BP struggles to stop Gulf of Mexico oil leak

BP Plc struggled to stop oil gushing unchecked from a ruptured undersea well in the Gulf of Mexico on Tuesday and calmer weather raised hopes of reducing the massive oil slick and limiting its impact on the U.S. shoreline.

Calmer seas aided relief operations to contain the oil, and weather forecaster Accuweather.com said favorable winds and waves could keep the slick from reaching the Gulf coastline for a few more days or longer.

The catastrophic oil leak, spewing from the ocean floor at a rate estimated at more than 5,000 barrels (210,000 gallons (795,000 liters)) a day, threatens shipping, wildlife, beaches and one of the most fertile U.S. fishing grounds.

The London-based energy giant, under pressure from Washington to limit the damage, completed the first of three massive steel and concrete domes it will try to place this week over one of three leaks nearly a mile under the water's surface.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

INSIDER TV: HTTP://LINK.Reuters.com/qaz99j

Graphic: http://link.reuters.com/nuc52k

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

BP shares traded down 4.1 percent at 551.6 pence on fears about the company's growing liability over the spill. The shares lagged a 1.5 percent fall in the STOXX Europe 600 Oil and Gas index.

The stock has fallen about 17 percent in the two weeks since the company announced an explosion and fire on the Deepwater Horizon drilling rig, which subsequently sank, unleashing a massive oil flow into the sea.

U.S. crude oil fell more than $1 to around $85 a barrel on Tuesday, retreating from 19-month highs, depressed by an expected rise in U.S. crude and fuel stocks and a stronger dollar.

Dealers said oil prices received some support from worries the giant slick in the Gulf of Mexico could disrupt crude oil supplies in the United States.

The Mississippi River delta and other areas of the U.S. Gulf coast are threatened by contact from the slick, which is estimated to be at least 130 miles by 70 miles.

BP said offshore booms and specialist oil spill response vessels and barges returned to operation in calmer seas on Tuesday. It offered the U.S. Gulf Coast states whose shores could be damaged millions of dollars to move ahead with recovery projects.

The accident has brought into sharp focus the thorny politics of balancing U.S. energy security with protecting the environment and industries that depend on it, like fishing.

OPPOSITION TO MORE OFFSHORE DRILLING

The leak has forced President Barack Obama to suspend politically sensitive plans to expand offshore oil drilling, unveiled last month partly to woo Republican support for climate legislation.

California Governor Arnold Schwarzenegger pulled his support for expanded drilling off his state's coast, citing the Gulf spill. His about-face came after he had called for more oil drilling off California's coast to raise money for the state government, which faces a $20 billion budget shortfall.

Royal Dutch Shell has not been directed to stop Gulf of Mexico oil drilling and it is too early to say what the U.S. government will do about future drilling after the BP offshore well ruptured, Shell's chief executive said on Tuesday.

CEO Peter Voser said investigations on the spill are continuing, and the leak will not have much impact on crude prices and production.

The looming disaster in the Gulf threatens to eclipse the 1989 Exxon Valdez catastrophe in Alaska, the worst previous U.S. oil spill to date.

People are pretty devastated, said Bill Butler, co-owner of the marina in the town of Venice, Louisiana, known for commercial and recreational fishing. It's looking grim if you look at the TV, but you have to have optimism about the future.

The company said it expects to transport a 98-tonne, 40-foot iron box, and associated equipment, to the well site this week. It is designed to channel oil through a pipe to the surface where it can be collected on a barge.

In theory, the system should collect 85 percent of the oil gushing from the sea floor, but BP has never deployed the structure at a depth of 5,000 feet and cannot guarantee that the effort will pay off.

BP OFFERS RECOVERY GRANTS

Company officials also said BP is releasing $25 million each in block grants to Louisiana, Mississippi, Alabama and Florida to jump-start clean-up projects. The funding can be used for numerous expenses such as vessels for hire.

BP has spent several years working to burnish its environmental image. It now faces a public relations nightmare as well as intense pressure from the Obama administration to get the situation under control.

Tony Hayward, BP's chief executive, and Lamar McKay, BP America president, met on Monday with top Obama administration officials including the energy, interior and homeland security secretaries and the head of the U.S. Environmental Protection Agency, to discuss coordinated response efforts.

Over the weekend it started a relief well that could cap the well, the company said. Still, this operation is expected to take two to three months to complete.

(Additional reporting by Kelli Dugan in Mobile, Chis Baltimore, Anna Driver and Kristen Hays in Houston; Matt Daily and Tom Bergin in London, Pascal Fletcher in Miami, Jeremy Pelofsky in London; Writing by John Whitesides and Jeffrey Jones; Editing by Eric Beech)