Oil Spill

The iconic image of an oil spill is an oil-blackened seabird, tarred wings folded or perhaps outstretched, suffering in the dark slick of oil that rests on top of the water. The continued development of continental North American resources such as tar sands and oil shales, however, has increased the potential for on-land oil spills, along with the growing use of pipelines, which tend to experience less frequent but more overall catastrophic spills because of their high carrying volume. Oil spills are extraordinarily expensive to clean-up, cause costly business problems, severely damage company public relations, and adversely affect human health.

Background

Oil spills occur during drilling onshore and off, but also when oil is being transported by ship, train, truck, or pipeline. Most crude oil is moved by pipeline, the next greatest volume by sea, and significantly smaller amounts by truck and rail. The safety of each transportation method depends on what metrics are used; a comparison of the amount of oil spilled, environmental impact, or injuries and property damages will produce different relative safety ratings.

Post-spill costs are affected by whether mitigation, remediation, or restoration is required in the clean-up. The terms are a question of degree, with “restoration” being the most intensive and expensive because it mandates that the environment be returned to its pre-spill state. While the immediate response of mitigation can involve mechanical, physical, chemical, and biological containment and recovery, remediation in a marine oil spill might demand, for example, the repopulation of wildlife species diminished by the spill or repairing shoreline public resources. Because they are not specifically equipped for this type of environmental work, oil companies must often contract with expensive specialists to meet standards.

Injuries and Damages

All forms of oil extraction, storage and transportation have been involved in spills. Pipeline leakage, spills on water, and contamination from road or rail accidents are being reported with increasing frequency

Pipeline Spills
Pipeline spills on land are especially complex. Although the volume spilled in an incident can range in size from relatively small to quite large, on-land incidents usually affect homes, local governments, companies and employees. Pipelines often transport significant quantities of crude oil, or a substance known as “bitumen” which is more corrosive and difficult to clean up than conventional oil.

A major risk factor affecting pipeline oil transport is whether the oil will be moved through ecologically sensitive environments, highly developed communities, or close to essential natural resources such as water. Most of the nation’s 70,000 miles of crude oil pipelines are underground, carrying approximately a billion gallons of oil to refineries daily. Because the oil in the pipe is pressurized, aging pipes are at risk for leakage from problems such as corrosion. While the federal Pipeline and Hazardous Materials Safety Administration (PHMSA) data shows that nearly nine million gallons of crude oil has been spilled from U.S. pipelines since 2010, the PHMSA also reported that more than 70 percent of the oil was recovered. Still, increased crude oil production tracks an increase in significant pipeline accidents since 2009.

Pipeline spills that cause oil to come into contact with water are especially difficult to clean-up. In 2010, a spill into the Kalamazoo River left about 843,000 gallons of crude oil in the river. The resulting litigation was finally settled in mid-2016, nearly six years after the spill, with the pipeline owner agreeing to pay $177 million for all of its 2010 oil spills, including the Kalamazoo River event. The total clean-up effort, including restoration, was completed in 2014 and cost the company $1.21 billion, according to SEC filings.

The proposed construction of new pipelines such as the “Keystone XL” project has become the subject of a national debate over pipeline economic benefits and environmental harms. The original Keystone pipeline, owned by Canadian company TransCanada, transports thick bitumen crude oil over 1,136 miles from the oil sands region in Alberta, Canada to as far south as the Gulf of Mexico in Texas. In 2008, TransCanada sought to add a 1,179-mile-long pipeline extension, called Keystone XL, a project designed to move up to 830,000 barrels of oil daily from Alberta to U.S. Gulf Coast refineries that could process the heavy crude. TransCanada stated that the northern segment of the extension was intended to connect the Alberta-produced crude to oil facilities in Nebraska and Illinois. In 2015, then-President Obama rejected Keystone XL -- but immediately after the 2017 presidential election, President Trump took steps to eliminate obstacles to pipeline expansion. In March 2017, the State Department approved Keystone XL, leaving TransCanada only having to obtain a permit from the independent five-member Nebraska Public Service Commission (PSC) to proceed. The PSC approved construction of the pipeline but across a different route than TransCanada preferred, addressing concerns about the potential harm to Nebraska’s ecologically delicate Sandhills region and Ogallala aquifer.

