arin's attic | www.arinsattic.com | Posts from July 2010

meet the new “rational and forward thinking” previously known as “reckless and irrational planning”

reading this and i’m struck once again by how words continue to be redefined…

Talking strategy with oil vividly gushing on TV news coverage across America gets nowhere as deep emotions overwhelm rational forward thinking. Now that it appears the well cap has been successful and the flow of oil stopped, although not without some trepidation, we can have a more serious strategic discussion about the oil & gas future for the Gulf of Mexico.

Let’s put this in context. Certainly, stopping the flow has been terrific news, but there is no other way to describe the Deepwater Horizon blowout than a monumental disaster with lasting impact for many years to come. To date, job number one for BP has been rightly to do whatever possible to contain and stop the leak. Job number two followed closely behind for the federal and state governments, BP, the communities impacted, the oil & gas industry, and anyone else who wants to help is clean up and prevent/reduce the environmental damage. Everywhere you turn there are assessments on how well all this cleanup has gone, so let’s leave this subject for others.

But the Obama administration has also seen fit to jump into the strategic dimensions when the emotions have been high with the six month moratorium on drilling. That not surprisingly led to a court fight with the oil & gas industry winning for the moment. This has been temporary as Energy Secretary Salazar has a revised moratorium under the theme of safety.

the shill is unhappy with the six month moratorium, as it’s anything but “rational, forward thinking”.

It is a little hard to say the industry hasn’t been safe with over forty thousand wells in the US waters of the Gulf of Mexico without such previous major incident for decades. Of course, one can argue for zero tolerance which has some real merit but perhaps not practical. The strategic question must address whether the industry has widespread safety concerns or is this uniquely difficult well, poorly maintained rig, or a maverick operator? The press reports and congressional testimony suggest the latter. The Wall Street Journal headlines on July 19, 2010 reported that the spill investigators were focusing on a list of more than twenty anomalies. BP’s partner Anadarko tried to distance itself with Chief Executive Officer James T. Hackett’s statement on June 18, 2010, “The mounting evidence demonstrates that this tragedy was preventable and the direct result of BP’s reckless decisions and actions.” Many in the industry argue at the heart of the matter is BP could have and should have used a safer well design but operational objectives got in the way of safety first. In the end, it looks like the blowout and BP’s handling of it has cost Tony Hayward his job.

you cannot argue for practicality while simultaneously arguing against it. practicality dictates that we stop what we’re doing and *find out what happened* before we allow such a thing to happen again. if we continue to drill without finding out the cause, we’re being reckless. this is not “rational, forward thinking”. while evidence suggests that BP mishandled the well, there is also evidence to suggest that there was a terrible lack of oversight by government agencies. everything that led up to this disaster must be looked at and corrections made, so that this type of thing doesn’t occur again. *that* is “rational, forward thinking”.

Now that the Deepwater Horizon is not just scenario planning but starkly real, the next important work for the industry must be around finding how to improve the containment system and make it dramatically faster and better. It has been encouraging to see the proactive response of ExxonMobil, Royal Dutch Shell, Chevron, and ConocoPhillips with plans to build and deploy a $1 billion rapid-response system to capture and contain oil in the event of a future underwater well blowout. As Houston Chronicle reporter Monica Hatcher outlined in her July 21, 2010 article. “Unlike BP’s system, much of which was designed and built on the fly to handle the unfolding Gulf disaster, the new equipment will be pre-engineered, constructed, tested and on standby for immediate deployment in case of an emergency. As part of the initiative, the four firms will form a nonprofit company called the Marine Well Containment Co. to operate and maintain the system.”

that’s wonderful! that’s the type of thing we need before we should allow more drilling. we need to know the impact of such disasters and have a plan in place to deal with whatever “unintended consequences” might occur. (one can rightly argue that if you act, knowing that a particular consequence may result from your action, then the result isn’t “unintended”, it’s “acceptable”. to accept continued drilling, without fully knowing the cause of the bp spill, you are acknowledging that another major disaster is not only possible, but acceptable.)

On the other side of the equation, the economic impact of the six month drilling moratorium is severe. There are many estimates on the job loss, some as high as 46,000 directly related to the rigs and more broadly hundreds of thousands impacted. However, the Oil & Gas Journal’s reporting of analyst Douglas Becker’s comments on July 23, 2010 contends the disaster is not terminal such as the impact of Three Mile Island on the nuclear industry. I am not so sure the strategic ramifications are not larger. There was and have been alternative means of generating electric power with nuclear just one piece of the portfolio. No real meaningful alternatives to crude derived gasoline, diesel, and jet fuel exist today; it will take time.

again, the author redefines the issue. it’s not the economic impact of the moratorium, it’s the economic impact of the bp oil spill. there would be no moratorium necessary had there been no bp spill. the fault lies there, not with the moratorium.

But why is the Obama Administration so adamant on pursuing a drilling moratorium? Mario Loyola in his front cover August 2, 2002 National Review article contends this is just part of a strategy to pursue comprehensive energy and climate legislation. If so, it naively ignores the short and midterm impact on this country’s energy future.

okay, if it’s in the national review, it’s just so much punditry, shilling for the oil & gas industry. while the obama administration, among others, are interested in pursuing comprehensive energy and climate legislation, this moratorium would never have occurred had the oil & gas industry and the government agencies responsible not been lax in preparing for this type of disaster. the blame on obama is misplaced and misguided. (also, it’s absurd that “comprehensive energy and climate legislation” is used in a disparaging way.)

There is no doubt that with this moratorium, deep water drilling rigs are and will move to other locales around the world as the demand for them exists. These rigs, as many have noted, will not come back for multiple years so it is not really a six month moratorium. The production impact from the Gulf of Mexico which represents about one third of our current US output could reach half of billion barrels a day or more over the next five years. Sure this could impact pricing for crude oil and detrimentally affect our energy security equation. But for Houston as the Energy Capital, the result could be much more profound.

the author goes on to lament the economic impact in houston and the us due to the lack of drilling in the gulf. while it’s true that the oil & gas industry will look for other places to drill, this would be true regardless of the moratorium. while the impact of the bp spill is adversely affecting those who work in the oil & gas industry along the gulf, a second spill, at this time, would cause an even greater impact.

also, we should not ignore the fact that the oil & gas industry is unprepared for work stoppage as a result of this type of disaster. for all the lamenting about oil workers not being paid, i have to ask, “why aren’t they?” this is a multi-billion dollar industry that has the means to continue to pay its workers in the face of a disaster. that they choose not to should be a sign of the loyalty these firms have towards their employees.

it’s this simple: my house is bitterly cold. i could warm up my house by building a fire in the fireplace. i’ve never burned down a house by using the fireplace, so i deem it safe to do so. this time, however, the fire leaps out and sets the room ablaze. yes, the house is now much warmer and i could make it even warmer by building a fire elsewhere in the house, but the wisest decision is to *stop building fucking fires* until 1) the fire is contained and 2) the cause of the fire is determined. otherwise, i run the risk of not only burning my entire house down, but that of my neighbours, as well. if i continue to build fires, i’m acknowledging and accepting the possible consequence of doing so. (“hey neighbour, i was cold, so i used your house as kindling!”)

clearly, while there is one *major catastrophe* in the gulf, we cannot afford the impact of another, until 1) the cause of the spill is determined and corrected and 2) the cleanup has taken place. the result of ~two~ major catastrophes would be even more economically devastating than the six month moratorium, however unlikely we “guesstimate” the likelihood of another such spill. to do otherwise can only be considered *reckless and irrational planning*.

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Tagged as: oilspill July 26, 2010 @ 10:11 am