Usumacinta Jack-up disaster, which occurred on the 23rd of October 2007 in the Gulf of Mexico, claimed 22 lives after a collision with the PEMEX-operated Kab-101 platform in the Bay of Campeche.

The Usumacinta Jack-up was positioned alongside the Kab-101 platform to complete drilling of the Kab-103 well. A storm with winds of 130km/h and up to 8m of waves created an oscillating movement, which eventually caused its cantilever deck to hit the production valve tree on the Kab-101 platform.

The collision resulted in oil and gas leakage leading to the closure of the safety valves of two production wells at the platform. The crew members were, however, unable to seal the valves completely, which resulted in continued leakage of oil and gas which eventually ignited causing fires on the platform. 21 people were declared to have died during the evacuation and one worker missing in the rescue operation was presumed dead.

The Usumacinta Jack-up also suffered two more fire breakouts in the month the followed, during well control operations. The fire was, however, extinguished without any loss of life and complete control of the well was achieved by the middle of December 2007. Approximately 5,000 barrels of oil was reported to have lost from the well without being recovered.

C.P. Baker Drilling Barge disaster, Gulf of Mexico

The C.P. Baker Drilling Barge disaster in the Gulf of Mexico on 30 June 1964 resulted in the death of 21 people and injured 22 after fires and a explosion occurred on the drilling barge.

C.P. Baker Drilling Barge constructed Reading & Bates in 1962 was deployed for drilling operation for Pan American Petroleum Corporation in block 273 in Eugene Island, Gulf of Mexico, at the time of the accident.

The two 260ft long hulls suffered a blowout on morning of 30 June 1964. Water gushed into the vessel through open doors on the main deck and the barge lost electric power soon thereafter.

The entire drilling barge was engulfed with fire and explosion just minutes of noticing the blow out. Only 22 out of the total 43 crew on board survived the disaster, most of which saved their lives by jumping from the port bow. The vessel sank upside-down in the water after heeling aft for around 30 minutes. The rescue operation confirmed eight as dead and 13 crew missing who were presumed dead.

Related content

Elgin and Franklin lie in the UK North Sea's Central Graben, approximately 240km east of Aberdeen and in water 93m deep.

Considered one of BP's most technically challenging projects ever, the Atlantis platform is the deepest moored floating dual oil and gas production facility in the world.

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The world's worst offshore oil rig disasters - Offshore Technology

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The Piper Alpha disaster in the North Sea, UK, which killed 167 people in July 1988, is the deadliest offshore oil rig accident in history. Discovered in 1973 and brought on stream in 1976, Piper Alpha was one of the biggest offshore oil platforms in the UK producing more than 300,000 barrels of crude a day (about ten percent of the country's total crude production).

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The exploration history of the U.S. offshore oil and natural gas industry began in the Pacific Ocean more than 100 years ago. As recently as 1947 no company had ever risked drilling beyond the sight of land.

In 1896, as enterprising businessmen pursued California's prolific Summerland oilfield all the way to the beach, the lure of offshore production enticed Henry L. Williams and his associates to build a pier 300 feet out into the Pacific - and mount a standard cable-tool rig on it.

By 1897 this first offshore well was producing oil and 22 companies soon joined in the boom, constructing 14 more piers and over 400 wells within the next five years. The Summerland offshore field produced for 25 years - fueling the growth of California's economy.
Piers, Platforms and a Patent
I n 1894, Henry Williams drilled two wells on a California beach. He drilled another in 1895 with encouraging results. This led Williams and others to exploring for oil offshore the next year.

They constructed piers and drilled wells, leading to the realization that the Summerland oilfield extended offshore. This would be the first offshore field developed in the nation by drilling offshore wells from piers. - From Santa Barbara County records

In 1911, Gulf Refining Company abandoned the use of piers. It drilled Ferry Lake No. 1 on Caddo Lake, Louisiana, using a fleet of tugboats, barges, and floating pile drivers. When the well came in at 450 barrels per day, Gulf constructed platforms every 600 feet on each 10-acre lakebed site.

The Caddo Lake wells - completed over water without a pier connection to shore - have frequently been called America's first true offshore drilling.

A major petroleum company based in Pittsburgh, Pennsylvaniam drilled the first "over water" oil well in 1911, according to historian Bob Bowman of the East Texas Historical Association.

"In the early l900s, 27-year-old Walter B. Pyron, of Blossom, Texas, a production foreman for Guffy Oil Company, noticed gas bubbles rising from Caddo Lake," Bowman explains. "He and other Guffy employees rowed across the lake, lighting strings of the bubbles".

