Volatility

May 4, 2010

Deepwater Event Horizon

Filed under: Disaster Capitalism, Law, Peak Oil, Tower of Babel — Tags: , , , — Russ @ 9:13 am

 

The event horizon metaphor is being widely used among the more dystopic commentators, and it looks appropriate. This is the kind of disaster we can expect to see more often, and worse every time, as Peak Oil drives us to greater extremities to extract ever lessening oil reserves, requiring ever more complex technology and logistics, these being provided in an ever more shoddy way by ever more corrupt corporations. But we can expect the whole mess to be treated and bailed out as Too Big to Fail.
 
Although it’s tough to penetrate the fog of corporate/government/MSM misinformation, the basic facts seem to be that Transocean, contractor for BP, was drilling into 30,000 feet of rock beneath 5000 feet of sea, seeking an oil reservoir variously projected to be 20-50 million, 100 million, or 1 billion barrels. BP’s own estimate is 100 million, which is probably around the minimum necessary to render the project economically viable in the first place even with taxpayer assistance. The cement casing was installed by Halliburton. The equipment was rated to handle 20,000 PSI but hit an unexpected high pressure zone of perhaps 60,000 PSI. This ruptured the Blow Out Prevention device, allowing natural gas to separate from the oil, concentrate, and explode. This destroyed the rig, killing 11 workers and sending the wreckage to the bottom a mile down. The rig lacked a simple $500K backup “acoustic switch” which is standard safety equipment around the world and could have prevented the explosion and subsequent leakage. The Bush administration decreed that backup safety measures didn’t need to be required, that “the market” would voluntarily do whatever was necessary. Obama  endorsed this deregulated status quo.
 
Since the blowout oil has been leaking into the Gulf. At first BP, the NOAA, and the Coast Guard closed ranks to claim the flow was 5000 barrels per day, 210K gallons. BP called that a “guesstimate.” The MSM was still repeating this figure as late as yesterday. Meanwhile the official estimates now concede it’s been around 25000 barrels per day ( > 1 million gallons). This is the equivalent of an Exxon Valdez every ten days. Perhaps as much as eleven million gallons have spilled already.
 
According to BP’s own prospectus, if the pipe system eroded completely, the leakage could escalate to 163,000 barrels per day, a cataclysmic figure.
 
They’ve been trying without success to stanch the flow with remote control submarine robots. Burning the oil on the surface doesn’t work well, and spraying chemical dispersal agents also looks insufficient to the magnitude of the problem. They’re now building three large containment boxes which they hope to place over the flow, channeling it up through a funnel where it can be controlled. They plan to deploy those by the weekend. If that doesn’t work, the next idea is to drill a relief well to the busted one, using the new conduit to pump in heavy fluid to plug it up. That would take at least three months.
 
(Some, but so far as I can see no one in “authority”, have also discussed or advocated using nukes. The idea would be to seal up the hole by exploding an atom bomb near it. What could go wrong?)
 
Other rigs are being shut down as the slick reaches them. Just weeks after flip-flopping on offshore drilling, Obama has flipped again and now wants the old moratorium back. BP says it will pay all “necessary and appropriate clean-up costs.” (Um, that would be all of them.) Meanwhile the fishermen whose livelihoods have just been destroyed, perhaps permanently, have rushed to join the clean-up effort. BP tried to force them to sign waivers relinquishing in perpetuity all right to sue in exchange for the $5000 payout they were offering. They’ve since retreated on that one, but it seems that legally they don’t have much to fear. Apparently federal law itself restricts BP’s liability for damages to the absurd figure of $75 million.
 
Now we see why BP doesn’t have insurance. Why bother – the law itself winks at you and says, Go ahead. Obviously we have another moral hazard situation here. Obviously BP calculated that if anything ever goes wrong the government will socialize the losses and bail them out. (It looks like a foregone conclusion that it’ll be impossible to get effective insurance in the future. But we can expect governments to formally guarantee the costs, I guess.)
 
This example of corrupt, renegade law is extreme even by the standards of this criminal government.
 
The effects of this are hard to predict. At best the destruction is likely to be very bad. The Gulf shrimp fishery has already been all but written off. All other fisheries are likely to be severely affected if not completely wiped out. Tourism is probably already being harmed, and will be destroyed to whatever extent the oil fouls the beaches of Florida and elsewhere. Even if the containers work, they won’t completely contain the leak until June. By then the economic damages all around the Gulf are likely to be in the tens of billions of dollars, while the physical mess will take years to clean up. The effects on ecosystems and endangered species like sea turtles would be incalculable. Wherever the wind and sea carry the toxic fumes and residues, bringing poisons like benzene, toluene, and xylene, they’ll bring illnesses ranging from headaches and nausea to cancer and other severe organic diseases. If the containers fail, and the new well has to be drilled, taking three months, and that works, by then the damages might be in the hundreds of billions, with the entire Gulf economically devastated for years to come.
 
