Jagdeo now concerned over lack of adequate insurance in case of oil spill

Mar 05, 2023 News

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…tells Guyanese “it should have been done already”

Kaieteur News – Guyana’s Environmental Protection Agency (EPA) has been directed by the administration to get ExxonMobil, along with Hess Corporation—both based in the United States of America (USA)—and China’s National Offshore Oil Company (CNOOC), to provide a written guarantee for ‘Full Coverage Insurance’ for its operations locally.

This, in the event of an oil spill in the Stabroek Block, would see the US and Chinese based parent companies for the local subsidiaries, picking up the tab, should they be unable to cover the expenses for containment and clean up of an oil spill in Guyana.

At least, this is according to Vice President Bharrat Jagdeo, who on Friday last during a press conference held at the Arthur Chung Convention Centre, after persistent questioning, finally conceded that no such arrangement is in place as yet, a situation that is a cause of concern for him also, and not just the critics.

The state of affairs obtains, since Guyana has a Production Sharing Agreement (PSA), commonly referred to as the ‘Oil Contract,’ not with the US or Chinese based parent companies but with subsidiaries owned by them and incorporated in Barbados, the Bahamas and the Cayman Islands.

In 2016, the Government of Guyana inked that arrangement with Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—which is a subsidiary of the US based Company but is incorporated in the Bahamas and holds a 45 percent stake in the Stabroek Block.

The other partners with which the State inked its deal, were Hess Guyana Exploration Corporation, a subsidiary of the US based company, incorporated in the Cayman Islands and holds a 30 percent stake, along with CNOOC Petroleum Guyana Limited, incorporated in Barbados and holds the remaining 25 percent interest.

As such, Guyana as a new oil producer in the world, in just a few years has moved from discovery to producing in excess of 350,000 barrels of oil daily but the ExxonMobil led consortium operating in the Stabroek Block of the country’s Exclusive Economic Zone, is doing so without a full and comprehensive insurance package, guaranteed by the parent company of those subsidiaries.

The call, has in recent years become even more pronounced, given the quantum of liquid assets held by the subsidiaries, which many analysts have rejected as insufficient to meet the expenses associated with clean up of an oil spill.

According to Jagdeo, that being the case, “I told the EPA to get, they have to get the parent company guarantee.”

He was at the time responding directly to a question that has been repeatedly posed to him by Kaieteur News Publisher and social commentator, Glenn Lall, who sought again, to enquire into the insurance that is to be provided by the parent companies for the oil companies in the Stabroek Block.

The Vice President, having brushed aside the question on previous occasions, finally conceded, “I have expressed concerns myself if you think you’re just concerned.”

To this end, he went on to speak on capacity building but reiterated, “some of the concerns are also our concerns.”

To this end, he told members of the media, “the parent guarantee should have been done already; it has to be done soon, we told the EPA give this Exxon a deadline, give them a deadline for doing this, it should have been done, that one you [Glenn Lall] are right on.”

The matter has over the years been raised as a cause of concern among many given the cost of not only containing and stopping but cleaning up after an oil spill could in fact cripple the Guyana economy.

It would be poignant to note that one of the most expensive oil spills in the world occurred in the USA and involved quantities of oil and gas similar that being produced and stored presently in the Stabroek block.

Back in April 2010, a well blowout in the Gulf of Mexico led to just over 3 million barrels of oil and gas being leaked in to the ocean up to the Deepwater Horizon Exploration Rig which caused that too to explode and subsequently sank killing 11 members of the crew.

That incident saw the hydrocarbons being leaked for almost three months—87 days to be precise—and has to date, cost that operator some US$70B to clean up.

British Petroleum was the oil company responsible.

In the Stabroek Block, there are at present scores of deepwater wells spud by ExxonMobil Guyana and their partners along with two Floating Production Storage and Offloading (FPSO) vessels with a combined storage capacity of three million barrels of oil.

The cargo for each FPSO is offloaded into oil tankers intermittently. This in addition to six drill ships in operation at any point in time cumulatively poses a threat of an oil spill.