"In early May, 1911, after months of hard work and battles with mosquitoes, alligators and moccasins, the Ferry Lake No. 1 was drilled to a depth of 2,185 and began producing 450 barrels of oil a day," reports Bowman.Pyron convinced his superiors at Gulf Oil Corporation - the successor of Guffy Petroleum Company - to drill on the lake.

However, Ohio oil documents record hundreds of oil wells pumping far out into a lake - 20 years before drillers ventured into the waters of Caddo Lake.

As early as 1891, the first submerged oil wells were drilled from platforms built on piles in Grand Lake St. Marys in Ohio, notes historian Judith L. Sneed in "The First Over Water Drilling: The Lost History Of Ohio's Grand Reservoir Oil Boom." Learn more in Ohio Offshore Wells.

Even earlier, some historians say the true beginning of the modern offshore industry can be traced to an 1869 U.S. patent. Thomas Fitch Rowland of Greenpoint, New York, patented a "submarine drilling apparatus" on May 4, 1869.

Rowland's design included a fixed, working platform for drilling offshore to a depth of almost 50 feet. The anchored, four-legged tower - with telescoping legs "suitable hydraulic attachments or devices" - resembles modern offshore platforms. Learn more about An 1869 Offshore Rig Patent.
Gulf of Mexico Technologies
In 1938, Pure Oil and Superior Oil Company built a freestanding drilling platform in the Gulf of Mexico - despite many logistics, engineering and communications challenges.

They hired a Houston engineering and construction company, Brown & Root Marine Operators to build a 320-foot by 180-foot freestanding wooden deck in 14-feet of water about a mile offshore. The chosen drilling site was near Creole, Louisiana.

Using onshore building criteria and intuition, the Creole platform was designed to withstand winds of 150 mph and constructed 15 feet above the water. Three hundred treated yellow pine pilings were driven 14 feet into the sandy bottom.

The Superior-Pure State No. 1 well was successful - but was wiped off its pilings by a hurricane in 1940. The platform was quickly rebuilt and put back into production in the four million barrel field.

"It may be tentatively assumed that the Gulf of Mexico is a potential source of salt-dome oil," reported geologist Orval Lester Brace in 1941. "Whether or not it will ever be economically feasible to explore these waters for the domes that must exist is a question for the future to answer." -

Kerr-McGee dramatically answered the salt dome question in 1947 with an experimental offshore rig.

Not much equipment specifically designed for offshore drilling existed and exploration remained an extraordinarily speculative and risky business venture. An offshore dry hole could easily swallow the huge capital costs sunk into construction of a large, permanent rig platforms.

Nevertheless, Dean McGee of Kerr-McGee Oil Industries Inc. partnered with Phillips Petroleum and Stanolind Oil & Gas Co. to secure leases for exploratory wells in the Gulf of Mexico. They hired Brown & Root to build a freestanding platform 10 miles out to sea.
Kerr-McGee's Mighty Kermac No. 16
"We decided to explore the areas where the really potential prolific production might be - salt domes - the good ones on land were gone, but we could move out in the shallow water and, in effect, get into a virgin area where we could find the real class-one type salt dome prospect," McGee said.

Vessels were needed to provide supplies, equipment, and crew quarters for the drilling site, 43 miles southwest of Morgan City, Louisiana. The gradually sloping Gulf of Mexico reached only about 18-feet deep at the drilling site.

A second platform would be built about eight miles from the first at Ship Shoal Block 28. Sixteen 24-inch pilings were sunk 104 feet into the ocean floor to secure a 2,700 square foot wooden deck.

The Kermac No. 16 well stood in almost 20 feet of water, 10 miles at sea.

The well was spudded on September 10, 1947. The biggest hurricane of the season arrived a week later - with winds of 140 mph. Kerr-McGee had $450,000 invested in the project. Both platforms were evacuated during the hurricane, but damage was minimal. Drilling promptly resumed. On Nov.14, the Kermac No. 16 well came in at 40 barrels per hour.

"Spectacular Gulf of Mexico Discovery. Possible 100-Million Barrel Field - 10 Miles at Sea," proclaimed the Oil & Gas Journal. Kermac No.16 would produce 1.4 million barrels of oil and 307 million cubic feet of natural gas by 1984.
New Offshore Records
By the end of 1949, 11 oil and natural gas fields were found in the Gulf of Mexico with 44 exploratory wells, according to the National Ocean Industries Association, which notes that the industry continued to through the 1950s.

Modern offshore energy industry benefits come from the hard lessons learned from 60 years of open water experience. Compared to the limits of just a few years ago, today's achievements will no doubt pale in comparison to what the future of offshore exploration will bring.

Revenue generated from the production of oil became the second-largest revenue generator for the country, after income taxes. But deeper wells mean higher costs - and far greater technical challenges.

