74% of BP spill eliminated

The good news - an impressive 74% of the oil from the Deepwater Horizon spill is estimated to have "already evaporated, dispersed, been captured or otherwise eliminated":

A government report finds that about 26 percent of the oil released from BP’s runaway well is still in the water or onshore in a form that could, in principle, cause new problems. But most is light sheen at the ocean surface or in a dispersed form below the surface, and federal scientists believe that it is breaking down rapidly in both places.

That bad news is that 5 billion barrels of oil was a lot to start with.

Strange disaster math

Alex Tabarrok at Marginal Revolution:

Number of birds killed by the BP oil spill: at least 2,188 and counting.

Number of birds killed by wind farms: 10,000-40,000 annually.

Number of birds killed by cars: 80 million annually.

Number of birds killed by cats: Hundreds of millions to 1 billion annually.

Don't worry there is some good news.

Number of birds killed by fisheries: tens to hundreds of thousands annually (fortunately for the birds, some of these fisheries are now shut down).

Bio-remediation

So if we could just put the dead zone and the oil spill together...

A big factor slowing oil breakdown is that oil doesn't contain much nitrogen or phosphorus, both of which are needed for good bacterial growth. Enter bioremediation, where fertilizer is added to encourage natural bacteria. First tried in the 1960s, it evidently works. One 2002 study showed that adding just 0.25 percent fertilizer to oil on a lab-simulated beach quintupled the natural biodegradation rate. Tests in 1994 in Delaware Bay, which is already rich with bacterial nutrients, showed fertilizer doubled the rate of oil degradation in shallow waters. The same year, scientists fighting a spill on a beach near Haifa, Israel, reported that bioremediation had reduced oil contamination 88 percent in just four weeks.

From the Straight Dope, answering the question, "Did nature clean up most of the Exxon Valdez oil spill?" The conclusion:

Do oil spills mostly go away on their own? Yes. Does that mean we’re better off leaving them alone? Of course not.

BP foresaw its doom

This would be hilarious if it weren't so sad:

Offshore Oil Strike is a genuine BP-endorsed board game from the 1970s, in which players manage an offshore drilling operation. Hazard cards hinder gamers with clean-up costs and rig explosions.

The fact that the current scenario could be roughly foreseen decades ago in a board game, let alone the type of sophisticated scenario-planning exercises oil companies (Shell in particular) are known for, leads me to agree with Michael Roberts that

... BP was in fact irrational when it came to prevention efforts. The risks and potential damages to their bottom line profits were, objectively I suspect, way larger than BP's CEOs thought, despite warnings from their engineers.

A few BP links

Just got back from two weeks of vacation, including some time in South Africa for the World Cup (which was fantastic, by the way, except for the elimination of a promising U.S. side by Ghana, and the subsequent elimination of Ghana - the last African team - by the hand of God Luis Suarez).

Anyway, back to the real world... I've spent the morning reading through my RSS feeds and here are a few BP-related links that I don't feel the mental energy to write full posts on.

1. "And if we aren’t careful, we will encourage companies that have enough money for collection to leave the drilling to those that don’t." (Richard Thaler, via Tyler Cowen)


2. Don't forget, BP also gave the world Ayatollah Khomeini (via Chris Blattman)


3. Container cap no longer on?


4. BP now more evil than Goldman Sachs


5. BP spills coffee

Addendum: Here's the Economist (subscription required) on the Obama deepwater drilling ban:

The people it presumably intends to protect—the residents of south Louisiana, whose fisheries and shorelines are being fouled by BP’s still-gushing Macondo well, and the oilfield workers who could be at risk from another disaster—are probably its loudest critics. Nearly two out of three Americans support the ban, according to one recent poll, but gulf coast residents are split down the middle.

BP blues

Despite a reportedly successful meeting with President Obama, BP can’t be too happy. It still has to find the money to fund its $20bn commitment, that by the way is in no way a cap on its liability (Obama called it “a good start” and “not a cap.”). Credit markets are currently pricing in a 36% chance of default within the next five years(!).

Short-term disaster, long-term hope

The ugly stories and pictures of the Deepwater Horizon spill's impact on the Gulf Coast ecosystem and economy are rolling in. But while the short-term prospects look grim, reason for longer-term hope can be found in an analysis of Mexico's devastating Ixtoc oil spill (an anagram for "toxic," I noticed) of 1979.

Soto, who followed the fish and shrimp population off Mexico closely, found to his surprise that for most species the numbers had returned to normal within two years.

