Several items on BP Spill

Multiple apologies again for the skimpy posting lately–things have been busy here at the D&S office. I hope we can begin posting more regularly soon.

For now, here are some items on the BP Gulf oil spill that have been accumulating on my desk; I will do an post of oil- and tarball-free items later today or tomorrow.

(1) BP Out of Its Depth: D&S e-subscriber and WordPress helper Shaun S. also has a blog, Counter Economics. I had dinner with Shaun the other day, meeting him in person for the first time, and he was citing some technical info about the oil spill that I hadn’t heard from my usual sources. He said he’s been reading engineering sites, and that some of his findings can be found on his blog. Here’s a sample:

How Deep Was BP Drilling?

Interesting comments from different articles on the disaster.

1. BP was drilling deeper than the 18,000 foot limit they were supposed to operate within.
2. BP failed to inform their subcontractor, Haliburton, of the true depth of the well. Haliburton poured enough concrete to cap an 18,000 foot well, but the increased pressure blew the cap.
3. BP initially claimed that the well was capped and there was no leakage. While they were lying it is estimated that 2.5 million gallons a day was and is continuing to shoot from the ocean floor.
4. The US Coast Guard repeated BP’s claim, therefore, government response was delayed until the truth “leaked” out.
5. BP was also responsible for spill containment for Prince William Sound, where the Exxon Valdez disaster occurred. BP was found to be negligent, having lied to the US government about the number of booms, cleanup vessels, and trained crews that it had on call in the area. In fact, to cut costs, BP had no booms and had fired all the trained crews and replaced them with untrained workers.
6. It is suspected that BP has done similar cost cutting in the Gulf. They did not have the required personnel on hand and stonewalled with claims of no leakage while they readied a token show of preparedness.

According to Robert Kennedy Jr., there is now conclusive evidence that BP was drilling to 25,000 feet, even though they only had a permit to drill to 18,000 feet. Of course the question should be “why?” the platform was not periodically reviewed and its records checked. Another question which should be raised is if no well has ever been capped at 5000 feet (the sea floor depth of the well, not the overall well depth), how did BP get a permit to drill there in the first place? Do we make a habit of providing permits for activities that if there is an accident, there is no proven method of stopping the damage? If so, why?

Here’s the rest of the post.

(2) The Spill, Climate Change, and a Carbon Tax. An interesting item by longtime Boston-area economics reporter David Warsh, from his online column Economic Principals:

The Gulf oil spill has a way of putting in perspective our other troubles. Suppose the first few shards of evidence hold up—that BP engineers were under some pressure to cut costs by electing cheaper safety methods against the possibility of a blowout?

What would be the cost, going forward, of increasing tenfold the precautionary apparatus installed at every undersea well-head around the world? Fifty cents a barrel? A dollar? That’s not much in a world of $75/bbl oil—surely not much more than a penny a gallon at the pump. That the costs of enhanced safety methods, including better governmental oversight, will be borne, mostly by the consumer, is a foregone conclusion

The really daunting risks have to do not with the production of oil but with humankind’s accelerating consumption of it, and other fossil fuels—not that this is a bad thing in itself, except that it has undesirable side effects that may be accelerating even faster.

He goes on to talk about a review by philosopher of science Philip Kitcher of a bunch of books on climate change, and Kitcher’s comments about the state of skepticism of science today. Read the full column here.

(3) Twitter Satire: Hat-tip to our new intern Elizabeth M. for pointing out the satirical Twitter feed BPGlobalPR, which affirms that “We are not associated with Beyond Petroleum, the company that has been destroying the Gulf of Mexico for 51 days,” yet has these hilarious tweets:

# Wait, Oil PLUMES? We thought you asked about oil PLUMS in the ocean. How silly! Yes, yes, there are TONS of oil plumes! about 1 hour ago via web

# We bought google, bing gave 100k to help. Come on yahoo! Buy $100,000 worth of free “bp cares” t-shirts! #bprebrand about 11 hours ago via TweetDeck

# Proud to announce we’ve partnered with Google to turn the Information Superhighway into a Corporate Bus Route. #bpcares about 16 hours ago via web

# Surprised ourselves by getting emotional on the coast today. Turns out the wind blew dispersant in our eyes. #BPrebrand about 19 hours ago via web

# Alright, back to work everyone! It’s World Ocean Day! Everybody do your part! #BPrebrand about 19 hours ago via Twitpic

# We at BEYOND POLLUTION Global PR are unhappy to announce yet another $10,000 donation to @healthygulf #BPrebrand about 20 hours ago via web

Check out the full Twitter page.

(4) What Toxic Crap Will We Get This Time? A huge and full hat-tip to our business manager Paul P. for finding this juicy tidbit on the Wikipedia page on the Exxon Valdez spill:

In the case of Baker v. Exxon, an Anchorage jury awarded $287 million for actual damages and $5 billion for punitive damages. The punitive damages amount was equal to a single year’s profit by Exxon at that time. To protect itself in case the judgment was affirmed, Exxon obtained a $4.8 billion credit line from J.P. Morgan & Co. This in turn gave J.P. Morgan the opportunity to create the first modern credit default swap in 1994, so that J.P. Morgan would not have to hold so much money in reserve (8% of the loan under Basel I) against the risk of Exxon’s default.

The Wikipedia article cites this 2009 New Yorker article for this bit of history.

The question is: if the Exxon Valdez spill gave us the credit default swap, what kind of destructive and toxic “innovation will the BP/Deepwater Horizon/Gulf Oil Spill give us?

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