Senate panel plans hearing on offshore spill liability limits

US senators continued to raise questions about the adequacy of offshore crude oil spill liability limits as the Energy and Natural Resources Committee announced that its next hearing on May 25 will address the issue.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 20 -- US senators continued to raise questions about the adequacy of offshore crude oil spill liability limits as the Energy and Natural Resources Committee announced that its next hearing on May 25 will address the issue.

The committee’s ranking minority member, Lisa Murkowski (R-Alas.), applauded the May 18 announcement by Jeff Bingaman (D-NM) that the hearing would address offshore oil spill liability limits. Mischaracterizations of what these liability limits are show that the Senate needs to better understand how these complex legal and statutory provisions interact, she suggested.

Current state and federal law provides for a limit on strict liability, liability without limit for cleanup, and unlimited liability for compensatory and economic damages, according to Murkowski. The strict liability cap under the 1990 Oil Pollution Act refers to the amount an oil company is responsible for without being found at fault for an accident, she said.

She emphasized that there is absolutely no limit on the compensatory or punitive damages a company can be made to pay if it is found responsible for a spill, or on how much a company has to pay to clean up a spill.

Murkowski noted that arbitrarily setting the cap at $10 billion might make a good television sound-bite, but it could do significant harm to the nation’s energy security and the ability of American firms to compete against large nationalized oil and gas companies. “Such a cap would only exclude all but the biggest oil companies from operating offshore,” she said. “The irony is that under such a bill only BP and other foreign supermajors—most of them nationalized companies such as Saudi Aramco, the Chinese National Oil Co., Russia’s Gazprom, and Venezuela’s state-owned oil giant PDVSA—could produce America’s offshore resources.”

‘It’s very simple’
But another Energy Committee member who introduced a bill, S. 3305, which would raise the limit to $10 billion from $75 million on May 4 in response to the Gulf of Mexico crude oil spill, sought unanimous consent a second time for the Senate to debate the measure on May 18. “This is very simple: Whose side are you on?” said Robert Menendez (D-NJ). “Are you on the side of fishermen, working hard to make a living; the small inns that benefit from the tourism in the gulf region; the coastal communities that are going to be affected by virtue of the spill; or are you on the side of multibillion-dollar oil companies?”

His bill has 16 cosponsors. A companion bill in the US House, HR 5214, introduced by Rep. Rush D. Holt (D-NJ) on May 5, has 35. Murkowski and other congressional Republicans who think offshore spill liability limits should be increased after 20 years say an increase to $10 billion would have unintended consequences.

“Big Oil would love to have these caps up there so they can shut out all the independent producers,” said US Sen. James M. Inhofe (R-Okla.), as he opposed and effectively defeated Menendez’s motion. “Right now 63% of the gulf's natural gas and 36% of its oil are produced by independents. If you raise the caps right now, precipitously, this high, you are going to help the five big oil companies, including BP, and help the nationalized big oil companies, such as those in China and Venezuela, and shut out the small and medium-sized independents.”

Menendez rhetorically asked if a producer’s simply being an independent, “some valued at $40 billion,” should limit their liability for a spill. “I am for creating that liability across the entire range. If you are involved in a dangerous activity, one that can create enormous environmental and economic damage, then you should face the liability for such whether you are BP or you are some intermediate entity,” he said.

Inhofe responded that while he usually doesn’t agree with US President Barack Obama, they both believe the liability limit should be raised but are not sure yet where it should be set. Oil spill legislation, which the White House sent to Congress on May 12, would raise the oil spill liability fund’s statutory exclusion for a single incident to $1.5 billion from $1 billion, and the cap on natural resource damage assessments and claims from $500 million to $750 million. It also would raise the caps on liability for responsible parties but did not specify a new amount. “I don't know where the cap should be,” said Inhofe. “We are going to have to find out as this thing moves along.”

Other bills, concerns
US Sens. David Vitter (R-La.) and Jeff Sessions (R-Ala.) introduced another spill liability bill on May 13 which would establish a new cap equal to a responsible company’s profits for the last four quarters or double the current $75 million level.

“Making a company at fault pay their last four quarters of profits is a much more effective way to ensure that energy companies actually pay for their mistakes without chasing many of them out of business,” Vitter explained. “Under our bill, the bigger companies would be liable for more than the $10 billion cap others propose.”

Other federal lawmakers argued that more immediate solutions are needed. In a May 18 floor speech after Menendez’s unanimous consent motion was defeated, US Sen. George S. LeMieux (R-Fla.) said that he asked BP PLC, operator of the well that is the source of the gulf spill, to set up a $1 billion fund for gulf states and communities to use now to handle problems from the spill.

“Right now we need dollars to get together our volunteers; our businesses; our local, county, city, and state governments to try to prevent this oil from coming ashore,” he maintained. We need the funds to do that today. We do not need them a month from now, six from now, or a year from now to pay claims. We need to get volunteers, senior citizens, and others on the beaches to help mitigate this damage that I think, unfortunately, is going to come ashore.”

US Sen. Mary L. Landrieu (D-La.), at the Senate Energy Committee’s May 18 hearing on the spill, said that she would introduce legislation to accelerate federal offshore oil and gas revenue sharing for Alabama, Mississippi, Louisiana, and Texas which the 2006 Gulf of Mexico Energy Security Act established, but which now is not due until 2017.

"The people of Louisiana support the oil and gas industry. We support this initiative off of our coast, and we most certainly want it to be safe and more secure," Landrieu said. "We are horrified by the Deepwater Horizon accident. But we are also managing a delta that loses coastal marsh the size of a football field every 38 min. Decades of mismanagement, not only by inadequate regulation of this industry, but also by a lack of investment in the delta itself, has caused this to be one of the most pronounced ecological disasters, as oil is being spilled on a marsh that is already fragile and weakened.”

Contact Nick Snow at nicks@pennwell.com.

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