EU Seeks Stricter Offshore Oil Rules After Spill, Extends Liability Zone

European Union regulators proposed stricter safety standards for offshore oil and natural-gas exploration to curb the risk of a major accident after BP Plc (BP/)’s spill in the Gulf of Mexico, the largest in U.S. history.

Draft regulation presented today by the European Commission, the EU’s regulatory arm in Brussels, sets risk- assessment rules for offshore platforms and gives national regulators more powers to inspect their operations. It also extends 16-fold the zone in which companies will be held liable for environmental damage.

“Securing best industry practices in all our offshore operations is an indisputable must,” EU Energy Commissioner Guenther Oettinger said in a statement.

Europe is considering ways to improve safety and bolster the “polluter pays” principle in the energy industry following the Gulf of Mexico spill last year. There are almost 1,000 offshore oil installations in the EU, including 486 in the U.K., 181 in the Netherlands and 61 in Denmark, according to the commission.

The draft regulation fixes rules for the entire life cycle of all exploration and production activities, requiring the offshore oil and gas industry to improve safety standards on a regular basis. Technical solutions that are critical to safety will be subject to verification by an independent third party.

‘Financial Capacities’

The proposed measure also obliges national licensing authorities to ensure that operators have “sufficient technical and financial capacities necessary to control the safety of offshore activities and environmental protection.” Member states will have to put in place an enforcement and penalty system for failure to comply with the safety rules and in case of serious breach of standards an operator may be ordered to stop drilling or production.

To better protect marine species and natural habitat, the draft regulation extends the zone in which companies will be fully liable for damages to waters to about 370 kilometers (230 miles) from the coast from the current 22 kilometers. The cost of a major accident in EU waters is about 205 million euros to 915 million euros ($1.3 billion) a year, based on data regarding wells and blow-outs and expenses related to property damage and clean-up of oil spills, according to the commission.

The U.S. government estimates that 4.9 million barrels were spilled into the Gulf of Mexico from the damaged Macondo well after the Deepwater Horizon drilling rig exploded on April 20, 2010, killing 11 workers. The spill fouled beaches, killed wildlife and shut a swath of fishing grounds before the company managed to cap the well in July.

‘Learned Our Lessons’

“We have learned our lessons from last year’s Deepwater Horizon accident,” Environment Commissioner Janez Potocnik said. “Today’s proposed regulation will help us prevent such future crises from happening in all marine waters which fall under EU member states’ jurisdiction.”

More than 90 percent of oil and over 60 percent of gas produced in the EU and Norway, which is closely associated with the 27-nation bloc, comes from offshore operations, estimates by the commission show. The EU regulatory arm intends to publish every two years reports on the safety of offshore operations in its waters.

The proposal by the commission needs the support of EU national governments and the European Parliament to become binding, a process that can take a year or more.

The requirements could enter into force in 2014 for existing installations, which would be granted transitional periods of a maximum of two years, according to the commission. Planned facilities may become subject to the new regulation from 2013, after a transition period of one year, it said.

To contact the reporter: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net;

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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