An Economic View of BP, the Oil Spill and the Gulf of Mexico

To quote Fred McCallister of Allegiance Capital Corporation while on CNN earlier this week, “BP is doing what’s in the best interest of BP and its shareholders.”  This should not come as a shock to anyone but it’s nice to actually hear someone say it on a national news broadcast.  Let’s take a deeper look at what that really means though.

The size of the spill determines the fine

 This explains why BP initially downplayed the size of the leak and has consistently underestimated the number of barrels per hour pumping out of the broken pipe.  British Petroleum already faces up to 14 billion dollars in civil penalties, payable under US environmental law, assuming the leak is plugged in August.  The size of these fines are directly linked to the size of the spill which is quickly becoming the largest in US history,  with BP liable for over $4,000 for each barrel spilt.  So in a nut shell, the fewer the barrels of oil reported to have been spilled, the smaller the fine.

Spreading out oil over time allows amortization of costs

A disturbing idea but one that seems to have merit, the use of dispersants sinks the oil so that it does not come to the surface or end up on beaches immediately, instead it will sink and wash up over time on the beaches as tar balls, thus increasing the size of the spill over time instead of all at once, read more at:

http://www.mcclatchydc.com/2010/07/02/96959/why-so-few-skimmers-at-the-oil.html

Given the financial advantage to using dispersants it is no surprise that BP refused to stop using the most available dispersant even when the EPA told them to stop.  British Petroleum is not worried about toxicity or long-term environmental impact, what’s important to BP is their bottom line, you can read more at:

http://rawstory.com/rs/2010/0524/bp-ignores-order-stop-dumping-toxic-oil-dispersant-gulf/

Finally, the dollar figure for BP will escalate as: private citizens sue over health issues; environmental groups sue on behalf of the environment of the gulf; fishers sue over the damage to fishing grounds; and tourism and other industries sue for lost business.  It is not inconceivable that BP is looking at 60 – 70 billion dollars in fines and law suit damages; given that the company’s profits for 2008 and 2009 totaled approximately 40 billion dollars, this is a company in trouble.  Were the fines and lawsuits to happen all at once they’d be done, just one more reason to do what they can to work on making this all spread out over time.

In the end it’s simple, BP will only do what it has to do and will focus on doing what’s best for BP and to hell with the environment, the animals and people of the Gulf of Mexico.

Bill Clinton advocates blowing up BP well to stop oil spill

On CNN today Bill Clinton expressed his opinion that the number one priority needs to be shutting off the leak.  “Blow it up” he said, he remarked that no nuclear weapon would be needed but that this well should be blown up and buried under rock and debris.  Given that any help from the relief wells is at least a month away and the containment dome is not currently in place, maybe this is the right solution.  It is as Clinton stated, the one tool fully within the control of the US Government.

I have no faith however that this will happen, we’ll wait to see what happens with the relief wells and if they don’t work we’ll sit around and chat until we finally come back to the conclusion our former president has already arrived at.  Given that hurricane Alex will move even more oil onto the shores of the Gulf of Mexico this week, isn’t it time we really proactively consider stopping this leak!?!

Of course we’re asking this question of two groups, BP and the federal government.  British Petroleum is the company that claimed in its environmental impact statement that they would protect non-existent walruses in the gulf.  In partnership of course with a federal government whose representatives read the environmental impact statement about protecting walruses and was too stupid or incompetent to challenge the statement.  I wonder if it’s appropriate to call mutual incompetence collusion?

Anatoly Sagalevitch comments on BP Oil crisis in the Gulf of Mexico

I wrote a post about two weeks ago after reading a story online that Anatoly Sagalevitch, a world renown Russian Oceanographer, had visited the Gulf of Mexico shortly after the Deepwater Horizon platform managed by BP had exploded and collapsed.  According to the article Dr. Sagalevitch had reportedly said that upon his visit to the site in his submersibles, that he in fact saw over 20 cracks on the seafloor leaking.  You can read my post at: http://zdeaconblue.wordpress.com/2010/06/14/if-this-is-true-bp-may-lead-the-united-states-into-depression/

As you may notice, the post title starts with, if this is true?  That particular question weighed on me for some time and I waited to see if the mainstream media would address this question.  They did not, so I decided to track down the answer myself.  Anyone who tells you it’s easy to track down anyone’s e-mail address on the web hasn’t tried to track down anyone they didn’t already know.  It took me three days of searching but finally I was able to get in contact with Dr. Sagalevitch and as him the very basic question, is this story true?  Dr. Sagalevitch’s response was very prompt and he told me he had not been to the Gulf of Mexico, in fact he was on vacation when the accident occurred and that he couldn’t have possibly surveyed the seafloor of the gulf as his submersibles, the Mir1 and Mir2 are actually deployed in Lake Baikal.  So the definitive answer to my post and the rumor flying around the internet is that no, Dr. Sagalevitch has not reported seeing dozens of cracks on the seafloor of the Gulf of Mexico leaking oil.

