As Earl heads north, another oil rig explodes in the Gulf

Ladies and gentlemen, this just in.  The Vermillion Oil Rig 380 has just exploded 80 miles of the coast of Louisiana, with 12 people missing.  This is yet another painful reminder of how expensive our energy is becoming.  We will learn a lot more in coming days, but after the Deepwater Horizon, another accident is the last thing we need.

At In A Future Age, we are battening down the hatches in preparation for Hurricane Earl, headed our way in the next 36 hours.  I hope everyone has a safe and happy Labor Day weekend.


Complexity and risk increase with oil development.

Witness the Perdido, now producing oil at depths of more than 9000 feet.

Recently international marine modeling expert Malcolm Spaulding shared his thoughts with ecoRI about the oil spill on the Deepwater Horizon, and what went wrong.  Spaulding, after reviewing much of the technical information from the BP hearings, concluded that while the Blowout Preventer Valve will present a lot of evidence on why the rig exploded and sunk, there were “relatively straightforward oversight problems” that could be fixed:

“In this case we had a whole series of human failures in the system. One of the control pods didn’t work. There is some question about whether some of the plumbing on one of the valves was installed correctly.”

Spaulding also believes that a key to future offshore development is improved risk assessment and scenario development, to show that these oil companies can respond should a disaster occur.

Well, witness the Perdido, profiled in the NY Times.  The Perdido is much more sophisticated and complex than the Deepwater Horizon.  Not only does it operate in deeper water, but it is the deepest platform in the world, with a well in production at 9600 feet.  The Perdido is a 20-hour boat ride from shore, which means that fire response vessels may not be able to arrive in time to save the rig in case of a fire.  But the Perdido’s complexity is not in the state-of-the-art rig, it is on the ocean floor:

“The Perdido platform is a vast hub that can drill and pump oil from wells across 30 miles of ocean floor. Below it is a subsea cityscape of pumps, pipes, valves, manifolds, wellheads and blowout preventers — all painted a bright yellow so as to be visible to the floodlights of the remote-controlled submarines that maintain it.  Shell, in reducing the weight of the platform, which can produce up to 130,000 barrels of oil a day, is among the first companies to use a new technique: instead of pumping the drilled liquid to the platform and separating the oil, gas and water there, as is typically done, engineers installed new separation equipment directly on the sea floor. While that improves efficiency, the equipment is also more difficult to monitor and fix than if it were on the platform.”

Lets see, the rig drills at depths that human divers cannot reach; much of the equipment which could cause an accident can be reached only by submarines; the rig is 20 hours from shore.  Additionally, the rig is designed to simultaneously drill new wells and pump out existing wells across 30 miles of ocean floor.   The complexity of the Perdido is incredible.

Does this sound safe?  Can we manage these risks?  Just because the engineer in charge says that the Perdido has “multiple safety barriers and redundant systems,” does that mean we can believe they will work?  Is Royal Dutch Shell prepared to handle an accident?

The Perdido is a banner example of how complex and expensive new energy is becoming.  Energy Returned on Energy Invested, or EROEI, continues to drop closer to 1:1.  The risks only increase.  How exactly is this sustainable?


The apology heard ’round the world.

Republican Rep. Joe Barton apologized to BP yesterday.

Yesterday, as I described during my live coverage of the House Energy and Commerce Committee’s questioning of BP CEO Tony Hayward, Rep. Joe Barton, from oil industry haven Texas, apologized to BP for the “shakedown” that the company faced from the White House:

“I’m ashamed of what happened in the White House yesterday,” said Rep. Joe Barton (R-Tex.) during a hearing on Thursday morning with BP’s CEO Tony Hayward.” I think it is a tragedy in the first proportion that a private corporation can be subjected to what I would characterize as a shakedown — in this case a $20 billion shakedown — with the attorney general of the United States, who is legitimately conducting a criminal investigation and has every right to do so to protect the American people, participating in what amounts to a $20 billion slush fund that’s unprecedented in our nation’s history, which has no legal standing, which I think sets a terrible precedent for our nation’s future.  I’m only speaking for myself. I’m not speaking for anyone else, but I apologize,” Barton added. “I do not want to live in a county where anytime a citizen or a corporation does something that is legitimately wrong, [it is] subject to some sort of political pressure that, again, in my words, amounts to a shakedown.”

