To Regulate, Or Not to Regulate

At the time of this writing, a New Orleans judge has just blocked the Obama Administration’s six-month moratorium on offshore exploratory drilling in more than 500 feet of water. The administration, which issued the moratorium in response to the Deepwater Horizon oil spill, has vowed to appeal the court’s decision. And so begins the struggle on whether to regulate or not to regulate, a tug-of-war that, in recent years, has more often than not been won by those opposed to regulation.

Generally speaking, industry falls on the side of deregulation, while activist groups and reformers fall on the side of regulation. But is there no ability on either side of this divide to see the debate from the other’s perspective? Can we not get past the idea that all regulation is bad for business and all businesses are constantly on the prowl for regulatory loopholes to jump through to their financial gain?

I would argue that nothing’s impossible, but on this issue, each side seems to be playing to its stereotype so much so that logic isn’t likely to show its face anytime soon. Further, with politicians at the state and federal level increasingly using regulatory threats for nothing more than political gain, it’s difficult to see how well-thought-out legislation could possibly emerge in the current environment.

For example, let’s consider the issue of the Deepwater Horizon explosion and subsequent oil spill. At the time of this writing, Sen. Frank R. Lautenberg, D-N.J., is citing the Deepwater Horizon disaster as a rationale in his effort to halt BP’s plans for an offshore oil drilling project in Alaska that aims to tap into what is believed to be a 100-million-barrel reservoir of oil.

While one has to wonder why a New Jersey senator is so concerned about a project in Alaska – perhaps he’s in search of some political gain? – let’s consider this exploration effort for the purposes of an example. Known as Liberty, the project intends to drill two miles under the sea, and then six to eight miles horizontally to reach the reservoir of oil. According to the New York Times, regulators granted the operation status as an “onshore” project, even though it is three miles off the coast. The Times reports that the “onshore” classification was provided because the site sits on an artificial island built by BP.

Admittedly, I’m not an expert on the engineering of offshore drilling projects. However, logically speaking, does it not seem like a process that involves drilling two miles into the sea and then eight miles across would be prone to problems? In fact, it seems to me that deepwater offshore drilling in general involves so many unknowns and requires the drilling companies to push boundaries so far that disasters like the Deepwater Horizon explosion and oil spill are bound to happen. Further, the mere cost of operating a deepwater drilling rig – an estimated $500,000 per day just to sit idle* – makes it hard to understand what is driving companies working in the offshore oil drilling segment to take such high risks. Perhaps they’re blinded by the promise of financial gain.

And finally, and perhaps most disturbingly, we come to the regulatory agencies tasked with oversight of the offshore drilling industry. While I can certainly see why offshore drilling companies would be in pursuit of financial gain – after all, businesses are generally in the business of making money – it’s hard to see anything other than corruption and negligence when you look at the regulators involved in the offshore drilling segment. When the risk is as high as we’ve seen in the Deepwater Horizon disaster, we’d like to believe the regulators would have the necessary foresight to impose narrowly-tailored, but sufficiently-protective, restrictions to prevent such disasters from happening. Alas, such is not the case.

So, as we look at the debate on whether to regulate or not to regulate deep water offshore drilling, we can only hope that the politicians will stop using regulatory threats for political gain, the drilling companies will give the potential risks of the process as much weight as the potential financial gain, and, most importantly, the regulators will re-dedicate themselves to the creation and enforcement of prudent legislation that protects the average citizen, while at the same time does not impose overly broad restrictions on businesses. Here’s to hoping that logic will prevail.