Business Analysis: BP faces litigation risk after massive refinery fire

Lord Browne flies to US to promise tighter safety after explosion kills 15 in Texas
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Lord Browne of Madingley flew to Texas yesterday to meet victims and families bereaved by an explosion and fire at BP's giant oil refinery.

Lord Browne of Madingley flew to Texas yesterday to meet victims and families bereaved by an explosion and fire at BP's giant oil refinery.

The company's chief executive would have been aware that the oil giant could face a flurry of litigation if found negligent in the incident which killed 15, injured 100 and shook already jittery oil markets around the world.

The huge blast on Wednesday shot flames high into the sky, forced schoolchildren to cower under their desks and showered ash and chunks of charred metal around the area. Windows rattled more than five miles away from the 1,200-acre plant near Houston. BP said that terrorism or other "external influences" were "not a focus of our investigation" into the blast.

The Texas City site, which is a mile long and half a mile wide, employs 1,800 people, plus contractors. The explosion happened in a part of the plant used to boost the octane level of gasoline, a facility that was being brought back into service after a period of routine maintenance.

The accident follows other recent incidents at the plant, which processes up to 470,000 barrels of crude oil a day, providing 3 per cent of the US supply of petrol ("gasoline").

In September last year, two workers died after being scalded by hot water that had escaped from a pipe. In May, an employee died from a fall at the plant, while in March another explosion rocked the site ­ that accident caused no injuries but led to a $66,000 fine for BP.

Wenceslado de la Cerda, a 50-year-old retired firefighter, said the blast shook the ground, rattled windows and knocked ceiling panels to the floor. "Basically, it was one big boom," he said. "It's a shame that people have to get killed and hurt trying to make a dollar in these plants, but that's part of reality."

Lord Browne said the oil giant would carry out any safety reforms necessary. Texas City is BP's biggest refinery in the world; it processes about a third of the company's US gasoline and represents about a tenth of BP's world-wide refining capacity.

Lord Browne said it was the "worst tragedy I've known during my 38 years with the company". He said it was too early to tell what had caused the problem, but added that BP believed it was "unrelated" to the previous incidents.

Until a full investigation has been carried out, he said, it would be "premature" to formulate new safety measures, but he said that if they were necessary "obviously BP will install them".

Flags flew at half mast at the Texas City facility yesterday.

"All of us have been profoundly affected. All of us want to know what happened," Lord Browne said. "I came to Texas City to assure people the full resources of BP will be there to help the bereaved and the injured."

Lord Browne promised BP's "best people" would be deployed immediately to investigate the cause of the explosion and said the company would "co-operate fully with government officials responsible for examining the circumstances of this terrible explosion and fire".

While the explosion was significant in its human impact, Lord Browne said the effect on the gasoline output would be small, because most of the refinery has continued to operate. Nevertheless, oil markets took fright at the news of the explosion. Crude oil for May delivery rose 44 cents, or 0.8 per cent, to $54.25 a barrel by midday yesterday on the New York Mercantile Exchange, after falls in the previous two sessions. In London, the Brent crude-oil futures contract rose 66 cents, or 1.2 per cent, to $53.70 a barrel.

"Given the abject lack of spare refining capacity, especially at this time of year, a strong reaction should be expected," the US broker Fimat said.


BP IS also heading for controversy in Alaska at the extreme northern end of the US. The group has major oil and gas operations at Prudhoe Bay, and may well be involved in the highly contentious project in the Arctic National Wildlife Refuge, 100 miles to the east - assuming it goes ahead.

The expectation is that Congress will now authorise drilling in the sanctuary. After the Republican electoral gains last November, the Senate approved opening up 1.5 million acres of the ANWR by 51 votes to 49 as part of the 2006 budget resolution, reversing a 52-48 defeat two years ago.

Ultimate approval depends on the House and Senate agreeing a final budget resolution, which may not be easy. Moreover, a separate vote is still likely on the scheme. This could yet fall foul of the filibuster, under a Senate rule requiring a super-majority of 60 to curtail debate on a bill.

But, in public at least, the oil companies are hardly bursting with enthusiasm. Drilling in the ANWR will be costly, and the reserves are modest, an estimated 6 billion barrels in all. Peak production is forecast at 1 million barrels per day - just 5 per cent of current US consumption of about 20 million bpd. By 2025, it would reduce projected US oil imports by only 6 per cent, critics of the scheme claim. However, politically, any development that lessens US dependence on foreign oil imports, especially from the volatile Middle East, would be seen as an important step.

A BP spokesman said: "We will now begin to assess the opportunity but it would need to meet our environmental standards for operating in sensitive areas."

If drilling does start, participants in the project - which could include Exxon Mobil, ConocoPhillips, Royal Dutch/Shell and ChevronTexaco as well as BP - are likely to face environmental protests. Barbara Boxer, the liberal California Senator, has already threatened to organise a boycott.