Tuesday, April 23, 2013

The Price Of Oil & Gas Regulation: Health, Environmental & Safety Costs Put At Just 70 Cents/Barrel

How much does health, environmental and safety regulation add to the cost of producing a barrel of oil?
According to a new study by Lux Research, it adds about 70 cents per barrel or less than 1%.

A health, safety, and environmental regulatory regime that adds less than 1% to the cost of a barrel of oil is certainly not over regulating.  Indeed, at these numbers, the danger is under-investment in health, safety, and environmental protection.

Lux Research calculates global spending on health, safety, and environmental regulation by the oil and gas industry stands at $35 billion and projects a 60% increase over 17 years or a slow annual rate of growth.
http://www.luxresearchinc.com/news-and-events/press-releases/167.html.  Lux also states the accident rate has declined by 50% in the last decade.

The USA accounts for 39% of global spending to comply with health, safety, and environmental regulations. The USA, however, accounts for about just 8% of global oil production. Given how much of the global spending on regulatory compliance is in the USA, substantial parts of the world are imposing virtually no health, safety, and environmental costs.

Lux also states that, when oil is spilt in the USA (a not unusual event) penalties amount to $8,000 per barrel.  Even in the USA, where the regulatory regime is among the world's strongest, the real danger is under-investment in health, safety, and environmental protection and not too much regulatory oversight or compliance cost.


  1. I suppose it depends on what we mean by "is." According to Exxon (I suppose we can choose not to believe them), their profits are somewhere in the 7 cents per gallon range. But that's for gasoline, which 2/3 of the cost is from crude - so increase that to 11 or 12 cents range on the crude.


    I brew beer, and our barrels are 31 gallons, I think oil barrels have more (I have no idea why!) ... so at 42 gallons, profits from a gallon of crude are about $4.60 per barrel.

    So the regulatory cost seems low, but is still 15% of estimated profits. But these profits are transitory and volatile - sometimes higher and sometimes negative. The regulatory costs are static. This is not to say that they are not worth incurring, just putting them into perspective.

    Thanks for the post.

  2. Oil and Gas has its value. But environment must be kept safe.