The National Ocean Industries Association notes: "As the industry entered the last decade of the 20th century, advancing technology ensued. New depth records for drilling reached 7,625 feet in the Gulf of Mexico."

In the North Sea, the Troll A natural gas platform stands in the North Sea in 1,000 feet of water and is 1,500 feet high. According to a March 2013 article posted at Amusing Planet, in 1996 the platform set the Guinness World Record for largest offshore gas platform. "The title now belongs to the Petronius Platform in the Gulf of Mexico, which stands 2,000 feet above the ocean floor."

At right is a Bell Helicopter advertisement from 1954, courtesy the Ocean Star Offshore Drilling Rig and Museum.

A flat area on an LST (from WW Two's landing ship, tanks) anchored next to Humble Rig 28 served as landing pad for one of the first helicopters to be flown offshore.

Today, helicopters are a common way for getting crews to and from offshore platforms.

Constructed on land, as components of an offshore rig are completed, they are shipped to the drilling location. Sometimes assembly takes place as the rig is being transported to its intended destination.

In addition, more scientists now recognize the role of petroleum platforms as artificial marine habitats.

Whether placed as an artificial reef or a working (producing petroleum) structure, studies have been found rigs to increase the algae and invertebrates that attract - and significantly increase - numbers and species of fish. See Rigs to Reefs.

Also see related articles, Deep Sea Roughnecksand Swimming Wrenches (a history of remotely operated undersea vehicles).

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On November 11, 2007, a mile and a half underwater, a petroleum company's remote control submersible camera captured a rarely seen Magnapinna squid.

The brief video, obtained by National Geographic News, shows the alien-like squid loiter above the seafloor in the Gulf of Mexico. The clip - from Shell Oil Company's Perdido production site - marks the first sighting of a Magnapinna or "big fin" squid near oil development. Marine biologists now partner with petroleum companies.
Offshore Oil and Gas Resources
Gulf of Mexico federal offshore oil production accounts for 23 percent of total U.S. crude oil production and federal offshore natural gas production in the Gulf accounts for 7 percent of total U.S. dry production, according to the Energy Information Administration. More than 40 percent of total U.S. petroleum refining capacity is located along the Gulf coast, as well as 30 percent of total U.S. natural gas processing plant capacity.

To meet increasing U.S. demand while addressing environmental concerns, new technologies have resulted in drilling rigs capable of drilling 250 miles offshore to ocean depths exceeding 10,000 feet. At stake are an additional 19 billion barrels of oil and another 86 trillion cubic feet of gas. Fear of oil spills and heated environmental debates restrict access to many potential areas.

More than 5,000 offshore oil and natural gas platforms operate in the Gulf of Mexico around the clock, seven-days a week. It is the largest artificial reef system in the world.

According to the National Academy of Sciences, more than 60 percent of all oil found in seawater is not from wells, but from natural seepage (the largest emitting 1,000 barrels of oil a week); 32 percent comes from shipping and run-off from land. Four percent can be attributed to tanker spills.

However, near Santa Barbara, Calif., offshore drilling's worst environmental disaster occurred in 1969 when an undersea well blew out. The calamity quickly brought industry changes that have protected the offshore environment ever since.

Between 1980 and 1999, about 7.4 billion barrels of oil were produced in federal waters, says the U.S. Coast Guard. Less than a thousandth of one percent spilled - less than the natural seepage of oil from the sea floor.

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Offshore Petroleum History - American Oil & Gas Historical Society

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The exploration history of the U.S. offshore oil and natural gas industry began in the Pacific Ocean more than 100 years ago. As recently as 1947 no company had ever risked drilling beyond the sight of land. In 1896, as enterprising businessmen pursued California's prolific Summerland oilfield all the way to the beach, the lure of offshore production enticed Henry L.

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The Oil & Gas Rotary Drilling Rig (How Does It Work?)

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Rotary drilling is characterized as a method of drilling that employs a sharp, rotational drill bit to bite its way through the earth's crust. One of the most effective and common methods of drilling, it is used in the construction, mining, and oil industries for its ability to cut through even the most challenging and hardest formations.

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The production of Crude Oil. Preparing and surveying the site. Heavy vehicles, with caterpillar wheels bring in the heavy equipment. Drill part being unloaded from lorry. Building the rig. Drilling (Spudding in with Rotary Drill). Steam boiler. Chimneys. Tall derricks. Men working lengthening auger. Stem drilling. Cable tool method.

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History of the petroleum industry - Wikipedia

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Four thousand years ago, according to Herodotus and confirmed by Diodorus Siculus, asphalt was used in the construction of the walls and towers of Babylon; there were oil pits near Ardericca (near Babylon), and a pitch spring on Zacynthus ( Ionian islands, Greece).