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Triple Crunch Log                                                                                                            

Presence of world leaders in Copenhagen “paralysed” process, according to UN’s top climate official. A leaked letter from Yvo de Boer, UN climate chief, “suggests the Copenhagen climate summit failed because the presence of 130 world leaders paralysed decision-making and the Danish presidency backed the US and other western nations over the interests of the poor.381

UK ministers order review of looming commodities shortages: from fish and timber through food and water to precious metals, as concerns grow that that the problem could hit every sector of the economy. The  Department for Food, Environment and Rural Affairs will lead the initiative.382

1.6.10.Obama administration incensed that BP waited a day and half to alert them of Top Kill’s failure. 383 Meanwhile:

BP shares, already down about 25% since the leak began in April, fall a further 15.4% to 418.9p, their worst level since March 2009. The company’s market capitalisation of just over $90bn is now $20bn below Shell’s. At the end of 2009 it was $181 bn, i.e it has more than halved. 384

Arbuthnot analyst says BP survival is at stake.385 “BP has spent $1bn to date and the future costs will be significant. Adding in the inevitable litigation costs, this will have a major financial impact on the company which realistically cannot be quantified in the short term. What worries us the most is the emotive language coming from the Obama administration and the reputational damage done so far. It is difficult to see how the company can recover and it remains unclear what punitive measures will be put in place in terms of its operations in the Gulf of Mexico.”386

BP has lost nearly 25%, or $46bn, from its market value since mid-April. FT: “the oil giant is beginning to look cheap — and vulnerable.” Lex in the FT: “BP must now give investors guidance on “its own best estimate of the scale of its potential liabilities.” Credit Suisse estimates total liabilities could be $17.6bn including claims and clean-up. BP had net cash from operations of $7.7bn in Q1. Lex: “investors should bear in mind that, ultimately, the costs to BP might include not just Tony Hayward’s job as chief executive but the company’s independence”. BP’s market cap is now half of Exxon’s, and they and Shell must be running the numbers. But how will they know how big the liabilities might be?387

BP disputes existence of underwater plumes of oil. Its simple, says Tony Hayward: oil has a specific gravity half that of water, therefore all the oil is on the surface. The universities of Florida, Georgia and Mississippi all say they have detected huge plumes of underwater oil, and they must be wrong.388

Parallels with Ixtoc 1 oilspill of June 1979 are striking, with one big exception. The uncontrolled well 600 miles of Houston gushed oil and gas for nine months and 22 days, spilling about 3.3m barrels of crude through many attempts to seal the leak, until it was finally capped by two relief wells in March 1980. But that well lay under just 150ft of water, not 5,000ft.389

Last year’s Montara leak, in the Timor Sea, was eventually stopped by a relief well operation after more than 10 weeks. It was at 75m depth, leaking only slowly compared to Macondo, but, in the FT’s words, “it provides plenty of examples of just how difficult relief well operations can be even today.”

BP has warned that the relief wells risk a similar blowout to the original well. This in a regulatory filing with the Department of the Interior. But Tony Hayward has elsewhere discounted the chances of that happening: “The relief wells will be successful,” he told reporters in Houston. Drilling two wells will “assure ultimate success.” 390

8 hurricanes forecast for 2010 season, out of an unusually high figure of 15 named storms. A Florida State University estimates that a hurricane or tropical storm could push oil up to 12 miles into the grassy marshes that cover much of the Gulf shoreline and act as breeding grounds for fish and birds.391

Peak demand debunked: “It is not that mature economies do not want or need oil. Quite the contrary, the advanced countries desperately need low cost fuel to facilitate recovery of their economies. Decision makers need to recognise this reality. Pretending that oil has somehow become unfashionable or unnecessary will just make matter worse.” So Steven Kopits, Managing Director of Douglas-Westwood writes in Petroleum Review. The US economy, for example, has shed consumption when crude oil expenditures exceed 4% of GDP: equating to $82 a barrel today. This means the US is about to be priced out of the market.392 (L)

UK faces a £4bn black hole in unavoidable nuclear decommissioning and waste costs in next 4 years, new energy secretary Chris Huhne says. Is department’s entire budget this year is £3bn. Huhne tells the Guardian: “As you can imagine, this is a fairly existential problem. The costs are such that my department is not so much the department of energy and climate change, as the department of nuclear legacy and bits of other things.” The black hole is equivalent to wiping out one-sixth of the overall cuts in public spending identified by the Treasury with last week.393

Lloyd’s and Chatham House publish a report warning about energy crisis coming. “Businesses which prepare for and take advantage of the new energy reality will prosper - failure to do so could be catastrophic. Market dynamics and environmental factors mean business can no longer rely on low cost traditional energy sources. China and growing Asian economies will play an increasingly important role in global energy security. We are heading towards a global oil supply crunch and price spike. Energy infrastructure will become increasingly vulnerable as a result of climate change and operations in harsher environments Lack of global regulation on climate change is creating an environment of uncertainty for business, which is damaging investment plans. To manage increasing energy costs and carbon exposure businesses must reduce fossil fuel consumption. Business must address energy-related risks to supply chains and the increasing vulnerability of 'just-in-time' models. Investment in renewable energy and 'intelligent' infrastructure is booming. This revolution presents huge opportunities for new business partnerships.”394 (L)

BP future now in jeopardy as US government launches criminal investigation. “We will closely examine the actions of those involved in the spill,” says the Attorney General. “If we find evidence of illegal behaviour, we will be extremely forceful in our response.” So far BP has lost around a third of its market value – some £40bn – since the Deepwater Horizon rig exploded and sank on 20 April.395

Hayward admits BP was not fully prepared to fight the Deepwater Horizon leak, as pressure mounts on the company not to pay its annual dividend to shareholders. “What is undoubtedly true is that we did not have the tools you would want in your toolkit,” he tells the FT. Democratic senators write to tell him it would be wrong for BP to pay investors a dividend until it knows the full cost of the disaster. 396

BP has turned down James Cameron’s offer to help. Cameron, who has experience of undnerwater

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