Offshore drilling, BP and the oil spill: what should government do?

Posted on May 26, 2010 by

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Almost 40 days ago, while the Obama administration advocated offshore drilling to reduce our dependency on foreign oil, BP’s oil exploration resulted in the worst  ecological disaster in decades, and maybe even the worst ever in our hemisphere. The oil spill is about the size of Rhode Island, running across the northern Gulf of Mexico between the mouth of the Mississippi River and Florida. It runs wide, threatening the coastlines, and deep, traveling beneath about 5,000 feet of water and 13,000 feet under the seabed. The deepwater well is leaking approximately 5,000 barrels per day, shutting down fishing across the affected areas, damaging fragile habitats and putting wildlife in peril.  Philippe Cousteau Jr, the most recognized expert in Oceanography called the Gulf Spill an “underwater nightmare” which will be felt in the Gulf region for decades.

The world witnessed BP’s failure to contain the damage and is now asking: What should government do?  Should government punish the industry with tougher regulations?  Should government step in and attempt to clean up the Gulf region and “bailout” BP by using taxpayers money to clean up the oil mess? 

Let me suggest something to those who are advocating government intervention: If the oil industry experts at BP are incapable of finding a  solution, what makes you think that the federal government has all the answers?  Government intervention to clean up the Gulf will simply be another bailout paid for by taxpayers.  How can we punish BP sufficiently so that this kind of negligence never happens again?  my answer: the competitive free market is doing a good enough job at  punishing BP! (…and the future lawsuits that will come as a result)

BP  is losing millions of dollars everyday attempting to contain the oil spill and as if that was not enough, the company stock has suffered in comparison to others in the industry.  BP’s shares are down from over $60 right before the Gulf oil spill disaster  to $43.  Yes, some may argue that BP stock is not the only one in the industry to take a dive right now because of  many factors, speculation about the price of oil, supply and demand forces, etc… but BP stock has taken a deeper plunge.  The American public has decided to boycott BP, and all the bad publicity will amount to company losses. 

It is obvious to me that a competitive free market, the consumer’s freedom to choose when, how and where to get goods and services is the ideal way to reward good business practices and to “crush” the bad apples.  Interestingly enough while ExxonMobil, Hess, BP and others’ stock prices are down 10-15% YTD, Chevron is up 10.95% YTD.  This past year, Chevron invested $144 million in community initiatives around the world according to the company’s corporate responsibility report.  “Global economic prosperity and quality of life depend on secure supplies of reliable, affordable energy,” said John Watson, Chevron chairman and CEO. “Every day, Chevron employees produce and deliver energy in a safe, environmentally sound and socially responsible manner, creating enduring economic and social value.”

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