Oil Spill Exposes Shell's Ticking Timebomb

For Shell, the timing of a spill at its Gannet A facility in the UK North Sea couldn't have been worse. For months, it has been selling its reputation as a responsible and cutting-edge oil company in its bid to drill in the Beaufort Sea in the US Arctic - and it recently won approval.

The Gannet Alpha platform spill and a damning report by the UN, undermining Shell's PR strategy. The company has been castigated over its lack of transparency in reporting the leak and for downplaying its magnitude and potential impacts. We now know that the spill is the single largest in UK waters in the last 10 years. While the spill is unlikely to approach the devastating impacts of the Deepwater Horizon disaster, its significance lies in the fact that it took place under the much vaunted "gold standard" regulatory regime of the UK and by a company that has been trading on its reputation as a responsible corporate citizen.

Gannet A should serve as a wake-up call to a government that has for too long relied on industry assurances that the regime in the UK is "fit for purpose" and "robust". Gannet A and its satellite projects are among the majority of offshore installations that are approaching or have exceeded their original design life (typically 20 to 25 years) and are posing an extra danger the longer they operate. Most of these rigs lie rusting in the southern North Sea region close to the Scottish coastline as they are pushed to extract every last drop of black gold. According to the Health and Safety Executive, the majority of hydrocarbon releases happen at facilities older than 20 years old, and more than 50% of existing platforms fall under that category. Gannet A will be celebrating its 20th birthday next year.

In the neighbouring Ekofisk field, one of the most significant fields in the North Sea, BP is still dealing with the aftermath of a fire that has forced the shutdown of several facilities since last month. One incident in the neighbouring Norwegian North Sea last year required crews to be evacuated and 50 wells shut down as a Statoil facility nearly approached a full blowout. A gas leak on another platform this April resulted in the closure of the field.

The response by the government and regulators has been to downplay concerns about ageing infrastructure and oversell the regulatory regime's ability to cope with a ticking time bomb. With the government's "red tape challenge" and swingeing cuts under way, there is a high probability that we will see more major oil spills and worker injuries in the coming years due to lack of regulatory capacity, a general drive towards "light touch regulation" and an apparent reluctance on the part of a government obsessed with "energy security" to challenge Big Oil.

Shell's oil spill in the UK North Sea comes barely a week after the UN issued a strong condemnation of the company's environmental impact in the Ogoni region of the Niger Delta. In a string of allegations, the UN environment programme accused Shell of failing to meet its own environmental standards, colluding with government officials to cover up oil spill sites and 40 years of devastating pollution. An estimated nine to 13 million barrels of oil have been spilled in the Delta - equivalent to one Exxon Valdez oil disaster every year, for 50 years.

Investors are also growing increasingly concerned. After a class action lawsuit in London, Shell admitted liability for two massive spills in Bodo, Ogoni, and could be forced to payout $410m in damages, while further claims are ongoing in The Hague. With Shell's poor record of preventing spills, the company's plans to expand into riskier, deeper drilling in Nigeria and the Arctic will only exacerbate the problem. Shell must clean up its mess rather than risk further pollution.

The North Sea is not as badly polluted as Nigeria, but the parallels are striking. In both cases, infrastructure built in the 1970s oil boom has not been sufficiently maintained. UK regulators, like their Nigerian counterparts, are unable to keep up with the deeper, riskier forms of extraction. Both governments lack independence from the oil industry, with revolving doors among top industry and government officials.

More stringent regulation is urgently required, and there is widespread support for a proposal by the EU commission to extend binding EU environmental and safety regulations to cover European oil companies operating overseas. The difference between the Gulf of Guinea and the UK Continental Shelf is a matter of degree.