Environmental Law

05/02/2016

Towards an International Liability and Compensation Regime for Offshore Oil Accidents?

Oil spills (which, for the purposes of this note, are defined as those marine oil spills that occur in oil and gas operations – i.e. during exploration, exploitation and production) usually show as a series of crude oil releasing from offshore installations (drilling rigs, platforms, vessels) and pipelines. Spills, including both small leaks and accidental discharges (with explosions, fires, blowouts, collision, etc.), can contaminate vast offshore and coastal areas, kill countless wildlife (sea birds, mammals, shellfish and other organisms), and disrupt fishing, transport, recreation, and other activities. Over the past decade, accidents on offshore oil platforms (Australia, 2009; United States, 2010; China, 2011; Brazil, 2012) have led to dramatic consequences. At the same time, offshore operations are being carried out from shallow coastal areas to areas of deep water (over 500 meters below sea level), which undoubtedly brings more difficulties to remedy oil spill damages when extreme accidents occur.

(Photo by Flickr user Bryan Burke)

The problem is that there is presently no international liability and compensation regime covering those oil spill accidents that occur in offshore extractive activities; with attempts to establish such a regime having been unsuccessful. In 1977, the Committee Marine International (CMI) drafted a Convention on Offshore Mobil Craft, also known as the Rio Draft, at its Conference in Rio de Janeiro. As the Rio Draft model of incorporation by reference could not “produce a practical regime suitable for offshore units”, the draft convention text was further revised in 1994, then accepted by the CMI, and became known as the Sydney Draft. However, the International Association of Drilling Contractors and the United States Maritime Law Association insisted that a comprehensive international treaty for oil installations is unnecessary, and this resistance led to the removal of the Sydney Draft from the IMO long-term working plan. Although efforts to establish an international convention for offshore installations were officially ceased, a CMI working group and the Canadian Maritime Law Association developed the Draft Convention on Offshore Units, Artificial Islands and Related Structures Used in the Exploration for and Exploitation of Petroleum and Seabed Mineral Resources 2001 (‘Canadian Draft’), comprehensively covering various aspects of oil installations, including poverty, registration, privileges, mortgages, civil and penal jurisdiction to salvage, pollution and liability for leakage aspects. At the 2004 CMI Conference in Vancouver, the majority of participants supported this draft convention received, despite continued strong opposition from the United States. Finally, participants of the conference agreed to work continually towards improving this document.

Due to different levels of offshore industry development, as well as different interests among countries, historical practices did not successfully establish an international liability and compensation regime for offshore oil accidents, whereas some private agreements operating at the regional level have shown a great deal of advantages in liability distribution and effective compensation for offshore oil pollution. Since 1 May 1975, a private agreement between operators of offshore facilities, called the Offshore Pollution Liability Agreement (OPOL) of the United Kingdom, has been in effect. The agreement has worked well up to date, providing for a limited amount of liability for incidents involving the escape or discharge of oil from offshore facilities. The agreement has subsequently been extended to offshore facilities within the jurisdictions of Denmark, the Federal Republic of Germany, France, the Republic of Ireland, the Netherlands, Norway, the Isle of Man, the Faroe Islands and Greenland, but excluding offshore facilities located in the Baltic and Mediterranean Seas, and can be extended so as to apply to offshore facilities within the jurisdiction of any other state. In terms of compensation, the OPOL establishes a current maximum of 250 million USD per incident, subject to a few exceptions, for pollution damage and the cost of remedial measures incurred. Each operator accepts strict liability.

However, do private agreements suit all the regions with potential risks of offshore oil spills? Obviously, liability and compensation for offshore oil accidents are not strictly legal problems, but also relate to a political issue: States do not want to relinquish sovereignty over their continental shelves and Exclusive Economic Zones, and resist subscribing to an international convention regarding those offshore extraction activities, because they understand international law may limit the jurisdictional powers over their sovereign areas. However, as risks of offshore oil spills increase, a unified international regime is likely the most effective method to provide adequate and fair compensation for the oil pollution damages in member states. One reason for this is that offshore oil and gas industries are usually operated by multinational corporations, which could bring difficulties to making compensation claims when an oil spill accident occurs. Especially for developing countries, poor international and national regulations both limit victims’ ability to be compensated for damages suffered and allow multinational corporations to earn economic profits without taking responsibility for oil pollution. Another reason is that offshore oil accidents may cause transboundary pollution, and without a unified international compensation standard, the laws applicable to oil pollution have become a controversial issue among states. Furthermore, with offshore industries expanding their activities to the high seas and polar areas, international regulations will be of significant importance to prevent and control the potential risks of offshore oil accidents in the global commons. All these reasons together demonstrate that the negotiation of a convention on offshore extractive activities should be placed on the international agenda.

References

* Preben Hempel Lindøe, Michael Baram and Ortwin Renn: Risk Governance of Offshore Oil and Gas Operations (Cambridge 2014).

* The Offshore Pollution Liability Association Ltd, available at http://www.opol.org.uk/about-1.htm.

* Jacqueline Allen, ‘A global oil stain – cleaning up international conventions for liability and compensation for oil exploration/production ‘, (2011) 25 Australian and New Zealand Maritime Law Journal 90-107, at p. 91.

* Position paper of the Iberoamerican Institute of Maritime Law in relation to the need of an international convention on the offshore extractive activity promoted by the IMO, Legal Committee, 102th session, Agenda item 11.