U.S. GAMBLING WITH OIL SUPPLY

Oil tankers will not quit entering U.S. ports this week, when Oil Pollution Act of 1990 requirements for financial documentation take effect. Last week, that much could be said with reasonable certainty. Less certain was exactly how the federal government would keep a legislative spasm from crimping supplies of a vital commodity.

OPA gave shippers until Dec. 28 to secure certificates of financial responsibility (COFR), which attest to the ability to pay for oil spill cleanups not covered by basic insurance. By then, insurers will have sold supplemental policies to tanker owners that need them. Or the Coast Guard will have delayed implementation of the COFR requirement. Or some combination of those developments will have combined with strategic toleration by everyone involved to keep tanker-borne oil flowing.

LAST-MINUTE SOLUTION

Resolution in some form is likely because the absence of one would hurt everybody. But why did circumstances have to reach this brink?

Last week, there were tankers steaming toward the U.S. that had not yet received COFRs and that thus faced last-minute diversions to other ports. They were ships with owners too small to cover potential spill liabilities at mandated levels with their net assets.

The law requires that tankers carry spill insurance of $1,500/gross ton. Most tanker owners, large and small, carry liability insurance for at least that much. Congress imposed the COFR requirement to ensure that tanker owners were capable of paying to clean up spilled oil if normal insurance for some reason did not. Large tanker owners, such as major oil companies, can insure themselves with their net assets. Small concerns must find other ways to show protection against uninsured spill liabilities, and it has not been easy.

At midmonth, Salomon Bros. estimated that 20-25% of the tanker tonnage trading in the U.S. might remain uncovered by COFRs at the deadline. At least 1.7 million b/d of imported oil thus would be at stake. That's too much oil to subject to questions whose only answers, 2 weeks from the fact, are that people ultimately do what serves their interests best and that even the government eventually will recognize that continuous provision of oil to a vibrant economy is a good thing.

Now, nothing about this drama has to do with the prevention of oil spills. Congress just wanted to ensure that no public funds would be used to clean up spilled oil. This can be interpreted to mean that Congress sees no public value in, and therefore no responsibility by the oil consuming public for, the removal of spilled oil from coastal waterways. Congress, of course, passed OPA in a fever of environmentalist outrage and wasn't looking at things from any other perspective. It mostly wanted to punish Exxon Corp. and, by association, the oil industry for the spill in Prince William Sound.

TIME TO RECOVER

Now, however, Congress has had plenty of time to recover from its wrath. Prince William Sound, after all, has mostly recovered from the spill. Events this month make OPA look like a reckless bet: the certain costs of disrupted oil supply against a much less probable spill that shifts significant cleanup costs to the public.

A government with little interest in domestic exploration and production-interest that would be apparent in leasing and taxation policies much different from those now in effect-cannot afford to gamble with its country's imports. Regardless of what happened to keep oil moving this week, it will take Congress to fix the OPA excesses that gave rise to the jeopardy.

Issue date: 12/26/94