Approval was also granted for the completion of the Dakota Access project, a nearly 1,200-mile-long pipeline intended to transport approximately 500,000 barrels of crude oil daily across four states to an Illinois terminal for shipping to refineries. Despite months of protests launched against the proposed pipeline by Native American tribes and environmental groups, the project gained approval and crude oil began to flow in summer 2017.

Controversy over both the Keystone XL and the Dakota Access projects intensified after the original Keystone pipeline suffered its largest leak to date in November 2017 (just a few days before the Nebraska PSC vote), spilling 210,000 gallons of tar sands oil in South Dakota.

Industry observers have stated that the economics of the extraction of crude oil from tar sands, an expensive process, have changed considerably since the Keystone XL project was proposed. Despite having the requisite approvals, some in the industry question whether the pipeline is still a viable idea when taking into consideration the record-breaking production of domestic hydro-fracturing (“fracking”).

Oil Spills on Water
Oil spills into water, such as the 1989 Exxon-Valdez oil tanker disaster in Alaskan waters and the BP Horizon Deepwater offshore drilling rig spill in the Gulf of Mexico in 2010, are often thought of as coastal dangers. Regardless of location, however, oil spills on water are often more environmentally harmful than those on land because ships can carry much vaster quantities of oil than a single train car, rivers or tides can transport the spilled oil long distances, and marine animals find it more difficult to avoid the oil than land animals. The spills are also incredibly expensive for the involved companies. Beyond the financial losses and reputational damage to BP in the Horizon Deepwater event, the company faced claims from businesses in and around the Gulf of Mexico, including fisheries and tourism-based concerns, individuals, and local governments for environmental reparations. The Exxon Valdez spill generated similar claims.

Rail or Road Shipments
Although the greatest volume of oil is transported by pipeline, the greatest number of oil spills occur in rail or road shipments. These spills are usually smaller in quantity than pipeline or ship spills since the capacity of a train car is less than that of a pipeline or large ship; however, as the July 2013 derailment of a train and its 1.5 million gallons of crude oil in Lac-Mégantic, Quebec demonstrated, train transit still poses a serious threat. The resulting explosion of the runaway train and its cargo in the small town resulted in 47 fatalities and millions of dollars in liability. Also, the February 2015 derailment of approximately 27 train cars and related combustion in Mount Carbon, West Virginia did not result in fatalities but produced extensive property damage and leaked oil upstream of a tributary of the Ohio River. These events show that while a spill in a marine environment has a much greater environmental impact than a spill of the same volume on land, a transportation-related spill on land is more likely to harm or kill human beings and damage property.

Legislation and Regulation

The Environmental Protection Agency (EPA) is the lead federal response agency for inland water oil spills. The U.S. Coast Guard takes the lead in responding to deepwater port and coastal oil spills.

The Oil Pollution Prevention regulation was originally published in 1973 under the authority of the Clean Water Act. The regulation provides requirements for oil discharge or threat prevention, and preparedness for and responses to discharges at certain non-transportation-related facilities. Under the regulation, facilities must develop and implement Spill Prevention, Control and Countermeasure (SPCC) plans which address prescribed procedures, methods and equipment requirements. Also part of the Oil Pollution Prevention regulation, the Facility Response Plan (FRP) rule requires certain facilities that store and use oil to prepare and submit a plan demonstrating a facility's preparedness to respond to a worst-case oil discharge. The goal of these rules is to contain oil spills and keep oil out of navigable waters and away from shorelines.

In 2015 the EPA and the U.S. Army Corps of Engineers published a regulation under a provision of the Clean Water Act of 1972 intended to bring consistency to federal water protection, especially with respect to streams and wetlands. The regulation is known as the 2015 Clean Water Rule, or the “Waters of the United States” (WOTUS) rule. The regulation was challenged in 2017 by the Trump administration, which suspended the rule until February 2020 to allow time for the possibility of proposing and implementing less demanding regulatory requirements.

