EU Backs Away from Imposing Moratorium in European Waters

(Dow Jones Newswires), Oct. 13, 2010

The European Union backed away from imposing a moratorium on deepwater oil drilling in European waters Wednesday, instead recommending new legislation to enforce tough new EU-wide safety standards for the offshore oil and gas industry.

Guenther Oettinger, the EU's Commissioner for Energy, had repeatedly called for a temporary ban on offshore drilling in sensitive areas until the causes of the Gulf of Mexico oil disaster had been fully investigated.

But the idea was dismissed by the U.K., which argued its domestic oil and gas industry has one of the most robust safety and regulatory regimes in the world. The European Parliament also rejected the proposal in a vote last week. The U.S. lifted its own moratorium on deepwater drilling in the Gulf of Mexico on Tuesday, slightly earlier than expected.

Instead of a ban, the European Commission, the EU's executive arm, recommended Wednesday a "single new piece of specific legislation for offshore oil and gas activities," including criteria for granting drilling permits and control of rigs. A formal proposal could be tabled early next year.

"Safety is non-negotiable," Oettinger said. "We have to make sure that a disaster similar to the one in the Gulf of Mexico will never happen in European waters. This is why we propose that best practices already existing in Europe will become the standard throughout the European Union."

Under the measures being put forward, member states issuing drilling licenses would have to ensure that oil companies met key EU requirements, had contingency plans in place and the financial means available to pay for any environmental damage caused by accidents. In the event of a spill, companies would also be responsible for cleaning up damage to the natural habitat up to 200 nautical miles from the coast. Meanwhile, equipment such as blowout preventers would have to meet the highest safety standards.

Such measures could have repercussions for the European oil industry. There are nearly 900 offshore installations operating in the EU, with more than half in the UK. Most oil exploration is carried out in relatively shallow waters, but oil companies are increasingly moving into the deep offshore. Exploration is planned west of Shetlands in the UK North Sea and in the Black Sea off the coast of Romania.

After the Deepwater Horizon rig exploded and sank in the Gulf of Mexico in April, killing 11 and triggering the worst offshore oil spill in U.S. history, the EU launched a safety review of all oil and gas operations in European waters.

The review revealed that such activities were governed by a patchwork of different safety regimes which "leaves areas of legal uncertainty with regard to companies' obligations and responsibilities," the commission said.

While eschewing an outright call for a ban, the commission called on member states to consider suspending the licensing of new oil and gas operations until Europe's offshore safety regimes had been fully assessed.

That provoked an angry response from Oil & Gas UK, the British oil industry's main trade body. Its head, Malcolm Webb, called the idea of a suspension "wholly unjustified and inappropriate."

He also said any plan to impose prescriptive EU-wide safety regulation would "undermine the advanced and highly sophisticated regulatory regimes currently working so well, for example in the United Kingdom, Norway and the Netherlands."

Copyright (c) 2010 Dow Jones & Company, Inc.

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