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Triple Crunch Log                                                                                                            

wrong. The status quo isn’t working.’’349 In the last 3 months, 58 workers have died in explosions, fires and collapses at refineries, coal mines, an oil drilling rig and the construction site of a gas-fired power station. Of particular concern is a spate of recent incidents at oil refineries that have scalded, burned or killed workers.350

BP accounts for 97 per cent of all wilful violations found in the refining industry by regulators over the past three years. So says a recent report by the Washington-based Center for Public Integrity. In 2005, Osha found more than 300 “egregious, wilful violations” in Texas City, where 15 died. FT: “Yet three more fatalities have happened at the Texas plant since the blast – one of which is under investigation by the US Chemical Safety Board. Last August, Osha notified BP of continued lapses there and issued $87.4m in proposed penalties – the largest fine in the agency's history.” 351

25.5.10.BP Chairman hits back at critics saying the company is “big and important” to the US economy, and that the CEO is doing a “great job.”352

Commentators increasingly point to high deep-water production costs as incentive to cut corners. e.g. Treehugger.com: The leasing of a deep water rig has to be hugely expensive. Thousands of dollars per minute possibly. Such high costs explain the pressure engineers are under to get on with the job of producing oil once all the equipment and people are in position to tap the leased reserves.353

26.5.10. BP tells US lawmakers that there were “several new warning signs of problems” in the hours before the Deepwater Horizon explosion, and that a “fundamental mistake” may have been made in the face of abnormal pressures by the rig crew. When the pump was shut down, 41 minutes before the explosion, the well continued to flow instead of stopping. Drill pipe pressure increased unexpectedly. BP also identified ‘several concerns’ relating to the cementing process. Some mechanisms used in the process did not initially operate as intended and required nine attempts before functioning properly.354

Transocean, the rig owner, says BP directed the operation. “A well is constructed and completed the same way a house is built — at the direction of the owner and the architect. And in this case, that’s BP.”355

27.5.10.BP begins its “top kill” operation to plug the Macondo well by pumping heavy mud in to reverse the oil flow. In two days the world will supposedly know if it has worked, or whether – as some oil drilling experts are saying is possible – the spill has been made worse by damage to the parts of the blow-out preventer that might be working.356

At Congressional hearings, rig staff accuse BO of taking “short cuts” in run up to spill. BP’s share price has fallen by 28% now, a reduction in market value of $84bn. (Profits in 2009 were $13.9bn).357

The spill is becoming Obama’s problem. 51% tell CNN that they disapprove of his handling of the crisis. The Republican ggovernor of Lousiana, Bobby Jindal, is becoming a persistent thorn in his side.

Obama finally links the oilspill to the “dangers of fossil fuels.” This he does while touring a solar panel plant in California: “we’re not going to be able to sustain this kind of fossil fuel use,” he says.358

Deep-water oil accounts for 23.5% of US GoM production (EIA): the delay or loss will be serious. In 2008, 14.9% of US reserves were in the deep-water GoM (EIA). Both figures are based on defining deepwater as 1,000 feet plus. But deep water oil is often classified as anything deeper than 500 feet. Over 5,000 feet is ultra-deep water. 33 wells have been suspended for 6 months in the GoM. Production underway is not affected: 591 oil and gas production wells are still producing in deep water (as are 4,515 in shallow water).359

US oil imports were scheduled to drop, in large part due to expanding deep-water production. Current consumption is 51% imported and the EIA was forecasting that to drop by a third, from more than 12 mbd in 2007 to about 8 mbd in 2030, assuming consumption remains roughly flat. Domestic production is around 5 mbd, 30% of which is in the Gulf of Mexico, around 70% of it in deep water (i.e. 1.1 mbd+), a proportion that is growing fast. The GoM is more than 90% of all offshore US production. The EIA aniticpates “a vast majority” of projected increases in U.S. production in the near term will come from Gulf deepwater fields. (Lots more useful info in this CFR article).360

Globally, deep water production accounts for around 7 mbd in 2010 (under 10%). Energy Files shows deep water production rising a peak at just to just under 12 mbd by around 2020.361

The EU says it might tighten oil company operating rules once it has reviewed the safety implications of the Deepwater Horizon incident.

The European Commission shies away from toughening its carbon target even though its own most recent study shows it would be cheaper than expected: €81bn a year to cut to 30% by 2020, as opposed to €45bn a year to get to 20% (down from the €70bn estimated when the target was set two years ago). Germany and the new UK government support a move to 30%, in the UK’s case unilaterally, to show leadership. The analysis goes to an EU environment ministers meeting in June.362

EDF say they have enough assurances from new UK government to press ahead with UK nuclear. CEO De Rivaz is particularly pleased there will be a floor price for carbon. He quotes from a report published by Parsons Brinckerhoff Power.363 “Their data shows that with typical generation costs in the range of £55-£86 per megawatt hour [MWh], new nuclear is well placed in helping keep low carbon energy affordable in the long term. That compares particularly favourably to other low carbon technologies. Offshore wind represents a generating cost of up to £204 per MWh and carbon capture and storage technology up to £154 per MWh.”364

28.5.10. BP says it may need as much as 48 more hours to see if the Top Kill process can work. The costs of the cleanup approach $1bn.  BP shares fall further.365

New official estimates for the BP spill are 12,000-19,000 bd for 37 days, making c 444-703 barrels in all: the worst environmental disaster in US history, twice the size of Exxon Valdez, and the biggest spoill since 1972. The Top Ten league table is: 1. First Gulf War, 1991, Persian Gulf, 7m barrels. 2. Ixtoc 1, 1979, Bahia de Campeche, 6m barrels. 3. Nowruz Oil Filed, 1983, Persian Gulf, 2m barrels. 4. Atlantic Express, 1979, Little Tobago, 2m barrels. 5. ABT Summer, 1991, Angola, 1.85m barrels. 6. Castillo de Bellver, 1983, Cape Town, 1.8m barrels. 7. Amoco Cadiz, 1978, Brittany, 1.6m barrels. 8. M/T Haven, 1991, Genoa, 1m barrels. 9. Odyssey, 1988, Nova Scotia, 1,000 barrels. 10. Sea Star, 1972, Gulf of Oman, 0.85m barrels. The Deepwater Horizon is 0.4 – 0.7m barrels and the Exxon Valdez was 0.26m barrels.366

Obama puts a 6 month moratorim on all new deep water drilling in the Gulf of Mexico. The American Petroleum Institute calls it “a moratorium on economic growth and job creation.”367 Obama admits he did not do enough in the early days of the spill, especially in forcing BP to share information.368

MSS director resigns as Obama criticises the regulator of having a “sometimes corrupt” relationship with the oil industry.

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