Rep. Barton did not agree with the $20 Billion escrow account, which Tony Hayward agreed to with President Obama, and would ensure that money is available to pay “all legitimate claims.”  Well, Rep. Barton apparently hoped that BP would be able to use their army of lawyers to fend off legal challenges, like two other notable companies: Exxon Mobil and Dow Chemical.

25 years after a plume of fatal toxic gas escaped from a Union Carbide plant in Bhopal, India, and killed thousands of sleeping Indians instantly, and tens of thousands later, eight former executives were finally found guilty and sentences to two years in prison and a fine of about $2100, only last week.  In 1989, Union Carbide, which was later purchased by Dow, paid only a $470 Million settlement, which provided only $550 per victim.   Additionally, Dow is not taking responsibility for cleaning up the site.  In fact former Union Carbide officials still refuse to take responsibility for the leak, blaming it on sabotage.

In the other case, Exxon was required to pay only $500 million, from what was once a $5 Billion punitive award, after a nearly 20 year legal saga. BP can fight this battle much longer than any Louisiana fisherman.  The $20 Billion escrow fund is an act of good faith on the part of BP.  For Rep. Barton to insist that is it a “shakedown” is to say that the Dows and the Exxons of the world should be able to avoid accepting the consequences of their actions.

Apparently Barton, after being condemned by fellow Republicans, retracted his apology.  However, many conservatives do support Barton, and object to the escrow account.  It is a mystery how one could side with BP on this case, with clear evidence of their liability.  Ultimately, a huge company like BP has more power than most modern States.  Even in the United States, companies like BP can capture the regulators and ensure favorable legislation through their financial support.  In that environment, how can conservatives claim that the power of mega-corporations should go unchecked?  How on Earth could Barton side with BP, when we now know all the cost-cutting that led to the disaster on the Deepwater Horizon and in the Gulf of Mexico?


Was BP acting in the best interest of British pensioners?

BP CEO Tony Hayward will appear before the House Energy & Commerce Committee Thursday

On Thursday, Tony Hayward will appear before the House Committee on Energy and Commerce, and offer testimony about BP’s failures on the Deepwater Horizon Rig.  These documents, released by the Committee in advance of the hearing, make it clear that BP cut corners.  This e-mail, between BP engineers a week before the blowout, discusses BP’s choice of a faster, less expensive, and less protective casing for the well:

From: Morel, Brian P

Sent: Wednesday, April 14, 2010 1:31 PM

To: Miller, Richard A

Cc: Hafle, Mark E

Subject: Macondo APB

Rich,

There is a chance we could run a production liner on Macondo instead of the planned long string. As this does not change much for APB based on the original design assumptions of a trapped annular, I don’t see any major effects, but wanted to confirm I am not missing something. Attached is the proposed schematic, please let me know if you have any questions. We could be running it in 2-3 days, so need a relative quick response. Sorry for the late notice, this has been nightmare well which has everyone all over the place.

Thanks

Of course, among the documents are also approval e-mails from the Minerals Management Service.  There are also e-mails from Halliburton, showing that BP went against the Halliburton recommendation for the number of centralizers, devices to keep the casing centered on the well while the cement was poured and set.  Halliburton recommended 21, but BP went with only six, because the well was behind schedule.

BP and the British Government, are fighting American efforts to force BP to set up an escrow account to ensure claims settlement, and to cease payment of dividends.  Of course, in Britain, BP dividends account for a large portion of retirement income:

‘BP’s position at the top of the London Stock Exchange and its previous reliability have made it a bedrock
of almost every pension fund in the country, meaning its value is crucial to millions of workers. The firm’s dividend payments, which amount to more than £7 billion a year, account for £1 in every £6 paid out in dividends to British pension pots. BP is so concerned about Mr Obama’s power to affect share value that it has urged David Cameron to appeal to the White House on its behalf. Downing Street, however, has refused to get involved. “We need to ensure that BP is not unfairly treated – it is not some bloodless corporation,” said one of Britain’s top fund managers. “Hit BP and a lot of people get hit. UK pension money becomes a donation to the US government and the lawyers at the expense of Mrs Jones and other pension funds.”’

