Thursday, June 3, 2010

Enough is Enough. Time to Get Real BP (and that Means "Honest")

A Catalog of the Long-term Implications of the BP Gulf Spill




Enough time has passed at this point that as a national and global society we need to consider the worst case scenarios regarding the BP oil gusher. When the top energy adviser to the White House, Carol Browner, says in a live interview “This is probably the biggest environmental disaster we have ever faced in this country,” (CBS’s “Face the Nation”) and the situation is getting worse not better, it is necessary to consider the long-term implications of simply allowing a morally corrupt corporation remain in control of fixing the (ongoing) mess they have caused.

In a worst case scenario Browner explained , "There could be oil coming up 'til August [and…] we are prepared for the worst." The worst case scenario, of course, would be that the gushing well is not able to be capped at all and we will all be forced to wait until BP is able to finish drilling the two relief wells they began working on several weeks ago. As far as I know, however, that does not necessarily mean that the oil will stop leaking completely though either, merely that the pressure pushing it out will be relieved (hence, "relief well"). If I am misunderstanding the net result of this operation and an expert in the field can explain what I am missing, “There is No Spoon” would love to learn a thing or two in the comment section of this post.

Seriously though, have not we been trolled enough already by “Beyond Petroleum?" I think it is time that government resources be used more judiciously and the bill slapped on BP’s treasury desk. In fact, I couldn’t help but think about Bush’s Mission Accomplished fiasco--I mean speech—back in 2003 regarding the successful end of the US-Iraqi war (for those who don’t know, our men and women are still over there).

Please do not get me wrong, I am not so na├»ve as to think that during the first few weeks after the explosion, the execs at BP headquarters would have been so quick to tell the truth, (i.e. admitting that they didn’t have a clue and needed help from the US government as soon as possible). That is just not how the world works, as the Oil Giant’s biggest investors would be skinned alive if Virgil were to come loose so early in the crisis--don't forget how many politicians have money in oil either (a la Cheney and Co). They needed to buy time. Okay, fine. I get it. Yet, by May 10th we were on our 6th attempt at solving this issue having already been told that the big steel box thing-a-ma-bob contraption was going to work--then it wasn't going to work--uh, uh, yes it is--nope Terry farted again, it isn't. On to plan F comrades: let's stick a 4-inch pipe down the busted steel well pretend like that will siphon off enough oil to call it progress. After three days of failed attempts BP Says Latest Scheme to Halt US Oil Leak Working Well. In fact, if you watch the video on that BBC page you will very quickly be under the impression that all is solved and we can all go home for "it has succeeded," claims the reporter. “Significant amounts of oil [were] being siphoned via this mechanism.” The next day we learned that "BP, is finally getting a handle on stemming the tide of some of the leak. BP engineers have used a pipe fitted into the leaking well head and have been able to divert some of the oil up to the surface to a drill ship." At the time of reading this, I turned to my partner and asked, "Does that mean that if I turn a flashlight on at midnight it's suddenly almost dawn?" On May 19th we learned that the pipe had freezed up due to ice crystals and was no longer having an impact.

On May 26th BP’s effort to plug the hole with “junk and mud” was going as planned

Then it wasn't.

Then BP's Junk Shot wanted not.

Today, June 3, 2010, we learned that the company finally cut the pipe and is preparing to cap it. As a result the stock climbs 5% while the rest of the market goes up less than half a per cent.

For the record, I would not be nearly so hard on the Execs if “[they] really [were] doing everything in their power to fix this thing,” but they just aren’t.

So enough bitching and moaning on my part, I just wanted to refresh my memory a bit on what has gone on thus far so that I might begin to understand what we can expect from this ugliness moving forward.

First, BP will most definitely not go bankrupt. I expect the company will be much smaller in 5 years or so, but after 101 years of paying fines, British Petroleum has figured out how to work the system and then some.


Second, the nearest state to BP's gushing undersea well (42 miles away), Louisiana, has been the most impacted by the spill so far, and as we all know the aftermath of Hurricane Katrina and the horrible response of the then President is ongoing. Unfortunately Louisiana’s pains are about to get more acute as Governor Bobby Jindal said this week that "more than 100 miles (160 km) of Louisiana's 400-mile (644 km) coast had so far been impacted by the spilled oil. State officials have reported that “sheets of oil” are wrapping the precious wetlands and seeping into marine and bird nurseries, not to mention the oyster beds that serve as the economic motor for many small communities there. Sticky sludge stains cover the marsh cane that binds the wetlands together and promises to endanger the wildlife for quite some time.

