China Perspective

Oil firms have lessons to learn from Gulf of Mexico spill

By Wan Zhihong (China Daily)
Updated: 2010-06-01 07:27

BEIJING - The Gulf of Mexico oil spill will be an important lesson for the domestic oil industry and environmental protection experts, who are now calling for stronger offshore drilling regulations to prevent future disasters.

Chinese experts have been closely monitoring the recent unsuccessful attempts by British oil major BP Plc to cap the spill, which will also involve the use of undersea robots in two months. The accident was described by the White House as the worst environmental disaster the US has ever faced.

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Experts have been quick to point out that the accident will push up global crude prices over the long term. At the same time they also feel that the domestic oil companies, which are operating overseas and offshore, should learn the lessons from the mishap and improve the safety awareness in production.

"We are watching the developments closely," said Chen Zhidong, chief energy researcher with the energy research institute under China National Offshore Oil Corp (Cnooc), the country's major offshore oil and gas producer.

The accident took place in ultra deep-water area, where the global oil industry just entered four to five years ago.

Oil companies have been operating in shallow water areas for 50 to 60 years, he said, adding that most of Cnooc's offshore portfolio is still in shallow waters.

It is expected that the US will adjust its production standards for offshore oil and gas production, and China will also have to make some adjustments, he said.

"The accident will have a deep impact on global offshore oil and gas development. The industry is expected to embrace higher standards to ensure safe production and operation," said Qiu Xiaofeng, an analyst with China Merchants Securities in Shanghai.

The higher working standards will push up production costs for oil companies, both globally and at home, said Qiu.

Although the oil spill has not affected the global crude prices for the time being, it may lead to price increases in long term as it is still uncertain how serious the accident would be, he said.

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said the oil spill will trigger an increase in global crude prices, something that will affect the business performance of domestic oil companies.

However, the oil spill will not slow the efforts of domestic companies to speed up their deepwater oil exploration, said analysts.

Domestic oil companies will continue to accelerate their portfolio in deepwater oil and gas exploration, an area with huge potential, said Dong Xiucheng, professor at the China University of Petroleum.

Zheng Binghui, deputy director of China Academy of Environmental Science, said government agencies should increase surveillance operations of oil companies, to reinforce safety standards and also draw up contingency plans for large-scale disasters.

Cnooc President Fu Chengyu recently said the accident in the Bay of Mexico will raise the general level safety costs for the entire industry - citing the evaluation of Cnooc's specialist team after continual sessions since the accident took place.

Fu said China does not hold so much offshore engineering power as the United States and the nation's priority has always been prevention.