The Tribune

By LARRY SMITH

THE Bahamas National Trust featured an unusual public presentation last week – on the subject of oil exploration and transportation.

It is a theme that has all but vanished from public view in recent months, as we try to focus on the blurred gambling issues, but former College of The Bahamas geography lecturer Neil Sealey neatly brought it back into perspective.

A Bahamian who was born in the historic British naval town of Portsmouth, Sealey was an officer in the merchant marine from 1957 to 1964, working on cargo and passenger ships operated by the British India Steamship Navigation Company, once the world’s largest merchant fleet.

One of the vessels Sealey sailed on was the Ellenga, a 48,000-ton crude oil tanker chartered to British Petroleum. “Virtually all the tanker trade was from the Gulf to Mediterranean ports or the UK,” Sealey told me after the presentation. “We did an occasional trip to the US, and sometimes picked up oil in the eastern Mediterranean – at Syrian or Lebanese ports.”

After leaving the navy, Sealey completed a graduate course in geography at the University of London and began teaching, joining the COB in 1979. He has published several text books, and was part of the team that formulated the Bahamas General Certificate of Education curriculum in the early 1990s.

“Just like every other tanker back then,” Sealey said, “the Ellenga’s tanks were cleaned out regularly with high pressure hoses, and the oil, water and sludge was pumped over the stern. This produced most of the tar balls found on beaches around the world. It was not until the 1970s that new techniques were introduced and oil washings kept onboard to be discharged ashore at the next port.”

Oil pollution became a big public issue for the first time in 1967, Sealey recalled. That was when the 120,000-ton supertanker, Torrey Canyon, foundered off the western tip of Cornwall, causing an unprecedented environmental disaster that imperilled popular tourist areas in France and Britain. The ship was eventually sunk by Royal Air Force bombers, which set the spilled oil ablaze.

There were no international regulations back then to deal with such accidents, and both the British and French governments spent years pursuing the Torrey Canyon’s Bahamas-based owners for compensation. According to a 2010 report in the Manchester Guardian, “Forty-three years on, the crude from the Torrey Canyon is still killing wildlife on a daily basis.”

Two years later, an offshore well blew out near Santa Barbara, spilling 100,000 barrels of crude oil. Much of this reached the California coast, killing thousands of sea birds and marine animals, and public outrage led to new environmental laws. No offshore leases have been granted by the State of California since.

Closer to home, in 1979, two supertankers collided off the coast of Tobago spilling 280,000 tons of crude. One exploded and sank, while the other was towed into port. There were 29 deaths, but the cargo was light crude, which either burned off or evaporated over time.

The Exxon Valdez spill in 1989 was probably the best known oil disaster until the Deepwater Horizon well blowout two years ago. The tanker struck a reef off Alaska and spilled more than 260,000 barrels of crude, producing one of the most devastating human-caused environmental disasters ever. This accident led to tighter regulations on tanker owners and operators.

We are all familiar with the recent Deepwater Horizon spill, when a British Petroleum offshore well spewed millions of barrels of crude into the Gulf of Mexico for three months. The spill caused extensive damage to the Gulf’s fishing and tourism industries, and scientists have found alarming numbers of mutated crab, shrimp and fish they believe to be the result of chemicals released during the spill.

Today’s supertankers carry more than two million barrels of crude oil on each voyage, and they move over half of the total world oil production of 87 million barrels per day. As Sealey pointed out, we are already part of this petroleum world. The Bahamas imported $348 million worth of fuel for BEC last year, and there are endemic oil spills at Clifton on the southwest coast of New Providence. Oil tankers of varying size regularly pass through Bahamian waters.

As Bahamas Petroleum Company chief Simon Potter observed recently, “The Florida Straits are as busy as the Strait of Hormuz (in the Persian Gulf) in terms of oil shipments. And the world’s fourth largest oil storage terminal is on Grand Bahama. Also, six wells are being drilled just a few miles from Bahamian waters and commercial production has already been established along the north coast of Cuba.”

So clearly, there is an urgent need to overhaul our legislative, environmental and financial regimes to provide for the orderly development of a domestic oil industry (should commercial reserves be discovered). And BPC is said to be working with government to develop new rules to replace the outdated 40-year-old regulations governing oil drilling in Bahamian waters.