ExxonMobil Guyana has in its plans, six more developments in the Stabroek Block, in addition to the four developments already approved.

These are the Liza I&II oil fields, currently producing and utilizing the Liza Destiny and Liza Unity FPSOs. A third FPSO is currently enroute to Guyana while the fourth the development of the fourth field is underway. The company is at present seeking permission for its fifth and sixth oil field developments in the Stabroek Block.

Another of the costly oil spills experienced in the recent past involved the same company leading the operations in Guyana, ExxonMobil, which in 1989 saw its Valdez super tanker, running aground and subsequently spilling some 11 million barrels of oil off the Alaskan Coast.

It was at the timed deemed the worst oil spill in US history until the Deepwater Horizon oil spill in 2010.

The Exxon Valdez oil slick covered 1,300 miles of coastline and killed hundreds of thousands of seabirds, otters, seals and whales and four decades later, pockets of crude oil remain in some locations. After the spill, Exxon Valdez returned to service under a different name, operating for more than two decades as an oil tanker and ore carrier.

That disaster would end up costing the company several billions in not only containing and cleaning up the spill but fines and other expenses.

According to resource centre, Statista, there was an average of 1.8 large oil spills from tanker incidents every year in the decade from 2010 to 2019. In 2022, four oil spills were reported in which more than 700 metric tons of oil was leaked.

According to that database, while there has been a decline of the use of tankers in the 1970’s there were often in excess of 20 large oil spills per year.

It noted too that with while oil tankers are the prevailing means of transporting the commodity over distances greater than can be covered by pipelines, running aground is the most common cause of large oil spills from tankers.

It records that 32 percent of large oil tanker spills occurring between 1970 and 2020 were due to grounding.

Other notably incidents involving the unplanned release of hydrocarbons into the ecosystem includes the Keystone Pipeline oil spill which occurred in December last year when a leak in the Keystone Pipeline released 14,000 barrels of oil into a creek in Washington County, Kansas.

That leak was the largest in the US since the 2013 North Dakota pipeline spill

Closer to home, the El Palito oil spill occurred at a refinery, Venezuela, in July 2020.

The spill was estimated to be 25 thousand oil barrels and was attributed to attempts to double production from 20,000 to 40,000 daily oil barrels to 61,500 when “multiple leaks” developed. The refinery had been unable to produce gasoline for several weeks.  That spill reached as far as the eastern coast of Falcón State and Morrocoy National Park.

Reference could also be made to the Norilsk diesel oil spill which was an industrial disaster near Norilsk, Krasnoyarsk Krai, Russia.

That incident obtained in May 2020 when a fuel storage tank at Norilsk-Taimyr Energy’s Thermal Power Plant flooding local rivers with up to 17,500 tonnes of diesel oil.

It was described as the second-largest oil spill in modern Russian history, after the 1994 Komi pipeline spill, where 400,000 tonnes of crude oil were released to the environment between August 1994 and January 1995.

Other producing nations such as those located on the African continent have over the years suffered from the consequences of regular oil spills, many times leading to years of protracted court action.

Only recently this publication reported on the actions of the Peruvian Government which was forced to take one of its operators—Repsol—to court, in order to secure compensation over a spill that had occurred in that country.

The company was also fined by the Peruvian courts. That company presently holds interest in Guyana’s EEZ.

The fact is, wherever there are oil operations—exploration, production, storage, transporting or refining—there exists the risk of an oil spill, whether through human fault or mechanical issues. At the end of the day, the hydrocarbons would have to be clean up from the ecosystem and someone or entity footing the Bill.

In Guyana’s case with it a storage capacity of some three million barrels, increasing production and transport out of the country, the potential for an oil spill, is clear and present danger, hence Lall’s response to Jagdeo’s new found directive to the EPA, “that’s what I wanted to hear.”

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• China’s National Offshore Oil Company (CNOOC), Environmental Protection Agency (EPA), Stabroek Block, United States of America (USA), Vice President Bharrat Jagdeo

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