Strategic planning methodology to evaluate low probability/high consequence tanker oil spills, using the Gulf of Mexico as a test area

Abstract

Major oil spills from tankers represent a significant problem to companies involved in the shipment of oil by sea as tanker owners of cargo owners. When the supertanker Amoco Cadiz ran aground in 1978 off the coast of France, 230,000 tons of oil were spilled with resulting damage claims in excess of $2 billion. The risk of a major oil spill belongs to a group of risks called low probability/high consequence risks. These risks are typified by limited data availability (due to the low level of occurrence) and also by extremely high costs if the event occurs. This dissertation develops a methodology which allows companies to evaluate their level of exposure to the consequences of major oil spills. To illustrate how this model can be operationalized, the Gulf of Mexico is used as a test area. The Gulf was selected because of the high level of tanker traffic and U.S. petroleum industry activity in the area, and also because of the presence of competing uses of the Gulf which include commercial fishing and coastal tourism. The results from operationalizing the evaluation methodology suggest important conclusions. In terms of a purely cost-effective oriented analysis of alternatives for dealing with oil spills, companies are expected to prefer obtaining insurance, followed by efforts to lower the level of potential liability through favorable legislation. In constrast, however, the public is expected to prefer measures that actually reduce the frequency and severity of oil spills, followed by an acceptance of insurance alternatives, with the public tending to reject legislative limits on liability. The findings also demonstrate that companies will gravitate to differing alternatives depending upon company size and level of activity in an area. Finally, there can be expected to be a number of changes in coming years which will require companies to reconsider their existing strategies for dealing with spill risks.