All this is leaving out of account the hurricane wild card.
 
So far Gulf shipping is being diverted around the spill, but if the affected area got big enough it could choke off Gulf seaborne trade completely.
 
So far most of this is still hypothetical, and the mood among the establishment is mostly guarded optimism. (But not at the Offshore Technology Conference, where the attitude is Party On!, and everyone’s psyched about potential disaster capitalist opportunities. The NYT reports this in the blandest of tones. This is reminiscent of a pro-nuke NYT piece some years back which argued that because Three Mile Island wasn’t as bad as Chernobyl, we should take that not as a caution and an example of receiving good luck and a second chance, but rather as the green light to plunge ahead. So the NYT is propagating the same party line today regarding offshore drilling: We should take this disaster as an encouraging sign, not a discouraging one. It’s as if you drove home one night badly drunk, miraculously didn’t kill anyone or wreck your car, and your conclusion is not to be appalled and vow never to do that again, but to say, “I did it once and got away with it, so let’s keep doing it.”)
 
[Just for the record, even the Bush administration conceded that offshore drilling would never have more than a miniscule effect on imports or gas prices. The fact is that anyone who was sincerely concerned about America's foreign oil dependence would oppose "Drill Baby Drill" because he'd want to save that oil for a day when we might lose access to foreign markets.
 
The push to drill every domestic drop is intended to accomplish nothing but the liquidation of American public property for the private profit of the oil rackets.]
 
So there’s where we are today, and there’s the more likely, “less bad” effects we can look forward to. But the disaster can become far more severe. If both the containers and the relief well fail, some other “solution” would have to be found. No one can say what could be done, how long it would take, how much it would cost. The Gulf’s environmental and economic devastation would be complete. It would be an economic dead zone for a generation or more. If the winds and currents coincide with the right malevolence, the oil could leak out into the Gulf Stream, which could carry it up the Atlantic seaboard, strewing coastal destruction all the way. In principle, if enough oil leaked it could affect all the world’s oceans.
 
Beyond the direct evisceration of the Gulf economy, the knock-on effects could be extraordinary. It could constitute the tipping point to bring down the whole Debt Tower.
 
What will this do to oil prices? In theory the effect so far shouldn’t be severe, since relative to the global production this well is a drop in the barrel. But if the spill’s advance shuts down other rigs, and if it interferes with imports from Mexico and Venezuela, and if the industry looks ahead to the possibly chilling effects on deepwater drilling in general (always being touted as one of the industry’s great hopes), who knows how it might rattle the futures market, with who knows what reverberations through all the markets. If speculators decide oil is going up, that’s always a self-fulfilling prophecy (and of course civilization learns nothing each time, and these criminals continue to be allowed to prey upon us). And if in turn they decide that means trouble for the rest of the economy, we might already think we hear the sucking sound of investment rushing out of Obama and Wall Street’s pride and joy, the stock bubble. Stocks must also tremble in general at the jitters over how bad the damage will be and who’s going to pay for the cleanup.
 
On the level of the real economy, the devastation of Gulf businesses could reverberate. There could be a domino effect through all their bank loans as they’re forced to default. The already wounded CRE market could take another hit. At the same time the federal government is spending tens or hundreds of billions to deal with the crisis, tax revenues from the region would plummet as a regional Depression sets in. This probably would be the end of any Fed plans to further raise interest rates. Insurance claims would be astronomical. Unemployment would spike even further. The disruption of oil production and imports could lead to spot shortages, with commensurate effects on gas prices. I already mentioned the questionable future of Gulf shipping. All the alleged “green shoots” would be stomped out once and for all.
 
This is a replay of the way the banksters crashed the economy. Just like with the finance sector, today’s vast expenditure and risk for the sake of drilling to extract a few measly drops of oil serves no social function, but only extracts looted profits for a few gangsters. All the cost and risk is socialized. It’s the same greed, the same recklessness, the same ideology of deregulation and moral hazard. It’s the same game of profiting during the run-up, and then being bailed out during the crash, while hunting for disaster capitalist opportunities. The costs of this will be very high even in the best-case scenario, and BP has no way to pay the costs, nor does it intend to. Just like all the oil rackets, it was always planning to socialize the costs of the inevitable disaster. The only question is whether it’ll also get a bailout. As I said, there’s already a bailout law absolving it of responsibility for the damages it inflicts. Presumably that’s only the beginning. 
 