This information brings two points to bear for me.  First, how fast disinformation can fly around the internet, Dr. Sagalevitch remarked upon this as well.  Secondly, even without this information, we still don’t know what the actual conditions are at the seafloor or whether or not the relief wells will work.  Today we have been given a couple of interesting pieces of information including that the relief well drilling is proceeding as planned and the first tropical storm of the season has formed and is on track for the Gulf of Mexico.    We’ll talk in more detail in my next post about the potential consequences of a large tropical storm or hurricane in the gulf.  Hurricane formation in the gulf is greatly related to the temperature of the gulf and right now the gulf is very, very warm approximately eighty-six degrees Farenheit.  Look out friends the situation in the gulf may drastically change very soon and not for the better.

Rep. Joe Barton apologizes to BP, nice job!

Representative Joe Barton (Republican) of Texas apologized yesterday to British Petroleum (BP) for the Whitehouse and President Obama’s  shakedown in order to get a twenty billion dollar fund established to help out gulf coast victims of the oil spill.  How idiotic was this statement? Well before the hearing was even over his own party had slapped him around to the point that he retracted the statement, letting everyone know the oil spill is a horrible disaster.

Check out the link to see the reaction he’s getting:

http://www.politico.com/news/stories/0610/38674.html

So who the hell is Joe Barton?  He’s the ranking member of the House Energy and Commerce Committee.  He’s a representative from the state of Texas whose most notable moments seem to be that he’s denied global warming, made a failed run for a senate seat, opposed the extension of the Voting Rights Act in 2006 and now is apparently the only person in America who feels sorry for Tony Hayward.  Oh and by the way, his number one financial supporter in his political career is the oil and gas industry and he used to consult for Atlantic Richfield Oil and Gas Company.   Was that a BP tie clasp he was wearing yesterday?

Could it possibly be that what Mr. Barton was actually doing yesterday was trying to limit the type of damages that might occur to an oil company after a large spill?  I mean if BP has to pay billions of dollars in damages, then what happens to the next oil company that has a major spill.  And yes Sarah Palin, when you drill baby drill, you spill baby spill!

Here we have another politician folks, so out of the main stream of America and locked into his politics of exclusion and hate that he actually thought he’d be supported on this.  I mean hey, he’s taking a shot at the democrats, the president whom we all know must be a socialist and better yet, one of the black men that damn voting act was trying to protect.  I bet he expected the right and the Republican Party to throw him a damn parade!  Oooops, not everyone in the Republican Party is a moron Joe, and so you got  slapped!  Although I’m sure some of the standard right-wing wackos my be supporting him today I have a feeling Joe Barton is feeling seriously unloved today.

But seriously Mr. Barton, how the hell can you oppose this with a rationale that the courts will take care of this?  Why should fishermen, hotel owners, restaurant and hotel owners and workers, good people who work hard for a living have to go out and hire lawyers to get money that is rightfully due them?  Why, please Mr. Barton tell us why, should lawyers end up with 30-50% of the payout from this fund as fees for the services they render?  Isn’t it better for these folks to get 100% of the funds?  Apparently you don’t think so, so either you are trying to protect BP and Tony Hayward, or you are trying to help out lawyers.  So apparently Mr. Barton you don’t realize that these are the two most despised groups in America, and now sir I happily add you to the mix you idiot!

