Thursday, May 27, 2010

Limitations on Liability

There is a cap on the liability of BP in the Gulf oil spill. It is fairly low. Of course government intervention in the markets has impacts on decisions. Like decisions that impact safety. BP used cheaper casing on oil well to save money, Congress papers show - Times Online

Of course now that it is too late, the government is thinking of changing the rules in the middle of the game, and raising (or eliminating) the cap on liability. But that is too late.
The explosion on the Deepwater Horizon rig that precipitated the vast Gulf of Mexico oil spill came after the well was capped with a relatively cheap type of casing, BP papers have revealed.

The decision to use the riskier method to finish its Macondo well was taken partly on cost grounds, according to the document.

In the days before the blast, the oil giant selected a casing that provided only a single layer of protection to prevent gas from leaking into the well, according the details obtained by The New York Times from a Congressional investigator.
Now someone will argue about the limit on liability and whether it impacted the decision to rush the job at the end ($530K per day for the drilling rig and they were behind schedule) or using cheaper materials. If liability is low, why worry about? You only insure against things that are catastrophic.

If it is really true that there would be no offshore-drilling without caps on liability, then maybe there should be no offshore-drilling.

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