Hill+Knowlton Strategies

Today energy major Total plugged the well at its Elgin platform the North Sea that has been leaking gas since March 25th this year. This is a great result and now will make the process of plugging the well more straight forward. The plans to drill a relief well, which have been run simultaneouslywith the Top Kill attempt, were well progressed, but estimates suggested this would take six months to complete. No doubt customers, officials at DECC and operators of nearby platforms will be relieved, a estimate suggested that up to 6% of the UK’s summer gas needs would be affected by the leak. Now that the leak has been stopped, hopefully production can be brought back online safely in the coming weeks. 

I expect too that those concerned about the environmental impact of the Elgin spill will also be relieved that the leak has been stopped. There will of course have been consequences for the local ecosystem as a result of the leak, but these have proven to be far less apparent than the impact of oil spills. It is this aspect of the spill that I wanted to focus on with this post.

Of course I am not overlooking the impact of this spill, but as this case has shown gas is not as visibly noxious as oil and the results of a spill are not as easy to convey visually, which impacts media interest. I remember Greenpeace had attempted to convey the impact with some high impact infra red images of the leak, but even these images didn’t get much traction. Had the leak caught fire then in terms of reputation this leak would have been far more catastrophic.

I think this chart neatly shows this in action (the horizontal axis is time and the vertical axis is number of posts). It’s small, but you can clearly see how interest has tailed off since the initial news of the leak and early speculation about the impact of the spill. The red line shows how this played out in mainstream media and the grey line shows Twitter posts. It is interesting that in contrast to the Macondo spill in the Gulf of Mexico, media interest has been far more muted and less persistent. Of course there are other differences including BP’s record in the US, the company statements that exacerbated media interest, the apparently different perspectives between BP and the White House etc, but one difference is telling and that is the visual impact of oiled birds and beaches versus the more intangible evidence of a gas leak at Elgin. 

It lead me to wonder a question to which I don’t know the answer, but would be fascinated to know and that is whether the risk profile and therefore cost of offshore gas developments factors in this lower reputational risk. I expect the differences in terms of risk are probably imperceptible, but from a reputational perspective this leak appears to have been far easier to manage for Total than Macondo was for BP.

It has been an age since my last blog and on the energy front things have been busy. The Statoil campaign in the UK has kicked into gear, we’ve had the Electricity Market Reform, release of strategic oil reserves (good blog from Platts yesterday), increased retail energy prices in the UK and continued debate about the future of nuclear in different parts of the world.

In the world of media too things have changed. Of course we no longer have the News of the World on our newsstands, but we have a new social network to play with in Google+ and apparently there are already 10 million users (for those interested I’m at http://gplus.to/chrispratt). We also had the launch of the Huffington Post in the UK, and the subsequent debate in the journalist twittersphere about unpaid content and commentary.

Personally speaking the pace of things at work and at home (moving into new house) has precluded much else, but the train journey has allowed me to make a start on the new book by Tom Bergin , Spills and Spin, about BP’s Macondo spill and the changes at BP under Lord Browne and Tony Hayward, which according to Bergin had created an environment more comfortable with risk than perhaps an oil company should be. It’s an interesting perspective and I look forward to the week off next week that will allow me some time to finish the book.

I’m also looking forward to reading more about the fallout from the EMR. One thing is clear about the reforms and that is that energy prices will increase to foot the bill for the investment in our national infrastructure. What the bill will be and how much the average energy consumer will have to pay, nevermind the extent to which heavy industry can afford to stay in the UK, will be the subject of much debate as the Government starts to provide the clarity required to make the calculations. From a communications perspective therefore much remains to be done as consumer groups, businesses, energy companies and Government line up for what will be a time of challenging messages. Something to think about on the beach? Probably not, but maybe when I get back.

Brandz today launched their annual Brandz 100 list of the top global brands by brand value. Unsurprisingly Apple topped the table this year, but there were some interesting changes further down the table. This was especially true for the energy industry where BP’s brand value suffered significantly as a result of the GOM spill and dropped below Brazil’s energy giant, Petrobras (who in the interests of transparency, we should add are a client).

The full report has been published and although the energy & industrials team at Hill & Knowlton UK didn’t make the final cut in this year’s commentary it’s still an interesting read. The FT has committed a special report to it as well and more articles are to follow the openers in today’s FT.

Petrobras’ phenomenal rise in brand value has been replicated by other emerging market brands as the solutions to the energy challenges the world faces are being met by new emerging market giants. It will be interesting to see also how the majors respond and whether ExxonMobil and Shell can continue to capitalise as BP fights back.

