Citing potentially huge legal liabilities from an oil spill, the world’s largest oil company has declared that it will not use its own tankers to deliver the most environmentally dangerous grades of oil to U.S. ports, except for one in Louisiana.
Royal Dutch/Shell Group’s announcement late Monday raised the specter that shipments of such oil will be carried out by small tanker companies without the resources to clean up in the event of a substantial spill. Small-tanker operators are seen as more likely to choose bankruptcy, leaving governments to foot the bill for big cleanups.
The Shell announcement came in the wake of a tanker explosion in the Gulf of Mexico that at one point threatened to spill 38 million gallons of oil off the coast of Texas.
Shell objected to a U.S. “legal environment” that could leave shipowners liable for immense damages--a complaint that some analysts see as an effort to pressure Congress to weaken pending oil spill legislation that could allow states to sue for unlimited damages. Exxon Corp., which spilled 11 million gallons of crude in Alaskan waters more than a year ago, has already spent more than $2 billion and the cleanup cost could rise to $3 billion.
Although Exxon was heavily criticized for the spill and the adequacy of its cleanup efforts, some observers have suggested that Alaska would have been in far worse shape had the tanker been owned by a small operator. Few companies have pockets as deep as Exxon, the largest oil company in the United States.
Shell said it would only use its own ships in transporting the most environmentally dangerous oil--crude oil and heavy fuel oil--to the Louisiana Offshore Oil Port. Industry officials said it would be easy for Shell to use tankers owned by others in delivering oil to other ports because of a current worldwide glut of empty oil tankers.
No other major oil company has announced an action similar to Shell’s. Exxon, Chevron Corp. and Atlantic Richfield Co. were among those who said they had no immediate plans to follow Shell’s move.
Exxon warned, however, that “unless current U.S. legislative issues regarding shipowner liability are satisfactorily resolved, responsible shipowners may be discouraged from using their vessels in trade to U.S. ports.”
Jerry Aspland, president of Arco Marine Inc., painted a stronger threat.
“The worst thing that could happen,” he said, “would be if all the major ship owners sold their ships to individual ship owners. You would own one and I would own one. And when there was an accident, you would just walk away from it.”
Shell spokesman Norman Altstedter said Tuesday that no tankers had yet been chosen to carry the Shell oil, but he denied that this would increase the chance of a spill.
“We inspect all the charter vessels” that Shell has normally used before this, he said. “We inspected 2,000 (ships) in the last year.” Shell also requires charter vessels to carry $700 million in liability insurance.
The Royal Dutch/Shell Group imports about 180,000 barrels a day, 80% of which is black or crude oil. About 40,000 barrels a day would be diverted to non-Shell tankers. White oil includes such refined products as gasoline and kerosene.
Meanwhile, some oil company critics questioned the timing of the move.
Sen. Majority Leader George J. Mitchell (D-Me.), for one, supports legislation that would ensure states the right to sue for unlimited damages in the case of massive oil spills. Nineteen states, Alaska included, currently have laws that place unlimited liability on oil companies held responsible for a spill.
“If the House and Senate bills pass without any change, then federal law would simply not preempt more stringent state laws,” said Sarah Chassis of the Natural Resources Defense Council, an environmental group. Chassis is an attorney with long experience in oil spill liability law.
“It may be that what Royal Dutch/Shell is doing,” said Chassis, “is trying to put pressure on Congress to alter its position on preemption. And any such alteration would be contrary to the public interest--which is to ensure that there are stringent liability statutes.”
But the oil companies see such unlimited liability as prohibitive.
“Obviously, the Valdez incident made the huge costs of liability clear,” said Altstedter of Shell.
“And if the Exxon Valdez sets the standard,” said Aspland, of Arco Marine, “then I suppose that what you need is $2-billion worth of insurance per ship. Well, there aren’t very many insurance carriers around who can take that.”
Critics counter that one version of pending federal legislation would actually spread that liability. It would make cargo owners liable along with shippers for any spill damage.
House and Senate versions of bills that would affect oil spill liability have been held up for months, in large part by disagreement over provisions that could require tankers to use double hulls. One version would exempt the Louisiana oil port, the nation’s only deep water port, from any double-hull requirement. It was unclear Tuesday whether this was a factor in Shell’s decision to alter its shipping routine.
“I hope very much that those who have so far prevented passage of this badly needed legislation will reconsider and permit us to proceed with this good strong bill,” Mitchell said in a statement Tuesday.
Oil shippers have also long called for U.S. ratification of international agreements that set limits to their liability for spills.
The 1969 Convention on Civil Liability and the 1971 Convention on Establishment of an International Fund for Compensation of Oil Pollution Damages provide ceilings to shippers’ potential oil spill costs. The protocols are administered by the International Maritime Organization, an agency of the United Nations.
The Bush Administration has pressed for U.S. ratification and has supported a ratification clause in the pending federal bills. But the Senate, led by Mitchell, has resisted, objecting to any infringement on states’ right to set more stringent pollution-liability laws.
“The answer really is the standard of care that is exercised,” said Chassis of the NRDC. If oil shippers “exercise the proper standard of care, you’re not going to see the kinds of spills that are occurring now.”