Now, did BP have British pensioners in mind when it opted for cheaper casing, and fewer centralizers?  No, it opted for risky cost-cutting instead of safe, secure profit that pensioners would expect. Will blaming the President help the pensioners?  Not quite.  The pensioners are simply learning the same lesson that stockholders of Enron and Worldcom learned, that many corporations incentivize short term earnings without an eye to the long term.


Like Tony Hayward, I’d Like My Life Back

In A Future Age Production Center

Today we celebrate our 34th birthday, and so I sent the production team home to celebrate. Back soon… same Bat Time… same Bat Channel.

One quick note.  In A Future Age was reformatted so you can now easily subscribe.  Additionally, with the oil spill ongoing, it is easy to forget that this blog, along with the rest of society, runs on oil.  How much?  Well, the Macondo Prospect, where the Deepwater Horizon exploded, contains (according to BP estimates, for whatever they are worth) no more than 100 million barrels of oil, or only 5 days of U.S. consumption.


Not All Bad Calls Are The Same

Last night, after a lovely birthday dinner at Salvation Café in Newport, I turned on the MLB Network to see some random baseball games before going to bed.  I tuned in while the network was covering the ninth inning of a game between the Detroit Tigers and Cleveland Indians, where Tigers pitcher Armando Galarraga was three outs away from a perfect game.  Now, for those uneducated in baseball, a perfect game is one of the most rare occurrences, when a pitcher records all 27 (or more) outs, without allowing a hit or a walk.  Prior to the 2010 season, it had happened only 18 times in the 135 years of baseball history.

Last night, as Galarraga was set to join a distinguished club that includes Cy Young, Sandy Koufax, and Catfish Hunter.  With one out, Austin Jackson made a behind-the-back catch in centerfield reminiscent of Willie Mays, and the perfect game seemed destined.  Unfortunately, Umpire Jim Joyce made a bad call on what should have been the third out, a groundout to the first baseman.  As you can see on the highlight above, the throw from the first baseman to the pitcher beat the runner. Joyce, regarded by many in baseball as one of the best umpires, including Curt Schilling, simply missed the call.  Because of the impact of this bad call, critics are calling for increased use of instant replay in the game.  Human judgment in this case robbed a promising young pitcher of a place in the record books.

Of course, Joyce apologized to Galarraga after the game:

“I just cost that kid a perfect game,” Joyce told reporters in Detroit. “I thought he beat the throw. I was convinced he beat the throw, until I saw the replay. It was the biggest call of my career.”  Galarraga told reporters that Joyce apologized to him after the game, adding that he had no instinct to argue the call. “He probably felt more bad than me,” Galarraga said. Smiling, he added, “Nobody’s perfect.”

Joyce considered this the biggest call of his career.  Now, this is only baseball, and while Detroit fans do not deserve one more serving of heartbreak, this is a lapse in judgment with little real effect.

What about the oil experts at British Petroleum?  Days before the blast on the Deepwater Horizon, they opted for the cheaper cement casing, which provided only a single layer of protection to prevent gas from leaking into the well:

‘Workers on the rig and from BP have said that gas bubbled into the well and was a key factor in causing the April 20 blowout, which killed 11 people.  BP described the approach to finishing the well as the “best economic case” in the document, which has appeared following Congressional hearings into the cause of the accident. News of the decision emerged as Douglas H. Brown, chief mechanic on the Deepwater Horizon rig, testified yesterday that a disagreement took place on the rig between one of the six BP engineers overseeing the operation and employees of Transocean, the owner of the rig, just a few hours before the blast took place.  Mr. Brown told the hearing that the “skirmish” followed BP’s decision to withdraw heavy drilling mud from the well that was helping to control pressure inside it and to replace it with lighter saltwater before the well was capped with a final dollop of cement.  “Well, this is how it’s going to be,” the BP official said, according to Mr. Brown.’

On the Deepwater Horizon, human judgment cost the lives of 11 rig workers, and the ongoing devastation of the Gulf of Mexico.  No human is perfect, that is for sure.  However, when the decisions of humans can have the huge impact that those of BP did, can we rely on market forces to ensure that caution and restraint are part of the decision making process?  Unfortunately, instant replay cannot take us back to the days before the explosion, and BP’s call cannot be reversed.


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