Liability and Insurance

The insurance actions in the Deepwater Horizon spill provide a ready example of which types of policies are likely to be asked to respond to oil spill losses. General Liability policies and pollution liability coverage will be expected to cover property damage and bodily injury claims. Executives of the involved companies will look to their Directors and Officers carriers for defense and indemnity coverage. Property and Business Interruption policies, intended to protect businesses from losses due to unavoidable interruptions in daily operation, will be tapped to respond to extensive property damage claims and business interruption losses for everything from the forced shutdown of beachfront hotels and inland businesses, to downturns in business related to substantial impairment in access to products or services. Contingent Business Interruption insurance might also apply to the effects of the spill that manifest themselves beyond the immediate Gulf Coast.

Litigation

Oil spills have historically resulted in drawn-out legal battles with billions of dollars at stake. BP’s settlement with the U.S. federal government, several states, and local governments in relation to the Deepwater Horizon disaster is estimated by some industry experts to be more than $20 billion, including $5.5 billion in civil Clean Water Act penalties. A variety of direct and indirect injuries became subjects of litigation, including chronic illnesses caused by exposure to the oil, property damages and fines associated with pollution. To address the losses related to the Exxon Valdez spill of more than 11 million gallons of crude oil into Prince William Sound, Exxon reportedly entered into a civil settlement in 1991 with the U.S. Government and the state of Alaska. Exxon was required to make $900 million in payments, plus $100 million for restitution and $25 million in criminal fines, although some complain that the plan for rehabilitation is not yet fully funded and implemented some 27 years later.

Future Outlook

Because of the extraordinary expense of oil spills, lawsuits are inevitable, and contract wording is central to determining liability. Insurers may seek the services of oil industry experts to comprehend this complex, highly technical and rapidly changing set of risks to enable them to craft proper policy wording. The uncertainty of the current and future status of spill-related regulations creates significant problems for entities of every kind because nearly every area of human endeavor is touched by oil in some way. Municipalities, corporations, shippers, oil producers and refiners and more -- and their insurers -- are in a situation that demands constant vigilance and rapid adaptability.

In the News

2023

• US tightens some offshore oil rig safety rules that had been loosened under Trump - Kevin McGill, The Associated Press (08/22/2023)
  The Biden administration on Tuesday finalized tighter rules for complex devices meant to prevent catastrophic blowouts on offshore oil and gas drilling rigs, reversing some Trump administration policies and returning to a more stringent regulatory stance adopted after the 2010 Deepwater Horizon disaster.
• California oil company must pay $65M over oil spills - The Associated Press (03/06/2023)
  A defunct company that spilled more than a million gallons of crude oil and wastewater in California must pay more than $65 million in penalties and cleanup costs, federal prosecutors announced Monday.
• Ten years after mass BP settlement, cleanup workers with chronic medical claims still fighting - David Hammer, Nola (02/10/2023)
  Caleb Breaux and Donald Dumas are among tens of thousands of Gulf Coast residents who took jobs cleaning up BP’s oil spill in 2010, trying to blunt the effects of the worst offshore environmental disaster in U.S. history.

   

• TC Energy: Keystone Pipeline leak caused by welding flaw, bending stress - Darryl Coote, UPI (02/10/2023)
  A massive oil spill from the Keystone Pipeline in northern Kansas in December was caused by a welding flaw and bending stress fatigue, TC Energy Corp said in its initial investigation findings.

   

2022

• Safety concerns preceded oil well blowout - John Cox, Bakersfield.com (12/10/2022)
  The idle oil well that blew out Dec. 2 north of California Avenue, badly injuring a Bakersfield oil field worker, twice prompted safety concerns earlier this year — first as part of a cluster of bores whose elevated pressure readings led to an emergency work order in May, then again after a rupture boomed at the site in June.

   

2020

• $1.6 million settlement reached in 2016 Ventura oil spill - Jeremy Childs, VC Star (07/21/2020)
  An oil pipeline company and associated contractor will pay a $1.6 million settlement regarding a 2016 crude oil spill in Ventura, the Ventura County District Attorney's Office said Tuesday.
• Michigan wants Enbridge to pledge funds in case of oil spill - Staff, GreatLakesNow (07/20/2020)
  Michigan sought a written pledge Friday from Enbridge Inc. to cover costs that would arise if oil were to leak from its dual pipelines that extend across a channel linking two of the Great Lakes, although the Canadian pipeline company said it had already made such a promise.

2019

• The U.S. is making an effort to end the longest oil spill in history. This company is fighting against it in court - Darryl Fears, Washington Post (03/02/2019)
  As the longest offshore oil spill in U.S. history creeps toward its 15th year, the federal government is preparing to launch a determined effort to contain the oil and cap the leaking wells. . . . But the energy company responsible for the spill has gone to court to stop the government's efforts to fix a leak that is sending hundreds of barrels of oil into the Gulf of Mexico. . . . Taylor Energy of New Orleans recently filed four lawsuits against the Interior Department, U.S. Coast Guard and a private contractor to contest their assessment that the spill is catastrophic and to shut down plans to cap more than two dozen leaking wells. . . . The wells were torn open in 2004 when Hurricane Ivan triggered powerful currents that collapsed the walls of a deepwater canyon. The tumbling walls slammed into an oil production platform that Taylor Energy operated 12 miles off the Louisiana coast, burying most of its 25 wells.

2018

• Gulf of Mexico oil spill much worse than thought, federal lawyers say - Jeff Amy, Michael Kunzelman, Associated Press (09/17/2018)
  Federal government lawyers say a 14-year-old leak is releasing much more oil each day into the Gulf of Mexico than officials previously claimed, and it may be getting worse. . . . A Friday court filing in a case involving Taylor Energy Co. says 10,000 to 30,000 gallons daily is leaking from multiple wells around a drilling platform toppled by 2004's Hurricane Ivan. . . . That estimate is far above the 16,000 gallons of oil that the U.S. Coast Guard estimated in 2015 had been spotted in slicks over seven months. . . . The government cites a report it commissioned from a scientist who has studied satellite images of persistent oil slicks and sampled floating oil at the site about 10 miles offshore. That report also suggests that while the amount of leaking oil decreased after some wells were plugged in 2011, the leak may be getting bigger again.
• BP to knuckle down on sales drive as Horizon woes deepen by £2bn - Jillian Ambrose and Jack Torrance, The Telegraph (01/16/2018)
  BP’s multi-billion dollar sales drive faces fresh investor urgency after a surprise $1.7bn hit relating to the Deepwater Horizon oil spill. . . . The oil company told investors that it expects to pay out a higher-than-expected $3bn (£2.2bn) in compensation for the Gulf of Mexico disaster, ratcheting the total cost of the deadly oil rig explosion to $65bn. . . .Since BP agreed the largest settlement of its kind with the US Department of Justice at $20bn the group has struggled to draw a line under the Deepwater fallout. The group promised investors in the summer of 2016 that it could “reliably estimate” the total cost at $61.6bn, but it has continued to hemorrhage compensation costs.

2017

• Oil and gas plumes found at site of 13-year-old leak in Gulf - Michael Kunzelman, AP (12/18/2017)
  Federal regulators have found fresh evidence of an “ongoing oil release” at the site of a 13-year-old oil leak in the Gulf of Mexico, where chronic sheens often stretch for miles (kilometers) off Louisiana’s coast, according to government lawyers. . . . In a court filing Friday, Justice Department attorneys said recent scientific surveys revealed two plumes of oil and gas flowing from where an underwater mudslide during Hurricane Ivan in 2004 toppled an offshore platform and buried the cluster of wells owned by Taylor Energy Corp. . . . The New Orleans-based company has repeatedly insisted there is no evidence that oil is seeping from any of its unplugged wells on the seafloor. The government’s court filing doesn’t address whether any of Taylor’s wells could be the source of the plumes.