In Mississippi and Alabama, “tar balls and surface sheen,” have been reported, while last week National Coast Guard officials spotted tar balls on some beaches in the Florida Keys, raising fears that the Loop Current, which sends water and wild life from the Gulf of Mexico through the Florida Straits may have already brought oil from the spill far to the southeast. Apparently, however, laboratory tests subsequently showed the tar balls were not from the BP spill. (Where else would they be from?) Perhaps what is more scary, however, is that Pensacola was reportedly struck by the rich black goo yesterday, drawing the possibility (illustrated in the simulation embedded in the previous post) that if not contained very soon, small bits—followed by heavy streams—of oil could find its way as far north as North Carolina.

DERIVATIVE IMPLICATIONS (more detailed analysis of the impact of the BP oil spill)

FISHERIES— Having declared a "fishery disaster” in the seafood-producing states of Louisiana, Mississippi and Alabama due to the oil spill, the US government has made these states eligible for federal funds to offset the impact on fisherman and their communities of the oil pollution in their fishing grounds.
Louisiana's $2.4 billion seafood industry supplies up to 40 percent of U.S. seafood supply and employs over 27,000 people.

The state provides more shrimp, oysters, crab and crawfish than any other state in the country and is the second-biggest U.S. seafood harvester. As of Friday, the NOAA extended the area closed to fishing in the Gulf of Mexico to 25 percent of Gulf U.S. federal waters—an area covering 60,683 square miles (up from 20 percent previously, with a warning that more closures should be expected. Mind you, all of these economic effects are for a single state, currently receiving a lot of attention. I can only imagine the more subtle effects of this crisis.

WILDLIFE
As reported, Oil—in thick sheets, surface sheen and tar balls--has come ashore in Louisiana wildlife reserves like the Breton National Wildlife Refuge in the offshore Breton and Chandeleur Islands, and the Pass-a-Loutre refuge further to the south. Large amounts of methane gas has also been released from the source having an unseen/unknown impact. However, during the 43 days since the spill started, wildlife officials report that 491 birds, 227 turtles and 27 mammals, including dolphins, have been collected dead along the U.S. Gulf Coast, according to an update released on Sunday by the oil response unified command.

TOURISM
Tourism operators in Louisiana, Mississippi, Alabama and Florida-- from hotel owners to restaurateurs and boat charterers -- have reported cancellations as a result of the oil spill.

From HotelNewsnow.com we learn that “Tourism officials and hotel operators in Gulf of Mexico coastal regions say they are struggling with occupancy and reservations, but some areas are suffering more than others.”
[…]

We have had some cancellations. It is hitting the beachfront properties hard and the casinos have seen some impact … and the charter boat companies,” said Richard Forester, executive director of the Mississippi Gulf Coast Convention and Visitors Bureau in Biloxi. The timing is unfortunate, since many hotels and casinos had been experiencing an uptick in business earlier this year as the U.S. economy started to improve, he added.


SHIPPING

The National Oceanic and Atmospheric Administration said on Friday it has begun surveying a new ship anchorage site at the mouth of the Mississippi River for ships to undergo inspection and oil decontamination before entering ports. This is a subtle if significant development as we are beginning to see the outlier impacts of the BP spill moving forward.

U.S. authorities are anxious to sustain Gulf shipping operations as the Mississippi Delta is extremely vital to U.S. exports and imports. NOAA says the Lower Mississippi River ports export over 50 million metric tons of corn, soybeans and wheat per year, more than 55 percent of all U.S. grains inspected for shipment.

REAL-ESTATE
If the bursting of the housing and commercial real estate bubble wasn’t weighing on the real-estate already, it is hard to believe that anyone would desire to buy up oil-front property. This particular point might seem far off at the moment, but remember that the source of this oil is over 1 mile below the surface of the water. It will take time, even after the oil well is successfully and completely capped, for all the oil that comes out, to find its way to the surface.

OIL INDUSTRY
There is likely to be a significant impact to the oil industry moving forward for a number of reasons. The most obvious will be the immediate cost to BP to clean up the physical mess—estimated by Credit Suisse to be 37 Billion—but that does not include what it will take to repair their image after this colossal crisis. The expectations of these profit losses has not only brought down BP’s market value, but the entire oil industry as it is a major component of the S&P500 and nearly all energy indexes. Also weighing on the industry are expectations of new costly regulations that will be put in place to make sure this never happens again. The end result amidst a continuing debt crisis in Europe is more strain on an already weak recovery.

No comments: