The National Petroleum Council has faulted the Minerals Management Service for taking an overzealous approach in its rules implementing oil spill insurance requirements for U.S. offshore operations.
NPC, the secretary of energy's oil industry advisory panel, said MMS' interpretation of the Oil Pollution Act of 1990 (OPA90) would extend financial responsibility requirements not only to offshore but also onshore operations, including production facilities, pipelines, refineries, and terminals.
In addition, Coast Guard interim final rules designed to implement OPA90 are scheduled to go into effect Dec. 28. Those rules largely raise concern among tanker operators (OGJ, Aug. 1, p. 14).
BROAD TERMS
NPC said MMS' preliminary interpretations of "offshore facility," "onshore facility," and "responsible party" would impose a $150 million financial responsibility requirement on all types of petroleum production, refining, pipeline, and distribution facilities whether offshore or onshore.
NPC said, "The MMS interpretation would cripple a large segment of the domestic oil and gas industry from initial exploration to retail marketer."
Only the largest films will be able to self-insure, leaving hundreds of firms unable to insure or unable to tolerate the added cost in their operations.
The report said MMS ignored OPA90's careful distinctions between onshore and offshore facilities.
"The law treats the two differently for liability, spill response, contingency planning, and a number of other issues. The law imposes no requirement for evidencing financial responsibility for onshore facilities.
"Furthermore, the law specifies the responsible party separately for onshore facilities and offshore facilities.
"For an offshore facility the responsible party is the 'lessee,' 'permittee,' or 'holder of easement,' just as it was under the law that preceded OPA90, the Outer Continental Shelf Lands Act. These terms apply solely to the traditional offshore area and have no meaning when applied to refineries, terminals, and other facilities on land."
The study said the MMS rule places offshore oil and gas fields in danger of early abandonment and imposes significant barriers to entry for new operators.
It added, "The $150 million financial responsibility level is arbitrary. Since the imposition of the $35 million financial requirement in 1978, no spill on the federal offshore has breached even that lower level according to the MMS modeling of OPA90-covered costs and damages.
"Low pressure reservoirs and the resultant need for artificial lift, blowout and spill prevention equipment, and automatic shutdown systems, safety training, and drills all have contributed to this exemplary record.
"These measures proved effective during Hurricane Andrew, a '100 year' storm, where only small spills occurred even after platforms and other facilities were evacuated and in some cases destroyed."
FINANCIAL RESPONSIBILITY
NPC said OPA90's conditions make conventional insurers unwilling to play a role in the financial responsibility process, and oil industry lenders are reevaluating their potential open-ended liability.
NPC urged MMS to clarify that OPA90's financial responsibility requirements apply only to offshore facilities and use risk-based criteria in setting required levels of financial responsibility.
What's more, MMS' final rule should recognize the distinction between guarantors and insurers, adopt flexible requirements for self-insurers, and coordinate federal financial responsibility requirements with state requirements.
NPC also urged the secretary of energy to become involved in the MMS rulemaking.
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