Business Ethics
Order Description
Source:
Ethical Theory and Business (9th Edition) (MyThinkingLab Series) 9th Edition by Denis G. Arnold (Author), Tom L. Beauchamp (Author), Norman L.. Bowie (Author)

Read the case study and answer the Discussion Questions:

Chapter 8: Environmental Sustainability
Case 3: BP: Beyond Petroleum Spills?
“ understand if people want to say ‘how can you have something like this happen and you are supposedly a green company?’ say if you shut down for environmental reasons you are a pretty green company.” —Robert Malone, BP America President and Chairman, 2006
BP’s recent History
BP (British Petroleum) first entered Alaska around 1960, and after a decade of exploration discovered commercial-quantity oil in Prudhoe Bay in 1969. This discovery proved to be the largest existing oil field in North America, and BP soon set up refineries in the United States. Following the Prudhoe Bay discovery, BP signed an agreement with Standard Oil Company of Ohio that gave Standard the lease in Prudhoe Bay, and in return BP received a 25 percent equity share in Standard. Owing to BP’s 25 percent share in Standard Oil and the interest in Prudhoe Bay, BP survived the oil crisis of the 1970s. The oil crisis mainly affected companies that dealt predominately in the Middle East. The Trans-Alaska Pipeline was completed in 1977 and has delivered 15 billion barrels of oil to date. This pipeline completed the infrastructure BP needed to maximize the value of the Alaska oil fields. In 1987, BP bought the rest of Standard Oil and the portion of their stock that the British Government still owned. BP currently has one-third of its fixed assets in the United States. It merged with Amoco in 1998, and kept the BP-Amoco name until 2002, when it dropped the Amoco. BP has tried to lead the way for other oil companies to take on environmental issues such as global warming. However, this positive image has been dwarfed by recent negative publicity stemming from an explosion at a BP refinery in Texas in 2005. The explosion killed 15 people. One year later, one of the BP pipelines in Alaska ruptured and dumped oil onto the frozen tundra for several days. How the spill Happened Despite the finance and technology at BP’s disposal, the spill was discovered in a decidedly low-tech manner. Operators first claimed to have suspected the leak when they detected the smell of oil vapor during a ride along the pipe. They were unable to see the leak, but they could hear a strange gurgling sound. Deep below the snow a dime-sized hole was found to be leaking oil. Later investigations revealed that the flow rates inside the pipe were unresolved to approximately the volume of oil that hemorrhaged from the line unnoticed over the course of several days. State regulations placed the minimum need for automatic loss detection to be 1 percent of the flow. The BP-operated line was configured to detect a 0.5 percent loss of flow and tripped 4 straight days prior to the discovery of the spill. BP technicians claimed that the condition of the line made it prone to false alarms and dismissed the warnings without investigation. At the time of discovery of the leak, BP was spending the absolute minimum in maintenance cost to maintain the 22 miles of pipeline in Prudhoe Bay. There were only two preventive measures in place. First was a series of chemical additives mixed into the slurry of crude in pipe, which are used to help break up sedimentation. The other measure BP claimed to be employing was a series of spot-checks of the thickness of the pipe walls using ultrasound. The checks were conducted at what the technicians felt were the most probable points of corrosion. However, the operation possessed a much more sophisticated line inspection device called a pipeline inspection gauge or “pig,” which earned its name from the squealing sound it makes while traversing the pipe. Pigs act like a giant squeegee for the pipeline. They are inserted into the pipe during flow and seal to the inside of the pipeline. Sediment is then scraped from the inner wall as fluid pressure from product flow is exerted behind it. This process is critical to pipeline health because the slow-moving slurry allows deposits to form on the inner walls of the system. These deposits shield the metal from fresh slurry and create a haven for bacteria to grow and feed on the pipe.
The problem with pigging is the restriction it places on the pipeline. Some pigs require special flow conditions inside the pipe that do not always coincide with the operation of the field. Thus, in addition to the cost per kilometer of operating a pig, which is often in the thousands of dollars per kilometer depending on the pig’s capabilities, production sometimes must be slowed (Short, Gordon, and Smith 2006). More advanced pigs can run in tandem to coat the inner walls of the pipeline with composite repair material. Still other pigs can use ultrasound to provide precise thickness measures of both degraded walls and sediment deposits over the entire length of the pipeline, giving the operators notice of weakening pipe long before failure. BP admitted at the time of the incident that a pig hadn’t run in the line since 1998. Compare this schedule with that of the Trans-Alaska Pipeline, which is pigged every 14 days. Ronnie Chappell, a spokesman for BP, claimed the reason for this was that the pipes were already too clogged with sludge to allow the pig to pass. Bill Hedges, BP’s North Slope corrosion manager added that the pipes were not believed to be at risk for corrosion-related leaks because the lines carried only oil that had corrosive water removed. However, the 1998 pig run through the pipe revealed no fewer than six weaknesses in the vicinity of the leak, and one of those places was where the fissure occurred. After the incident, the entire stretch of pipe was inspected using a smart pig. There was more than 80 percent corrosion of the 3/8-inch thick walls in some sections, and 16 miles of feeder pipe had to be replaced.
THE MARCH 2006 SPILL
The March 2006 spill of 270,000 gallons was the largest in the North Slope’s history. The leak started at a caribou crossing. The affected area is about 2 acres of tundra hundreds of miles north of Anchorage and includes the edge of a frozen-over lake. No one saw the spilled oil because the line is covered—it’s above ground level but covered in gravel so caribou can cross. And the pipe, gravel, and ground were all covered in snow, with the oil hiding beneath the snow cover. As the hot oil melted the snow, it sank farther out of sight. Winter conditions helped partially mitigate the impact on wildlife from the 2-acre oil spill. “It certainly would have been a lot worse (in the summer). We have probably 2 months to work on this thing, and it happened at the right time of year,” said Ed Meggert, an on-scene response coordinator for the state. Wildlife is scarce in the region at that time of year but do return when the snow melts in the spring and summer (Rosen 2006). Despite the timing, the spill did occur in a very sensitive area, one of several caribou-crossing areas where pipes are laid underground and covered with gravel to allow passage by migratory animals. These crossing areas always attract water (which exacerbated the pipe corrosion). Leftover oil traces after the cleanup operation can mix with the water that animals stop to drink while migrating. There is likely to be lots of oil residue where the spill occurred, since wind chill at Prudhoe Bay was less than –40°F at times in March. “Right now, they are collecting a few hundred gallons a day basically, because it’s so cold,” said Brandon of the Alaska Wilderness League. “So that’s just longer and longer the oil will be sitting out there” (Roach 2006). There is a criminal investigation into whether BP was consistently negligent in pipeline maintenance. This probe was triggered by Chuck Hamel, an oil worker advocate, who went public with accusations of deliberate maintenance lapses and falsified documentation. As a result, the Environmental Protection Agency launched a probe into whether BP properly maintained its pipeline and into whether it violated the Clean Water Act. The U.S. Department of Justice is also considering charges. Oil spills are not cheap, and BP is paying a considerable amount of money to clean up the spill and prevent future pipeline failures. “BP has earmarked an additional $550 million to improve the integrity of its 1,500 miles of pipes, along with wells and gathering centers. The entire system of transit lines that failed this summer will be replaced at a cost of $150 million, and 21 new corrosion and safety specialists are being hired” (Schwartz 2006). BP is not the only party suffering the financial impact of the oil spill. Shutting down the pipeline translated into a loss of 400,000 barrels of oil a day. The Union of Concerned Scientists estimated that the United States would spend at least an additional $24 million a day on oil as a direct result of this pipeline spill and the subsequent price spike.

IMPACT ON PUBLIC RELATIONS
BP had prided itself on being a more ethical company than its competitors. Only a couple of weeks before news of the pipeline issue broke, CEO John Browne had compared himself to Exxon and said, “It is not a matter of competition, it is a matter of character” (Mufson and Eilperin 2006). BP portrayed itself as a company that cared about the ramifications of its actions and was about more than the bottom line. It had a strong environmental public relations campaign that emphasized its concern for the environment, with add slogans like “It’s time to turn up the heat on global warming” and “It’s time to think outside the barrel” (Mufson and Eilperin 2006). In 2000, BP spent $200 million and hired Ogilvy & Mather Worldwide to rebrand itself as an environmentally conscious or “green” company. Although the oil industry had a negative environmental image, BP wanted to be a different type of company. Its espousal of a commitment to the environment won praise and recognition in many circles. The campaign won the PRWeek 2001 “Campaign of the Year” award. This campaign won over many of its environmental critics, though not all. There were still articles published that criticized its explorations in the Artic National Wildlife Refuge and other environmentally sensitive areas. BP also admitted to hiring detectives to spy on some of its stronger critics in 2001, such as Greenpeace and the Body Shop.
BP’s “green” image has become severely damaged owing to the Prudhoe Bay oil spill. Critics are accusing BP of knowing about this problem for years and claiming it fostered a corporate culture in which this was bound to happen. Members of Congress are calling for investigations, and the public image of BP as a socially and environmentally conscious leader has been smeared.
DISCUSSION QUESTIONS
1. How would you explain BP’s lack of attention to maintenance of the Trans-Alaska Pipeline given its environmental commitments?
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2. How would you characterize BP’s public relations campaign from an ethical perspective? Explain.
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3. Is BP’s response to the pipeline spill adequate from an ethical perspective? Why or why not?
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4. How, if at all, is this pipeline spill linked to the 2005 BP oil refinery explosion and fire in Texas City, Texas? Explain.
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