Flynn's Harp: Is Gulf spill oil industry's Three Mile Island? (7-21-10)

Kris Nielsen, whose Pegasus-Global Holdings Inc. has a client list that reads like the who’s who of the power and oil and gas industries internationally, predicts that the disastrous Gulf of Mexico spill will be the oil and gas industry’s Three Mile Island.

And because of the role Nielsen, chairman and president of the firm, and Patricia Galloway, his wife and the company’s CEO, play in guiding long-term strategy for an array of industries, it’s a prediction that’s likely to gather increasing attention as the Gulf disaster unfolds.

“With the recent BP disaster, the oil and gas industry will be forever changed, much as the nuclear power industry was 30 years ago,” suggests Nielsen, whose long career has brought him an international reputation as a risk-management expert.

Nielsen and Galloway come by the Three Mile Island allusion through experience with nuclear power, both in the ‘80s as the TMI aftermath washed over the industry, and now as the industry has finally come back. 

They were hired to try to save the Washington Public Power Supply System(WPPSS), a combine of public and private power entities created to build five nuclear plants, from the eventual collapse that became the largest municipal bond default in U.S. history.

And they continue to consult with power companies on nuclear energy, having worked with Florida Power & Light on nuclear plants and with Georgia Power on the first two Vogtle nuclear plants and are involved with two others that will be among the first new  plants since TMI.

It was during a London “road show” for long-time client Deutsche Bank in the weeks after the Gulf drilling disaster that Nielsen first likened the Deepwater Horizon catastrophe’s fallout to Three Mile Island. Deutsche Bank had asked Nielsen and Galloway to discuss the oil spill and its implications for BP investors in particular.

Until now, their comments have been highly visible and sought after mainly for those in the industries to which they provide guidance and counsel, but pretty much off the radar screen of the general public and the mainstream media.

However, as the Gulf spill’s long-term implications for the oil and gas industry, and for the fortunes of the company responsible, begin to sink in, their visibility may ratchet up exponentially.

Of late, they have been on a two-hour video conference from their company’s unusual rural headquarters each Monday morning with Deutsche Bank executives regarding Nielsen’s and Galloway’s ongoing assessment of the impact of the nation’s worst environmental disaster on the industry, and on the outlook for BP.

It’s a seemingly unlikely company headquarters from which they offer guidance and counsel to major companies around the world, write articles for key industry journals and organize conferences and prepare for speaking appearances.

The western-style log-faced building hard against the base of a treed hillside at the end of a long, dusty road a dozen miles east of Cle Elum, WA, officially replaced their former headquarters near Princeton, NJ, in 2007, although they’ve basically operated out of the Seattle area most of the past decade.

It’s from there on their Unionville Ranch, named for the New Jersey winery they founded and own, that Nielsen and Galloway communicate by phone, e-mail and videoconference with leading executives when they’re not on a plane to somewhere for face-to-face visits. The location is further evidence that entrepreneurs can work where they want to live.

When I asked Nielsen specifically about what he thinks lies ahead for BP, he replied that a  break-up of the company was possible, but would be an extreme outcome.

In a recent newsletter, Nielsen said the regulatory impact, which he predicted “will slowly spread throughout the world,” will impact all areas of the industry, “including the oil and gas services sector, not just domestically but internationally as well.”

But he added that “the oil and gas industry and the U.S. government now have a unique opportunity to ‘get it right’ and getting it right means looking at past disasters and determining how we short circuit idiocy and blend reasonable regulation with reasonable responses from the industry.”

Galloway joined the firm three years after her graduation from Purdue with honors and an engineering degree in 1978, soon became a shareholder, and recalls arriving in Seattle for the first time to prepare for her work with WPPSS and thinking, “so why don’t I live here?” They soon did, buying a condo in Seattle in 1987, the year they were married.

Nielsen and Galloway offer a note of optimism in suggesting that industry and government, by applying the lessons of Three Mile Island to dealing with the oil and gas industry, “should be able to shorten the timeline to regulatory and behavioral excellence from 30 years to 10 years.”

For this to happen, an earnest effort on the part of government to avoid over-regulation must be matched by an earnest effort by the private sector to pursue safety, “not as a result of government regulation but as a by-product of corporate culture,” they suggest.

“In the next decade, the oil & gas industry and companies will become good corporate citizens instead of the pariahs that they are perceived as being today—exactly as the nuclear power utilities have become 30 years after TMI,” Nielsen wrote in his newsletter.