Obama sounds like a complete idiot trying to talk tough, saying “we’ll keep the boot on BP’s neck”. (They say that’s not his line, but ripped off from Interior Secretary Salazar.) That rhetoric, coming from him, is even more pathetic than his squeaking about “fat cats” in December. When Obama talks that way, I take it as evidence that he’s psychologically preparing himself for another looting expedition. he wants to assure himself, through pseudo-tough talk, that he really did intend to fight for the people this time, but that some mysterious circumstance beyond his control prevented him. Of course in the same breath as his pipsqueaking tough-guy talk he continues with his pro-corporate backpedaling, saying we shouldn’t blame BP for the whole disaster. That’s not only morally absurd but a direct logical self-contradiction. If they’re really not such bad guys, why the boot on the neck? Wouldn’t the situation call for a collegial exchange of views toward a mutually beneficial solution? We know by now that’s always what this corporatist really thinks, no matter what the level of crime. (I’d be more likely to think Obama was getting serious if he dropped the tough guy talk, which doesn’t become him, but instead maintained his professorial demeanor while purging his talk of all pro-corporate amicability, instead calmly declaring his resolve to impose justice. That would be a completely new message, while delivered in the real Obama tone. I don’t expect to ever hear it.)
 
He sure picked the right time to throw in his lot with “Drill Baby Drill”. He said the issue of oil spills was a “tired debate”. Heckuva job. My opinion of his vaunted intelligence and political skill just keeps soaring… 
 
I won’t bother hoping people will learn a lesson. Since I became a Peak Oiler I’ve believed mankind will liquidate all fossil fuel reserves, for as long as it’s physically and economically possible. I gave up on the idea that political resistance will ever stop it.
 
At most, maybe there can be an indirect political effect. While I can believe that the cowardly Obama will flip-flop again after his first flip-flop of three weeks ago, that would only be a temporary respite. If this disaster really could kill offshore drilling (and I’m not saying I think it can), it would only be because everyone perceives the economics including their political aspect, namely the government’s political ability to extend an implicit or explicit Too Big To Fail guarantee to these drilling projects, to be impossible.
 
Is offshore drilling Too Big To Fail? The establishment believes it is. I’d bet the farm Obama thinks so too. Now they’ll try to bail out its future, no matter how much of the future the bleeding oil is already destroying as we speak.
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18 Comments

  1. Excellent work Russ.

    Many have put some very strained analogies on this spill. However, I cannot help but wonder if this is representative our Great Dust Bowl which resulted for a lot of the same reasons of perverse, even obscene incentives.

    The world seems replete with ‘unintended consequences’ (economic and otherwise) which appear to grow larger and larger with each passing day.

    Comment by NS — May 4, 2010 @ 9:59 am

  2. A great piece on this. Thanks! Seems to me the dominos are falling; finance, energy, the democratic process itself. The zombification of these institutions finally revealing itself?

    Comment by Juliet — May 4, 2010 @ 10:23 am

  3. Great post!
    Both excellent factual reporting… as well as… great commentary and analysis.

    (though, of course from a bias I share… to de-construct the fantasy-based political-economic mythologies the West has fallen for over the last several decades.)

    Comment by Tom Crowl — May 4, 2010 @ 11:21 am

  4. Thanks, guys. It sure does seem like the whole thing will be coming undone soon. Even if it’s not this event, with every passing day they have to add more and more weight of complexity atop their already tottering structure to keep it zombified.

    They have to pump more and more chaotic, destructive, larcenous energy to keep it moving at all, for it will otherwise fall.

    As we say, it’s not sustainable.

    Comment by Russ — May 4, 2010 @ 11:52 am

  5. Thanks for the best and most inclusive article I have read on this, our latest crisis. What can one do? It is the question I always find myself asking? Even if I were an activist, I would be hard pressed to find a method of attack for such enormous problems. I read Baseline and try to understand how we got into this mess and how to avoid the next one. I gave up reading the news for a while during the height of the financial crisis, but curiousity got the better of me. I agree we have been in deep water for a long time. The longer one lives the more disillusioned one becomes. We have decided to follow the instructions in the following article and spend what is left before it is cut by 30% again or before monetizing makes it worthless altogether.

    http://travel.nytimes.com/2010/05/02/travel/02choice.html?emc=eta1

    Comment by Jessica — May 4, 2010 @ 4:38 pm

    • Vacationing in Provence? That sounds like a better use of funny money than most I hear of. A more sound investment too, if the experiences and memories are as good as some I’ve heard about. (Never been there myself.)

