Petrol Politics: How Much Should an Oil Spill Cost?
Originally published by Time.
By BRYAN WALSH
How serious should the penalties for an oil spill be? In early November, Chevron and its drilling partner Transocean accidentally spilled some 3,000 barrels of oil into the ocean off the coast of Rio de Janeiro in Brazil. As oil spill go, it was relatively minor—although it is a sign of how hard offshore drilling is. After about a week of work, Chevron managed to stop the spill—it helped that the damaged well was only about 3,900 ft. below the surface of the ocean. (BP’s Macondo well—which spilled 4 million barrels into the Gulf of Mexico last year after a blowout—was more than 5,000 ft. beneath the ocean surface.)
Problem solved? Not according to the Brazilians. A couple of weeks after the spill, Brazil announced that it was fining Chevron $28 million—or more than two times the $4,000 per barrel spilled that the U.S. government can charge under the Oil Pollution Act—and had its drilling rights in Brazil suspended. For Chevron the fine would be bad enough, but a permanent expulsion from Brazil’s rich offshore oil market—estimated to be worth nearly $200 billion—would be disastrous for the company. As if that’s not bad enough, last week Brazilian prosecutors brought an $11 billion—yes, that’s the right letter—against Chevron and Transocean. And this week Brazil’s federal policeasked prosecutors to indict as many as 17 Chevron and Transocean employees—including the director of Chevron Brazil—for their alleged roles in the oil spill.
Is this fair?
There’s a certain amount of political gamesmanship going on in Brazil’s reaction to the spill. It’s common for some oil-producing countries to punish foreign oil companies when things go wrong. That’s a fact of life in the oil business—especially in more authoritarian nations like Venezuela. Democratic Brazil has a better reputation than most, but it has a federal system—and in the Chevron case, it’s state authorities who seem particularly vengeful, as Fortune‘s Cyrus Sanati writes:
The oil spill quickly became politicized in the state of Rio de Janeiro, home of Brazil’s burgeoning oil industry and the quasi-state-controlled oil giant Petrobras. The environmental secretary of Rio threatened to revoke Chevron’s operating license over the spill, sending shivers all the way up to Houston, home to the dozens of foreign oil companies that feed Brazil’s oil engine. The federal government in Brasilia quietly reassured the oil community that drilling permits were under federal jurisdiction and that they should simply ignore the howls of discontent from local officials.
Read more, here.