Shale gas projects have already raised concerns over their environmental impacts. The current oil spill could make them harder to develop
This is the first in a new series of ‘Snapshot’ articles, designed to provide a rapid view of socio-political risks facing resource projects based on the LicenseSecure framework. In this article we look at BP’s shale gas assets in the US in the light of April’s Gulf of Mexico blowout and spill. (Please note that, as with other Critical Resource news content, these articles do not necessarily reflect the views of the Senior Advisory Panel for LicenseSecure.)
Explanation: BP has built a strong position in US shale gas in recent years, including through deals with Chesapeake in 2008 worth over $3.5bn. Alongside other producers, it has been lobbying against federal, as opposed to state based, regulation of ‘hydraulic fracturing’ – a controversial technology for extracting shale gas which critics claim pollutes groundwater, though the industry insists the process is safe.
The outlook for BP’s gas assets appears to have worsened to a degree following the explosion and spill at its Gulf of Mexico offshore oil rig in April. Our LicenseSecure framework highlights a deterioration in the company’s socio-political operating environment, as the US public and political figures increasingly question – fairly or not – its ability to avoid accidents and deal with those that occur. The chances of tougher regulation and more determined local protests may have risen, while building strong relationships has become harder; the assets’ provisional LicenseSecure rating has thus dropped from BBB to B.
BP would not be the first extractive firm to find that a major accident or controversy can damage the ‘license to operate’ for its operations elsewhere, on a global basis and for years to come. Exxon for example saw this after the 1989 Exxon Valdez spill, as did Shell following the storm in 1995 over the Nigerian government’s execution of the anti-Shell activist, Ken Saro-Wiwa.
Background on LicenseSecure: The LicenseSecure™ framework assesses the health of the ‘socio-political license to operate’ for resource projects. A decision tool for resource firms and their financiers, it aims to support far-sighted, responsible management of sustainability and stakeholder issues around these often critical investments. LicenseSecure has been developed by Critical Resource over a number of years, based on an analysis of 60+ projects which have suffered challenges to the license to operate (for example where the host government has toughened fiscal terms or communities have impeded operations). The model assesses a project’s socio-political context and the quality of its management of these issues across six key categories, drawing on some 150 indicators. It is supported by an extensive database of projects which allows benchmarking and rapid assimilation of lessons from parallel projects.
* NB this brief provisional analysis is based on desktop research and does not constitute a formal LicenseSecure rating.
Declaration of interest: Critical Resource has supplied information to BP on LicenseSecure