What happened at Three Mile Island in 1979 led to a new regulatory environment that increased the costs of building and running nuclear power reactors in the U.S. The environment was so hostile to the industry that no new reactors have been ordered since then. There are several in the planning stages, but none have been approved. The question now being debated among energy analysts is whether or not what’s going on in the Gulf of Mexico at the moment will lead to similar challenges for the oil industry.
Of particular interest is the precedent set this week when BP agreed to pony up $20 billion, to be doled out by an independent panel, to make right what they’ve done to the ecology and economy of the region. It is reasonable to expect other jurisdictions around the world will now demand any deepwater drilling be undertaken only by those with comparably deep pockets.
Electric utilities could not take the risk that financial regulators at the state level would allow them to recoup their investments in nuclear power. In fact, for many plants in the works, the cost to retrofit them became too great, and the industry was left holding the bag. In some cases, investor-owned utilities were on the verge of bankruptcy, and taxpayers had to come to the rescue. This is why the nuclear rebirth now being discussed in Washington is so dependent on the prospect of federal loan guarantees–no company wants to go through that again without some sort of government support.
But then reaches a negative conclusion:
But in the context of oil, it’s hard to imagine one event undermining the entire industry, even one this big. As Mr Cranford writes, oil is just too valuable, and we’re just too dependent on the stuff to take a break from it, much less a 30-year hiatus. For context, he gives this statistic: $100 billion in damages would add only pennies to the price of a gallon of gasoline.
So whatever damage this episode does to BP as a company, it will be a drop in the proverbial bucket (or barrel), as opposed to some sort of industry game-changer like Three Mile Island.
But I think that misses the point. No one’s arguing that the Deepwater Horizon disaster will mean an end to the entire oil drilling business, just the practice of drilling a mile or more beneath the waves, where, as we have learned, cleaning up messes can be more problematic than shutting down a melting reactor.
Consider that the nuclear power industry supplies about 20 percent of the country’s electricity. Deepwater drilling supplies about 25 percent of the country’s domestic oil. An effective moratorium on new reactors lasted three decades (and counting) but didn’t inflict fatal damage on the nuclear industry, which is still operating more than 100 reactors in the U.S. A moratorium on new deepwater wells would be similarly tolerable.
All of this may be moot, of course, if things are as bad as one industry insider says is the case in the Gulf. If it really proves impossible to staunch the flow of oil from the well, then the chances of any more deepwater wells ever being approved, anywhere, drops dramatically. The insider speculates:
… the very least damaging outcome as bad as it is, is that we are stuck with a wide open gusher blowing out 150,000 barrels a day of raw oil or more …
Even if those fears prove unwarranted — and we really don’t have a good idea of what the future holds — things still don’t look good for those who make their living on deepwater rigs. If the U.S. does get around to setting a price on carbon, an already pricey source of gasoline will be that much more expensive. I’d have to say there is great deal of uncertainty facing the economics of deepwater drilling at the moment.