2016

• Exxon to Pay $12M to Settle over Yellowstone Oil Spill - Matthew Brown, Insurance Journal (09/23/2016)
  Exxon Mobil Corp. will pay $12 million for environmental damages caused by a pipeline break that spilled 63,000 gallons (238,474 liters) of crude into Montana’s Yellowstone River and prompted a national debate over lax pipeline safety rules, officials said Wednesday. The payment settles claims from the U.S. and state governments that the 2011 spill harmed natural resources as it fouled an 85-mile (137-kilometer) stretch of the famous river that flows through southern Montana. Court approval is pending. The pipeline break upstream near the town of Laurel killed fish and wildlife and prompted a monthslong cleanup. A U.S. Transportation Department investigation found Exxon workers failed to heed warnings that the 20-year-old pipeline was at risk from flooding.
• Halliburton, Transocean to pay another $1.24 billion for BP spill - Mark Schleifstein, The Times-Picayune (06/23/2016)
  Two new settlements totaling close to $1.24 billion have been reached between private BP oil spill claimants and the Halliburton and Transocean companies to settle punitive damage claims stemming from their roles in the April 2010 Deepwater Horizon disaster.

2015

• BP faces Mexican class action lawsuit over Deepwater Horizon oil spill - Nina Lakhani, The Guardian (12/11/2015)
  BP is facing another potentially huge compensation bill from the Deepwater Horizon oil spill after a class action law suit was launched in Mexico for the environmental catastrophe caused in its territory by the fatal disaster.
• Judge sets Anadarko's Deepwater Horizon environmental fines - Collin Eaton, The Houston Chronicle (11/30/2015)
  A federal judge on Monday said Anadarko Petroleum Corp. must pay $159.5 million in environmental penalties for its part in "the polluting enterprise" that caused a massive 87-day oil spill in the Gulf of Mexico five years ago.
• States Rarely Punish Companies for Oil Wastewater Spills - John Flesher, AP (09/08/2015)
  In April 2013, a malfunctioning oil well in the countryside north of Oklahoma City caused storage tanks to overflow, sending 42,000 gallons of briny wastewater hurtling over a dike, across a wheat field and into a farm pond.
• BP Finds Itself at Odds With Regulators Again - Christian Berthelsen and Sarah Kent , The Wall Street Journal (07/15/2015)
  The Federal Energy Regulatory Commission is accusing BP of manipulating Texas natural-gas markets in 2008.
• Fund For Victims of Fiery Oil Train Derailment Grows to $345 Million With Latest Contribution - U.S. News & World Report, AP (06/09/2015)
  World Fuel Services Corp., which was accused in a lawsuit of downplaying the volatility of the crude oil from North Dakota's Bakken shale region, agreed to contribute $110 million to the settlement fund, leaving Canadian Pacific Railroad as the only company with potential liability that has declined to contribute.
• Deepwater Horizon: Jury Selection Begins for BP Exec Charged In Oil Spill - Dominic Rushe, The Guardian (06/01/2015)
  Jury selection began on Monday for the trial of the most senior BP executive charged in connection with 2010’s fatal Deepwater Horizon oil disaster.
• BP, Two Contractors Resolve Their Spill Disputes - Collin Eaton , Houston Chronical (05/20/2015)
  BP has agreed to dismiss legal claims against two contractors that worked on its doomed Macondo well, Transocean and Halliburton Co., closing a chapter in the legal saga surrounding the Deepwater Horizon Disaster.
• Oil Tank Car Fire Forces Evacuation of North Dakota Town - Jad Mouawad, New York Times (05/06/2015)
  A train carrying highly volatile crude oil derailed and erupted into flames on Wednesday morning, forcing the evacuation of a small town in North Dakota.
• New Regulation Aims to Prevent Explosions at Offshore Rigs - Coral Davenport and Peter Baker, New York Times (04/13/2015)
  The Obama administration on Monday proposed a new regulation for offshore oil and gas rigs intended to improve equipment standards and well designs and avoid a catastrophic spill like the one in the Gulf of Mexico in 2010.
• Deepwater oil spill: BP steps up PR effort to insist all is well in the Gulf - Peter Moskowitz, The Guardian (03/31/2015)
  In the run-up to the five-year anniversary of the Deepwater Horizon spill this April, BP is ramping up its effort to convince consumers that life is returning to normal on the Gulf coast.
• Jindal appeals ‘Big Oil’ suit to high court - AP, (01/10/2015)
  The fight over whether oil companies may be sued over damage to Louisiana’s coastal marshes has been appealed to the state’s high court.

