Sixteen months after the Exxon Valdez oil spill in Alaska, House and Senate conferees are nearing completion of a wide-ranging bill aimed at preventing such disasters and making money available to pay for those that happen in spite of the precautions.
When they finish, perhaps late this week, the United States will enter what one maritime lobbyist called sarcastically a "brave new world" of oil transportation.
Depending upon who is analyzing the legislation, in that world oil trade will be dominated either by financially responsible shippers, operating structurally sound vessels that will keep the coastlines clean, or by fly-by-nighters on the edge of the law.
The bill represents a political triumph for Senate Majority Leader George J. Mitchell (D-Maine) and a double-barreled setback for the worldwide oil tanker and barge industry. Many shipping companies, in the wake of the $2 billion Exxon Valdez cleanup cost, worry they could be put out of business by an oil spill.
The bill also represents a rebuff to the Bush administration and to the governments of Britain, West Germany, Denmark and other seafaring nations, which pleaded in vain for adoption of internationally accepted limits on shippers' liability for accidents.
Some important differences between House and Senate versions of the legislation remain to be resolved, including whether owners of spilled oil, as well as owners of ships that spill it, should be held liable for damages. But the agreements reached so far seem certain to have an enormous impact on maritime transportation of oil, on the maritime insurance business and on the world's shipbuilders, to whom the conferees have handed a bonan- za.
The conferees agreed July 12 that beginning in 1995 all new tankers and oceangoing barges operating in U.S. waters must have double hulls and eventually all vessels would have to have two hulls. All single-hull tankers, such as the Exxon Valdez, would be banned by 2010. Seagoing and inland barges would have to have double hulls or some other approved double containment system by 2015.
This provision will require hundreds of tankers and barges to be replaced or retrofitted. Vessel operators are expected to spend hundreds of millions, perhaps billions, of dollars to comply with it -- a happy prospect for shipyards that have struggled for orders because of a worldwide surplus of tanker capacity.
But the double-hulling provision, despite the potential costs, is not the one causing the most anxiety among tanker operators. Nor are the other provisions the conferees are likely to agree to -- from crew training to minimum insurance requirements.
Tanker operators are distressed because Mitchell and his Senate allies fought off intense pressure to accept international limits on shipper liability. That pressure came from the House, the departments of State and Transportation as well as the industry.
The Senate has never ratified the international accords on shipper liability, which were negotiated in 1984. In late June, the conferees rejected House language that would have provided for U.S. participation. They are expected to approve dollar limits on shipper liability higher than those in the international accords, though the formula has not been worked out. A fund financed by a five-cents-a-barrel tax on oil is to be created to cover damages beyond a shipper's legal responsibility or beyond his resources.
But the conferees have agreed to allow the states to adopt their own, higher liability limits. The 19 coastal states that have unlimited liability, including Alaska and Maine, will be permitted to retain it.
Tanker and barge operators say this decision will drive some reputable operators out of the U.S. market and will make it impossible, or at least prohibitively expensive, to obtain the required insurance.
Environmental groups reject the industry's arguments, saying oil has flowed and continues to flow to and from the unlimited-liability states for years and nothing has changed. But the ship operators say something has changed: The unprecedented $2 billion cost of the Exxon Valdez spill made them aware that their companies could be wiped out by a bad spill in an unlimited-liability state.
Already, at least five major tanker fleet operators, including Royal Dutch/Shell, have announced that their ships will no longer serve the U.S. market. Two large domestic coastal carriers have announced they will not serve the unlimited-liability states -- including Maine, which is almost entirely dependent on imported oil for heating.
Environmentalists say the shippers are bluffing because the United States imports more than 300 million gallons of oil a day and they not going to abandon such a huge market. They say the barge operators are trying to blackmail Mitchell into accepting limited liability.
"The companies were posturing, trying to get the Congress to accept the international limits," said Oceanic Society Director Clifton E. Curtis. "They were blowing smoke."