      Comment by Russ — May 4, 2010 @ 5:27 pm

      • THis is definitely off the subject, but I noticed that you failed to comment on James Kwak’s sellout apologia—something Harvard Grads and Wall Street. Evidence of your incisive thinking and fine pen were conspicuously absent. I almost fell off my chair when I read it.

        Comment by Jessica — May 4, 2010 @ 7:10 pm

      • I do have a comment there, just a short one, up at the top (it was the third one down). But I’ll paste it here as well:

        It [Kwak's description of the schmoozing and acculturation process] sounds different from The Firm only in degree. Now that book/movie looks more like satire, not a crime drama.

        As for these rackets skimming off much of the best human potential, I’ve long compared this black hole to something like the Khmer Rouge. What’s the difference, really? The “talent” is just as lost to humanity.

        Comment by Russ — May 5, 2010 @ 4:08 am

  6. Just heard that the turtles washing up on shore in LA did not die of petroleum poisoning. Now they think that the fishermen who are helping with the cleanup “may have” removed the turtle escape hatches from their nets. No explanation of why the fisherman were using nets or why they might have removed the escape devices. These poor souls cannot win. It would have been enough to say that “with further examination, we have determined that the turtles deaths were not related to the presence of crude oil in the waters of the Gulf.”

    Comment by Jessica — May 5, 2010 @ 1:18 pm

  7. The WaPo reports today: “The decision by the department’s Minerals Management Service (MMS) to give BP’s lease at Deepwater Horizon a “categorical exclusion” from the National Environmental Policy Act (NEPA) on April 6, 2009 — and BP’s lobbying efforts just 11 days before the explosion to expand those exemptions — show that neither federal regulators nor the company anticipated an accident of the scale of the one unfolding in the gulf.” Does this sound familiar? Only the names have changed. This is why we need fundamental change. The system is hopelessly flawed and corrupt. I also heard that this same MMS was supposed to give BP a safety award or some such rot, but canceled the gala after the earth erupted.

    Comment by Jessica — May 5, 2010 @ 3:07 pm

  8. Furthermore, check out WaPo’s conclusion: “show that neither federal regulators nor the company anticipated an accident…” Do you suppose we could come to one other conclusion if we put on our thinking caps? You can bet that journalists come from the same lowest quartile SAT pool as our teachers.

    Comment by Jessica — May 5, 2010 @ 3:13 pm

  9. Who’s blog is this anyway? Sorry for the poor form.

    Comment by Jessica — May 5, 2010 @ 3:40 pm

  10. Ha, yes, it sounds familiar all right.

    At least there wasn’t cocaine and sex this time (that we know of, yet), so the MMS is sprucing itself up. Same old corruption, though.

    “Safety award” – at least this should be the end of BP’s longstanding, absurd success at greenwashing. Their chronic safety record has actually always been worse than that of evil ExxonMobil, but that’s not well known. People have wrongly thought they’re “Beyond Petroleum”, the eco-friendly oil company.

    Most journalists sure are dumb. They must be. They’re just as corrupt as those in the more lucrative rackets, but for all their whoring they seem unable to get such better-paying work.

    Add, just having seen the last question: I don’t understand the question.

    Comment by Russ — May 5, 2010 @ 3:45 pm

  11. I meant it is your blog and it is polite form to wait for another contributor or the author to respond before posting a second and then third time.

    Comment by Jessica — May 5, 2010 @ 3:50 pm

    • Oh, I get it. I don’t know if there’s a form, but it doesn’t matter to me. Post away. :)

      Comment by Russ — May 5, 2010 @ 3:53 pm

  12. [...] for a nationally centralized electric grid based on Great Plains wind farms. Between this and the oil spill, it got me thinking about energy, centralization, and the Tower of Babel.   I’m all for [...]

    Pingback by Renewable Democracy? « Volatility — May 6, 2010 @ 4:14 am

  13. Well said. This is the kind of coverage that should be done at ABCnews or Hearst Newspapers. Maybe they need to get rid all their old staff and look on WordPress for new columnists!

    Comment by Joe B. Testerman — June 12, 2010 @ 8:08 pm

    • Thanks, Joe. That sounds like a good idea to me. :)

      Comment by Russ — June 13, 2010 @ 4:59 am


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