Effect on the Environment:
Oil spillage has its own history. Recently, two big spillage incidences have grabbed the attention of the whole world. In 2010, an explosion in the Mocondo well operated by BP plc (NYSE:BP) caused a spillage of around 4 million barrels of oil. The cost of such a spill can never be accounted for. Though BP will be fined a huge amount for the incident, its effect on the environment is hard to measure. BP reported a decline earnings to $1.6 billion from $7.7 billion a year earlier due to declining production.
Another incident that followed was the release of around 150,000 barrels of oil by Chevron Corporation (NYSE:CVX) in the deepwaters of Brazil in November, 2011. Chevron’s license was suspended in Brazil, and recently, the company paid a fine of $17.3 million for the irregularities in operation. Chevron reported earnings of $7.2 billion for the fourth quarter of 2012, in comparison to $5.1 billion for the same period last year.
These two spillage incidents had irreversible environmental effects, and resulted in environmentalists speaking against major pipeline projects carrying crude from oil sands to the Gulf Coast.
Effect on Pipeline Projects:
For Exxon, as an immediate effect of the spill, the Arkansas pipeline has been shut for an indefinite period. In the long-term, the spillage incident has once again brought to the forefront the harmful irreversible threats posed by these pipeline projects. The Exxon-Enbridge Tar Sands pipeline project seeks to reverse two oil sands pipeline in the Alberta tar sand region to the main coast to transport toxic tar sands oil.
The pipelines run through some water bodies, and if these water bodies get contaminated due to spillage, then the effects will be far from our imagination. Any spillage will have harmful effects on the wildlife, along with being the reason for the extinction of some species from the face of the earth and climatic changes in our environment.
The same goes with the other major pipeline projects. TransCanada Corporation (NYSE:TRP) has been planning a project to lay down pipelines carrying 800,000 barrels per day of crude from the Oil Sands of Canada to the Gulf of Mexico refineries. Increasing production in Canada has created a glut of supply. If this oil can be supplied efficiently to the Gulf of Mexico refineries, then the price of oil will come down and operations in Canada will also become profitable.
Keeping that in mind, TransCanada planned the Keystone oil pipeline project to direct the oversupply to the refineries. But the project carries some environmental threats like that caused by the spillage of heavy crude by Exxon’s pipeline spill.
The Foolish takeaway:
Exxon’s crude spillage is another reminder of the challenges posted by major pipeline projects. The U.S. lawmakers are deciding on whether to give the pipeline projects a go, or to sideline the project on the grounds of its probable environmental effects like that seen in the recent Exxon spillage incident. Only time will tell what effect the incident will have on the Keystone pipeline project. Let’s wait and watch.
Satarupa Bose has no position in any stocks mentioned. The Motley Fool recommends Chevron.