In fact, as one environmentalist conceded to me at the BNT meeting, the quality of governance – rather than the decision on whether or not to drill – is the biggest issue we face. National resources are owned in common by the Bahamian people, and effective management of this national patrimony requires institutional capacity, transparency and the participation of civil society. But so far there has been little or no public communication from the government.

In the Caribbean, Trinidad has had an oil industry since the early 20th century. It produces about 100,000 barrels of crude oil per day and is also the world’s fifth largest exporter of natural gas. The energy sector in Trinidad accounts for 40 per cent of GDP and almost 60 per cent of government revenue.

Taxation includes a production-based royalty of 12.5 per cent, a production levy of 3 per cent of the gross income from crude oil, a supplemental tax based on oil prices, a profits-based corporation tax, and an unemployment levy of 5 per cent. Since 2000, surplus petroleum revenues have been invested in a sovereign wealth fund now valued at $4.5 billon.

Trinidad’s state enterprises must publish a summary of their unaudited half-yearly financial statements within two months of the mid-year date, and a summary of their audited financial statements within four months of the end of their financial year. Trinidad also has a Freedom of Information Act, a Prevention of Corruption Act, and an Integrity in Public Life Act. The Bahamas currently has no such laws to safeguard the public interest.

In the early 1960s, a Venezuelan minister described oil as the devil’s excrement. Experts say volatile oil prices produce boom and bust cycles which lead to draconian budget cuts that hurt the poor. And because the oil industry is highly concentrated and capital intensive, oil-fueled growth does not create jobs in volumes commensurate with its large share of the economy.

Critics say oil promotes bad politics because politicians can afford to be unaccountable to taxpayers, who often develop parasitic links with the state. With their ability to allocate immense financial resources at will, governments inevitably grow corrupt. This is the reason some countries have set up sovereign wealth funds to save petroleum revenues for the future and to make social investments.

The Bahamas Petroleum Company estimates that development of a two billion barrel oil field at a 25 per cent royalty level would generate some $30 billion for the Bahamas over a 10-year period – or twice the nation’s current budget spend every year for a decade.

Probably the worst case example of governance is Nigeria, where billions in oil revenues have been stolen over the past 50 years. As David Blair of the Daily Telegraph put it recently, “oil has allowed a tiny elite to live in luxury, while most of the population endures abject poverty. The non-oil economy has been throttled and the political process reduced to an odious scramble for a share of the country’s oil wealth”.

Oil spills in Nigeria are common. An estimated 13 million barrels have been spilled since drilling started in 1958 – about half by tankers. This has had a major impact on ecosystems, and drinking water is frequently contaminated. Offshore spills contaminate coastal environments and cause a decline in local fishing production.

At the other end of the spectrum is Norway, which is often cited as the best example of a well-regulated oil regime. Political parties have agreed to keep oil out of election campaigns, while a partnership has been developed between industry and the state. Norway’s $600 billion sovereign wealth fund is independently managed and based on the principle that petroleum resources belong to society as a whole.

In other words, the real achievement is not finding oil, but coping with its discovery. A balance must be struck between over-reliance on private foreign companies and the development of a bloated, politicised oil sector that evades accountability, experts say. And environmental oversight must be robust and well-enforced.

Former Environment Minister Earl Deveaux has argued that if the Bahamas is to become an oil-producing country, it must weigh that choice against its current economy and way of life. “And the principal underpinning of our economy and way of life is the natural environment, so this asset must be protected as far as possible.”

According to Deveaux, “events in the Gulf of Mexico in 2010 amply demonstrated the potential consequences for Bahamian tourism, fishing and the environment should commercial oil reserves be confirmed and exploited without adequate governance. The existing regulatory environment does not allow for rigorous oversight of our most precious resource - the environment which underpins the way of life of all Bahamians”.

If we are to become an oil-producing province, careful thought must be given to the proper management of whatever wealth that will bring to the nation before the resource is exhausted. We must also have the will and the capacity to protect our environment. It is incumbent upon the government to begin wide-ranging public discussions on this vital issue.

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