2014

• U.S. Seeks Up To $18 Bln In Water-pollution Fine From BP : Reports - RTT News (12/20/2014)
  The U.S. government wants British oil giant BP Plc. (BP, BP.L) to pay $16 billion to $18 billion in water-pollution fines for the worst offshore oil spill in U.S. history while seeking more than $1 billion from the co-owner, Anadarko Petroleum Corp., of the blown-out well that caused the 2010 Gulf of Mexico disaster, according to reports.
• Obama administration raises companies' oil spill liability - Jennifer A. Dlouhy, Houston Chronicle (12/11/2014)
  More than four years after the Deepwater Horizon disaster dramatically illustrated the high price tag of cleaning up oil spills, the Obama administration hiked the amount companies must pay to reimburse economic damages from the incidents.
• New crude oil report concludes risks of train spills are real - Tony Bixjak, Sacramento Bee (10/23/2014)
  Mile-long oil trains that are expected to crisscross California daily in the coming years pose significant risks to residents of urban areas, including Sacramento, a new report concludes, contradicting earlier studies that found no major safety concerns.
• Class action granted in Exxon oil-spill lawsuit - Washington Times, AP (08/13/2014)
  Class-action status has been granted in a lawsuit against  Exxon Mobil stemming from a 2013 pipeline accident in Mayflower.
• U.S. court approves $27.8 million deal for toxic Tennessee spill - Jessica Dye, Reuters (08/05/2014)
  A federal judge in Tennessee has approved a $27.8 million settlement from the Tennessee Valley Authority to more than 800 people affected by a 2008 accident that unleashed a wave of toxic coal sludge, plaintiffs’ lawyers said Tuesday.
• Fish lesions linked to 2010 Gulf oil spill - Brooks Hays, UPI.com (07/10/2014)
  In a newly completed study of fish suffering skin lesions, researchers observed a correlation between the malady and the chemical footprint of the spilled oil found in the fishes' livers and muscles.
• Railroads seek to limit disclosure on oil trains - Phuong Le, AP, Columbian (06/05/2014)
  Two railroad companies want to prevent the public from getting a hold of details about oil shipments through Washington state, a disclosure the federal government ordered be given to state emergency managers in the wake of several oil train accidents.
• Canada Imposes ‘Absolute Liability’ Rules on Pipeline Spills - Julie Gordon , Reuters (05/14/2014)
  Canada unveiled new rules on Wednesday to enhance pipeline safety and spill response, ahead of the development of new projects proposed to carry crude from Alberta’s oil sands to coastal ports for export.

2013

• In BP Trial, the Amount of Oil Lost Is at Issue - Clifford Kraus, New York Times (09/29/2013)
  The second phase of the BP Oil Spill case begins on Monday, September 30, 2013 to determine the amount of oil that spilled into the Gulf of Mexico. The government’s position is that a total 4.2 million barrels of oil was discharged into the Gulf over 87 days, but BP counters that the number was closer to 2.45 million barrels

Additional Items

Mauritius calls for urgent help to prevent oil spill disaster

People living in Mauritius have described the devastation caused by an oil spill from a stranded vessel and called for urgent international help to stop the ecological and economic damage overwhelming the island nation.