Senate removal of oil liability cap gets industry pushback

The Senate Environment and Public Works Committee vote last week to remove the $75 million federal liability cap for oil spills has the industry worried U.S. companies will be forced out of the oil exploration business because insurance companies won't be able to cover a risk that has effectively become unlimited.

"The accident in the Gulf of Mexico has shown us that we need to focus on safety and environmental protection," said American Petroleum Institute President and CEO Jack Gerard in prepared remarks. "But legislative proposals that would make domestic resources unavailable or uneconomic, instead of focusing on improving safety, must be turned aside." 

The Senate committee voted to remove the oil spill liability cap as BP settles claims that so far amount to $147.2 million. The committee also approved a stronger spill response plan that companies would need to submit before being allowed to drill for oil and gas reserves.

API argues the legislation will make insurance on exploration and production activities unavailable as insurance companies would not want to take on the additional risk. It also argues companies that self-insure would see costs skyrocket as capital reserves would need to be increased to cover the added risk.

About 30 percent of the nation's total domestic oil production and 13 percent of domestic gas production comes from the Gulf of Mexico, API claims. Roughly 80 percent of that production lies in deepwater areas and would be hard, if not impossible, to insure.

"Proposals that ignore our energy reality, or remove domestic resources from our energy mix, place our economic recovery and our energy security at risk," Gerard said. He added: "Millions of families, thousands of products and hundreds of industries across the country depend on reliable and affordable oil and natural gas every single day."