"In 1979, the islands around Veracruz looked like black doughnuts, there was so much oil clustered around them,'' he remembers. "It was 12 to 15 inches thick in some places. But as I came back over the years, it got harder and hard to find. After five to seven years, it was hard to see the outline, and by 2002, an unsuspecting person would have thought it was a rock ledge ... it was covered with algae and shells and just looked like a normal part of the environment."

Even under water, where the sun can't help the oil break down, nature subverts it, says Mexican marine biodiversity analyst Jorge Brenner. "If you visit the coral reefs in the Gulf of Campeche, the tar has been covered with sea grass, algae and sediment,'' he says. "You actually have to dig a little bit to find it, although it's definitely there."

The spill might also be, ironically, good news for environmentalists, although perhaps not across the board, as finite public attention and energy for environmental and sustainability issues is diverted from less acute (but still enormous) challenges like climate change.

Small (deepwater drilling) world

The now-infamous Deepwater Horizon was the same drilling rig that shattered the record for deepest well and discovered the massive Tiber field for BP back in September.

Connection made with the help of this post by John Whitehead of Environmental Economics.

The other oil spill

The Deepwater Horizon spill has continued to worsen - the latest estimates of leak volume have doubled (again), BP's reputation is plummeting (as is its market value), the Obama administration appears largely powerless and increasingly blamed, and U.S. consumers and taxpayers appear to be the major losers in the long term. But as the Guardian pointed out, Nigeria's agony dwarfs the Gulf oil spill - and it has been going on for decades.

One report, compiled by WWF UK, the World Conservation Union and representatives from the Nigerian federal government and the Nigerian Conservation Foundation, calculated in 2006 that up to 1.5m tons of oil – 50 times the pollution unleashed in the Exxon Valdez tanker disaster in Alaska – has been spilled in the delta over the past half century. Last year Amnesty calculated that the equivalent of at least 9m barrels of oil was spilled and accused the oil companies of a human rights outrage.

That is a wide range of estimates - at 7 barrels per ton, Amnesty's estimate for last year is almost equivalent to the other estimate for the past century. But even if we take the former estimate, it would take the Deepwater Horizon well almost a year flowing at the new estimated 30,000 bbl/day rate to equal the amount of oil leaked into the Niger Delta over time - and look at the horrific environmental and economic consequences after only a month.

The problem with Nigeria, of course, is the security challenges atop the technical ones.

Last month Shell admitted to spilling 14,000 tonnes of oil in 2009. The majority, said the company, was lost through two incidents – one in which the company claims that thieves damaged a wellhead at its Odidi field and another where militants bombed the Trans Escravos pipeline.

I don't have any answers - it is such a complicated situation that it is hard to know the best way to intervene, even if the political will could be summoned. But maybe one tiny silver lining of the Gulf disaster is that Americans will now appreciate more vividly the consequences that Nigeria has faced for so long - I know I do.

Chances of history: Deepwater Horizon and Texas City

With the Deepwater Horizon spill worsening further, and "ultimate relief" likely three months away, it's not surprising that people have started to throw bricks at the involved parties with articles like "BP Fought Safety Measures at Deepwater Oil Rigs." This will no doubt continue (Halliburton and Transocean have also already been called for a Congressional pillorying), and wherever the lion's share of the blame is ultimately laid, no one will come out looking good.

I find the parallel to the Texas City refinery blast fascinating. There also, BP was accused of prioritizing cost savings over safety, and the tragic accident ultimately derailed the aspirations of John Manzoni, then head of BP downstream, to succeed John Browne as CEO of BP. Until then the heir apparent. Manzoni fell from grace with the Texas City incident and the lesser-known head of BP's upstream business, Tony Hayward, assumed the spotlight, and ultimately Browne's job.

Imagine the parallel universe in which Deepwater Horizon blew up in 2005, and Texas City not until 2010. Does Manzoni become CEO? Does BP not back away from "Beyond Petroleum" as much as it has during Hayward's tenure? Does this have knock-on effects beyond the super-major and throughout the entire global energy business?

I don't have any answers, but the questions fascinate me, as does the idea that such a complex and enormous beast like global energy markets can turn simply on chance and personality.

On a distantly related tack, Michael Roberts takes this opportunity to look at what might be called the political economy of small-probability catastrophic events.

Louisiana spill quickly worsening

Lots of things look very bad about the Deepwater Horizon explosion and oil spill, starting with the fact that it can now be seen from space:

It is also five times larger than originally thought (and they have discovered a previously undetected third leak), only 16 miles off the Louisiana coast and expected to come ashore on Friday, the military has been called, state of emergency declared, and platform owner BP has already started finger-pointing at operator Transocean.