The shippers had powerful allies. Transportation Secretary Samuel K. Skinner and Deputy Secretary of State Lawrence S. Eagleburger said in a letter to Mitchell that the international liability agreements, known as protocols, "were developed with strong United States leadership. They incorporate hard-fought United States objectives"
The protocols raised international shipper liability limits that U.S. trading partners reluctantly accepted on the promise that the Senate would ratify them, Skinner and Eagleburger said. If the Senate rejects the protocols, they said, "they will surely fail internationally. The United States will be held responsible and we will have to bear the consequences in future negotiations, including negotiations with allies, such as Canada."
Rep. Dante B. Fascell (D-Fla.), chairman of the House Foreign Affairs Committee, agreed with Skinner and Eagleburger, warning Mitchell that rejection of the protocols "means that an international oil spill liability regime will be impossible for the foreseeable future."
Officials of several allied nations joined the chorus. Danish Foreign Minister Uffe Ellemann-Jensen, whose country's biggest fleets are among those announcing abandonment of the U.S. trade, wrote to Secretary of State James A. Baker III that "no efforts have been spared in explaining all the legal implications of the protocols to Senator Mitchell."
But Mitchell was unmoved. When the conferees met April 25, he told them that the protocols and the House language endorsing them "offer a liability regime that tolerates any behavior short of criminal negligence in handling and transporting oil; that preempts any federal or state law from imposing a higher standard of care; and that, to a significant and unacceptable degree, transfers the costs of spills from those who are responsible to the American taxpayer."
Had the international accords been in effect at the time of the Exxon Valdez accident, he said, Exxon's liability would have been less than $60 million, rather than the full $2 billion.
Mitchell prevailed because, in the words of a House staff member, "even if the conferees had agreed to the House language, the Senate would have had to ratify the protocols on a separate vote. The odds against that were insuperable. The House conferees understood that failure to accept the Senate version would jeopardize the entire bill, where success wouldn't have brought the protocols into effect."
The major integrated U.S. oil companies appear resigned to the legislation.
"As a company we have accepted this," said Chevron lobbyist Tom Wyman. He said Chevron will acquire double-hulled vessels and continue to operate its tanker fleet in U.S. waters. "We have confidence in our people, we have good equipment, it provides reliable transportation for the corporation." Chevron also charters foreign-owned ships, he said, checking carefully to make sure they are operated safely.
Edwin J. Roland, president of Amoco Transport Co., said his company, which has "deeper pockets than other owners," would operate its own fleet and cover the costs of any spills, rather than switch to flag-of-convenience charter tankers. "We don't think we can side-step responsibility by manipulating the way we handle oil," he said.
But Roland and Ken Leonard, transportation director at the American Petroleum Institute, said they take seriously the possibility that some responsible shippers, fearing a damage claim that could wipe them out, will stop sending their fleets to U.S. ports. Because the demand for oil is not going to decrease, they said, such a development could open the door for single-ship charter companies that would carry the minimum amount of insurance permitted by the new law and simply walk away from any accident.
"Those Mickey Mouse companies are delighted that the good owners will pull out," said W.G. MacDonald, a retired British tanker captain and managing director of Stanton Marine Ltd., of Liverpool, England. He said responsible operators use the services of companies such as his, which provides master tanker operators to assist loading and unloading operations and evaluate fleets for safety. Marginal operators won't spend the money.
Steven Van Dyck, chairman of Maritrans Partners Ltd. of Philadelphia, said his company is the country's largest independent transporter of oil, but cannot afford the risk of serving unlimited-liability states.
"We only have total assets of $250 million," he said. "Prior to Valdez, we always thought the cost of a spill was something we could manage. We learned that the cost of a major spill is completely off the scale of what anyone thought it would be."
As for insurance, he said, companies such as his are members of pools that purchase reinsurance from Lloyds of London. They buy $1.5 billion in coverage, he said. But with the cost of a single spill known to have reached $2 billion, it may not be possible for a company like Maritrans to buy all the insurance needed for its fleet.