If this is true, BP may lead the United States into Depression

Hello friends, what I have for you tonight, if it is true, is nothing short of terrifying.  The following link that I provide: http://beforeitsnews.com/story/76/057/Scientists_Warn_Gulf_Of_Mexico_Sea_Floor_Fractured_Beyond_Repair.htmldescribes    reports  Anatoly Sagalevitch from the Russian Academy of Sciences as saying that the Gulf of Mexico leak is much worse than we have been told.  In fact the report suggests that the well is not able to be capped, leaving only two options.  Option 1 let the well run dry, which could take as much as 30 years, or seal it with a nuclear bomb.  During the Soviet era the Russians on five occasions used controlled underground nuclear explosions to cap wells.  As a matter of fact, in May the Russian newspaper, Komsomoloskaya Pravda, made this very suggestion.

This is a calamity of amazing proportions if it is true!  First off imagine the outcry of even suggesting detonating a nuclear weapon so close to the shore of the United States.  The political fight over that alone should be an amazing show.  If we do this detonation, what size wave will that throw against the gulf shore?  What type of contamination will the blast inflict upon the ecosystems of the Gulf of Mexico and how long will they take to recover?  On the economic front, should the blast be called for we can call an end to oil drilling in the Gulf of Mexico, is that Saudi Arabia I hear cheering?  Considering that the report says that oil is leaking from twenty-two separate sites along the sea floor I wonder how many barrels of oil per day are actually leaking out, the count has risen from the original 1000 barrels a day to the most current estimate of  up to 40,000 barrels a day.  This spill is already the third largest of all time and if this report is true, it will quickly become the largest oil spill in the history of mankind and the worst ecological disaster the Gulf of Mexico has ever seen.

The implications are far-reaching from the impact on shrimping, oyster and fishing industries including impacting the Blue Fin Tuna fleets of the northeastern US coast as the area impacted is the birthing and raising ground of these fish.  As we enter hurricane season who on the gulf isn’t terrified that a major storm will come through and throw massive amounts of crude onto the shore and into the sensitive wetlands of Louisiana, Mississippi, Alabama and Florida.

The economic implications of this report are beyond alarming.  If we are forced to nuke this well shut, then drilling in the gulf stops and we become much more highly dependent upon foreign oil.  Oil prices will rise quickly and we will see $4 a gallon gas soon, or will it be $5, or $6 a gallon gas?  When oil prices raced past $100 a barrel and domestic gas prices above $4 a gallon our expanding economy suddenly stopped and reversed itself sending us and our financial system on a crash course with depression.  We narrowly avoided that depression and somewhat stabilized our economy, but with the European financial issues we’ve seen serious volatility in our markets.  Nuke this well in the gulf and I fear that the next great depression is a certainty.

BP adds a condom to the gusher but it leaks!

So BP’s latest attempt to reduce the flow of oil into the Gulf of Mexico is once again a containment dome.  But like a young lover who first failed to fit the condom BP has returned with a new and improved containment dome.  This one has ventilated ribs for the gulf’s pleasure!  Ok, so technically we have the first set up all over again, except this time they used the ROV’s to cut the pipe so that the cap would fit better and additionally have vented the dome so that there would be some pressure release.  The pressure being released keeps frozen hydrates from forming and clogging the line to the ship on the surface.  Definitely a technical improvement over the last failed attempt use of a containment dome but as BP has admitted, will at best siphon off 20-30% of the flow leaving hundreds of thousands of gallons of oil flowing into the Gulf of Mexico each day until the relief wells are finished.  The oil will continue to flow into the ocean currents, fish feeding and breeding grounds, and now onto the shores and the marshes of some of our most productive economic and ecologically important shores.

Like any lover who realizes his condom has leaked, the new “most hated man in America”, BP CEO Tony Hayward has become incredibly apologetic, he feels terrible about his leak and has promised to take care of all of the consequences.  In the meantime, BP has pumped a hundred million dollars in ad time onto TV, which honestly may give us a break in California from having to see Steve Poizner and Meg Whitman ads every four seconds.

We are now seeing the oil come ashore into the wetlands and onto the beaches of the gulf, pictures are starting to emerge of oil covered birds and large fish kills.  Folks, this is about to get very ugly and no amount of ad time is going to help BP out of this mess, it will take years for people to forgive and somewhat forget, but unfortunately we will, I mean when is the last time you heard about an Exxon boycott because of what happened with the Valdez disaster.

So we sit mesmerized by the live footage of the spill and watch the horror unfolding for the people, plants and animals of the gulf and wait to see what new hell hurricane season can bring them.  We’ve got three months before the relief wells are finished, and that’s assuming they are delay free, meaning that no hurricanes make them suspend operations for a time, good luck with that one.