Meanwhile, Geoff Styles is, while still dignified, about as defensive as I have ever read him. For example, while it may be true that much more oil leaks naturally than from man-made spills, natural leakage simply does not cause the magnitude of environmental impact that I fear we will see shortly on the Louisiana coastline, so its relevance is negligible. His conclusions are more robust, but still optimistic - first, that

However we assess the cost of such spills when they happen, the benefits of offshore drilling are still compelling

... which is probably true, but could turn into political kryptonite depending on how badly this environmental disaster plays out. His second main conclusion is that

It is only right and fair for states like mine that are adjacent to the federal waters in which drilling would occur to share in the royalties this will generate. Politicians in inland states might see those royalties as belonging to the whole country, but their states won't bear any of the risk, no matter how small it might be before the fact.

This is very reasonable, but may not be very relevant for his home state of Virginia, among others, if this very visible accident swings the political tide against "Drill, baby, drill!" for the foreseeable future.

Stylized biofuels fact of the day

From a recent speech by BP Biofuels CEO Philip New (couldn't find a link):

The Brazilian government points out that 99.7% of the country’s
sugarcane plantations are as far from the Amazon as the Vatican is from the Kremlin.

And even better news is that the government plans to keep it that way.

Update: A reader asks, "The Amazon river or the edge of the Amazon rain forest?" It's not specified in the speech (found a link), but I believe he means the forest - the river wouldn't make much sense.

Oil deal "very big part" of Lockerbie bomber release

I'm basically stealing the headline from Green Sheet, which has been all over this story since the beginning.

Justice Secretary Jack Straw said trade, particularly a deal for oil company BP PLC, was "a very big part" of the 2007 negotiations that led to the prisoner deal. The agreement was part of a wider warming of relations between London and Tripoli.

"Libya was a rogue state," Straw was quoted as saying by The Daily Telegraph newspaper. "We wanted to bring it back into the fold and trade is an essential part of it — and subsequently there was the BP deal."

It might have been the pragmatic thing to do, but that won't play very well with the British electorate (and nor will, probably, Gordon Brown's tardy posturing over the issue).

BP makes "giant" discovery in Gulf of Mexico

BP's "giant" oil discovery in the Gulf of Mexico is all over the news this morning.

“It will be bigger than the 3 billion barrels” of oil equivalent discovered at the nearby Kaskida field, said Robert Wine, a London-based spokesman at BP. “This is a whole new geological play we’ve got here.”

In the FT, a few analysts give their interpretations of the size and significance of the find. The FT also has this nifty chart showing the impressive technical strides deepwater drilling has made (the new "Tiber" find is over 10,000 meters deep, a depth considerably greater than Mount Everest's altitude of 8,848 meters).


Update: Tim Haab at Environmental Economics calls it "Economic theory of depletable resources 1, Peak oil predictions 0."

Again: higher oil prices create at least three types of incentives 1) Incentives to invest in alternative fuel technologies, 2) Incentives to conserve, and 3) Incentives to explore for new sources of oil.

Unspoken reasons for Lockerbie bomber release

When Scotland released convicted Lockerbie bomber Abdel Basset al-Megrahi to return to Libya, no one believed for long that it was out of the pure goodness of their hearts (although al-Megrahi has terminal cancer and only three months to live).

Naturally, oil was atop of the list of suspects.

The British government allowed the Lockerbie bomber to be covered by a prisoner transfer agreement with Libya because that was in the "overwhelming interests of the United Kingdom" as a major oil deal was being negotiated, a newspaper reported Sunday.

The Sunday Times, citing leaked correspondence between Justice Secretary Jack Straw and his Scottish counterpart Kenny MacAskill, said the decision was made as "wider negotiations" with the government of Libya continued.

On Sunday, Straw dismissed as "simply untrue" any suggestion that economic considerations had an effect on the decision to release Abdel Baset al-Megrahi.

The story goes that a deal between BP and Libya was on the rocks, and the release of al-Megrahi was a related concession.

The idea that the release was a chess move in the Great Game of energy is both plausible and great political fodder - so much so that Tory leader David Cameron has vigorously jumped on the bandwagon.

But according to FP Passport, the release may have been more legal than a matter of energy geopolitics. Al-Megrahi had an appeal pending which may have succeeded, to much public embarrassment.