We’re told by the authors that Petrobras’ increase is in part because they have strong momentum, they have very positive investor sentiment (following their record-breaking IPO) and the country brand of Brazil is strong (especially with the forthcoming World Cup and Olympics). It will also be interesting to see how this sentiment weathers inflation and the pressures of growth, but as pressures go it’s not a bad one to have to tackle.

The sun shone on Monday during my visit to Aberdeen to meet with representatives of the offshore energy industry in the Granite City, but the general mood of the industry appeared more glum under the gathering rainclouds of increased regulation and the changes to the offshore production levy.

The current consultation by the European Commission into offshore drilling may well be a pre-cursor to additional regulations for an industry still integrating learnings from the fallout of last year’s Gulf of Mexico spill. The key question will be the extent to which any new regulations place additional burdens (and costs) on an industry that has for many years set the bar for world offshore HSE standards.

There was an encouraging appetite for making contributions to the consultation among those that I met with, but evidence too that many were planning to make only collective submissions, which often has the effect of watering them down. What is clear is that DG ENER at the Commission are keen to review offshore drilling regulations and that such a consultation regularly results in regulatory changes. Now is the opportunity to engage in the process to avoid any nasty surprises.

Speaking of which it is clear that the energy industry operating on the UK Continental Shelf is still reeling from the changes to the offshore production levy introduced in April’s Budget. It seems that there are fresh headlines every day as different organisations up the ante and review investment decisions as a result of the changes. Certainly Energy Secretary Chris Huhne’s meeting with the Energy and Climate Change Committee yesterday has done little to settle industry concerns at the apparent intrasigence of the Government on this issue, especially when it comes to gas production and marginal fields. Although according to some the result of the AV referendum could bring about some changes.

This is an issue that we expect to run and run in the coming months, but I hope the storm clouds lift for long enough that we can enjoy some of the beautiful sunshine that is forecast.

Expanding unrest in the Middle East has jolted the oil market, sending crude to $119 a barrel since Egyptians first took to the streets in January. The oil market doesn’t like uncertainty, and nothing could be more uncertain than the volatility spreading to Libya, Africa’s third-largest oil supplier, and Tunisia. Some analysts are even concerned about Saudi Arabia.
Rising oil prices mean rising gasoline prices, which have surged to an average of about $3.13 a gallon at the pump in the U.S. This comes on the cusp of the summer driving season, when prices usually peak as Americans hit the roads.
Some analysts say oil could reach $220 a barrel if Libya and Algeria halt exports. The U.S. Energy Information Administration said Feb. 8 that the monthly average retail price for regular gasoline could exceed $3.50 a gallon during summer 2011. And that was before the Libyan situation developed.
What typically follows these price upticks is a round of Congressional hearings as indignant constituents’ wallets are squeezed.
Surging oil prices usually bring a fresh look at renewables too, so green energy companies should be prepared to seize the moment. Companies involved in alternative fuels such solar and wind can use this time of high oil prices to once again showcase their offerings.
This would also be an opportune time for oil companies to press for Gulf of Mexico drilling permits, long stymied by the ghost of Macondo.
Times of unrest often call for times of new beginnings.

New techniques and technological advancements have been synonymous with the energy sector for decades, and have proved essential in accessing resources that were previously out of reach. The recent oil spill in the Gulf of Mexico, however, has raised questions about deep-sea drilling, security and where our energy comes from.

From the US perspective, there is a great deal of rancor around, with company executives summoned to Washington DC earlier this month to address a Senate Committee hearing. Furthermore, the Obama administration is talking tough, just after it was agreed in March that new stretches of the US coast would be opened up to deep-sea drilling. The likely upshot will be an increase in spillers’ liabilities (this currently stands at a maximum of USD 75 million), an increase in costly regulation around deep-sea drilling, and a likely split of the Minerals Management Service into two separate bodies: one responsible for permitting, and one responsible for the oversight of the sector.

Changes are also likely from a European perspective too. The EU Energy Commissioner, Günther Oettinger, has already called in representatives from large oil companies to speak about oil industry safety following the Gulf of Mexico crisis. He has been seeking assurances that companies operating off EU coastlines are managing risks effectively, and also wants to check that the current regulatory framework is sufficiently robust. This should ring some alarm bells for oil companies, since the NGO community and certain MEPs will be pushing for more stringent measures to be applied.

There could also be fallout from the approach taken by EU and US bodies for the rest of the world too, with a tighter, regulation-heavy regime being promoted across the globe.

Amid the baying for blood, and the understandable shock at the Deepwater Horizon disaster – both from a human and an environmental angle – we should not lose sight of the fact that there is no such thing as risk-free energy. Decision-makers across the globe need to balance questions of security of energy supplies with environmental concerns, while striving for jobs and economic growth. At the end of the day, having the right energy mix, with the necessary safeguards in place, is in all our interests.