We can examine the need for insurance based on what an actual spill would look like and cost

Every seller of cacotopian oil spill nightmares is asking for billions of USD of spill insurance for the Stabroek block development operator, most, if not all, ignore the fact that payment of this policy is added to the cost of oil and is fully recoverable by the operator. We can examine the need for insurance in the context of what an actual spill would look like and what cleanup would/should cost.

The baseline for the worst possible scenario is the BP Macondo, a spill that went uncapped for 87 days beginning in April of 2010, for a total of 134M gals. Thirteen years later the lessons learned from that spill resulted in two significant developments, 1. The National Oceanic and Atmospheric Administration’s General (NOAA) Operational Modeling Environment suite (GNOME); tools for predicting the fate and transport of pollutants— such as oil—spilled in water. These modeling tools are used for spill response support and are also publicly available for use by the broader academic, response, and oil spill planning communities and 2. The Capping Stack. The Capping Stack was developed and used to stop the Macondo leak, while oil was still spilling into the Gulf back in 2010, four companies put up $1 Billion to create MWCC. Six more have joined since then, and hundreds of millions of dollars have been spent on equipment and training workers.

Today, the oil industry has that equipment standing by, waiting for an emergency. ExxonMobil subscribes to Marine Well Containment Company (MWCC) which also covers other big firms BP, Shell, Chevron, and Conoco. At MWCC’s facility near Corpus Christi, Texas, there are five capping stacks sitting in a gravel yard. They are about two stories tall. Each is intended for different uses, ocean depths, pressures, and temperatures. Thirteen years ago absolutely none of this existed. All of this was built directly in response to the Deepwater Horizon incident. Any Stabroek Block spill is expected to be capped in 5-7 days. What then, does this translate into in terms of the size of an oil spill and cleanup cost?

For ease of calculation, I will assume that the oil will spill at the same rate as the Macondo average (it will start much lower in reality) approximately 1.5M Gals per day, time from Spill to Capping 7 days, for a total spill of around 10.5 Million Gals. The cost of cleanup is 16 USD per gal (industry agreed amount) for a total of close to 168M USD. I would have to be off by a factor of 12 for 2B USD to be required. Because insurance premiums are ‘cost recovered’ by ExxonMobil, the Government of Guyana has made a similar calculation, and ExxonMobil for its management and decision-making process the same. The resulting agreement between Guyana’s EPA and ExxonMobil has an agreed sum of 600M USD insurance and then additional Parent company guarantees as a result of both parties finding common ground.

It is important to note that Exxon has an ‘in-house’ insurance company (AON) and they can easily up the amount of coverage (and resulting premium) and turn a handsome profit secure in the knowledge that a spill would be more than adequately covered; Exxon would pay the premium and then pass the cost onto Guyana complete with upwards of 5% interest per annum. These payments would take years to clear, and Guyana’s auditors would make serious objections to premium payments that far exceed the coverage required because they too are guided by studies of what a cleanup would/should cost. Would anyone insure a wooden shack for 10 Billion when it would only cost 10 Million to rebuild?

Editor, those selling dystopian fantasies of oil washing afar and ashore have not taken the time to research and cost the real scenarios, they would instead ask that Guyanese sacrifice hundreds of millions of USD on their altar of fear. Most Insurance and Reinsurance firms are run in London; our local insurance market cannot cover more than 8M USD. The premium generated by increasing the already sufficient coverage will only put the interests of Bankers in New York and Brokers in London first. This is Guyana. We reap only cost, burden, and lost opportunities by asking for unnecessary insurance. Why are we trying to innovate our way into poverty? We owe it to our people, every citizen, and the Young Generation, to Develop Guyana First.