Lawyers, politicians, diplomats and relatives of Lockerbie victims now believe that the former Libyan intelligence officer is innocent.Robert Black QC, an emeritus professor of Scottish law at Edinburgh University, was one of the architects of the original trial in Holland.He has closely followed developments since the disaster happened and in2000 devised the non-jury trial system for the al-Megrahi case.

Even before the trial he was so sure the evidence against al-Megrahi would not stand up in court that he is on record as saying that a conviction would be impossible. When I asked how he feels about this remark now,Black replied: "I am still absolutely convinced that I am right. No reasonable tribunal, on the evidence heard at the original trial,should or could have convicted him and it is an absolute disgrace and outrage what the Scottish court did."

So maybe it was just to save legal face, and not everything is related to resources after all.

NIMBY, or anywhere else

Britain and its manufacturing workers are dismayed that energy giants like BP and Vestas are giving up on wind power in the U.K. and moving on to bigger and better places like the U.S. and China. David Mackay shines light on why with two strikingly similar maps. One shows areas within 2k of human habitation, which are of course too close for wind farm development. The other shows areas with high wildlife sensitivity, which are or course also not suitable for wind farm development. As he says, "Wind farm development is to be encouraged in all other areas on the map."

And what about offshore?

For Tony Hayward, CEO of BP PLC, the company’s preference for onshore wind is just a question of logistics. An onshore wind farmer can drive up in his 4×4 to fix his turbine if it conks out; if it’s in the middle of the North Sea he’ll need a big boat and crew. And he’ll struggle to find one suitable. “There’s no supply chain to service offshore wind farms,” he told reporters Tuesday.

He also doubts the technology exists to build a wind turbine that would survive for 20 years in the extreme conditions north of the Shetland Isles, Britain’s remotest point. That coming from a company that operates drilling platforms in some of the world’s deepest waters and stormiest seas is a pretty bleak assessment.

Iraqi oil: someone's gotta give

Iraq's recent oil auction was judged a failure because the government's terms were too harsh - the lone winning bid, by BP and CNPC for the giant Rumaila field, offered $2 per barrel of oil produced, was an order of magnitude below some other bids:

A consortium made up of ConocoPhillips, CNOOC and Sinopec was the only bidder for the 2.4bn barrel Bai Hassan field in the Kirkuk region in the north.

But ConocoPhillips, which bid $26.7 per barrel for output over the minimum, refused to match the ministry's estimated per barrel payment of about $4, said Hussain al-Shahristani, Iraq's oil minister.

Now, even the BP deal appears to be too generous for Iraq's oil workers:

The trade union representing workers of Iraq's state-owned Southern Oil Company (SOC) threatened on Thursday to prevent exploitation of one of Iraq's biggest oil fields by energy giants BP and CNPC.

"If those companies try to exploit the field, our first reaction will be to stage a sit-in and to strike," union president Ali Abbas told AFP.

[The union] fears a wave of layoffs, despite government assurances to the contrary.

"The contracts that the ministry (of oil) wants are service contracts which allow only 10 to 15 percent of employees (on the fields) to be foreigners," oil ministry spokesman Assem Jihad told AFP. "The remainder will be Iraqis."

With those assurances and such a stringent contract already in place, it is hard to see Iraq ever reviving its considerable oil potential unless someone, somewhere can bend.

Bad news for jatropha: BP exits

Days after Exxon announced a move into algal biofuels, the latest darling of the biofuels sector, it appears the sun is setting on the last big craze. Jatropha was billed as a miracle solution to the food vs. fuel tension, growing oily seeds on marginal land that doesn't compete with food, but BP is exiting its jatropha JV with D1, which was a milestone for oil major involvement in the biofuels sector when announced in 2007.

BP Plc, Europe's second-largest oil company, will exit its jatropha biofuel project with D1 Oils Plc to focus on production of ethanol in Brazil and the U.S. and advance biobutanol development.

“To ensure the success of these investments, BP is concentrating new business development in these areas and will no longer be directly involved in the jatropha as a biofuel feedstock,” Sheila Williams, a London-based company spokeswoman, said today in an e-mail.

This could be construed as part of BP's broader pullback from renewables under Tony Hayward. That said, with BP's continuing with ethanol and biobutanol, it's hard to construct a story where this is other than a bad sign for jatropha in general. With such a small capital investment at stake, it makes no sense for BP to exit if there is any appreciable upside.

Update, pat on the back: I beat Environmental Capital, one of my top blogs, to this by a few hours. Which is, of course, irrelevant. Plus their post is much better. It adds at least three interesting facts:

1) "D1 Oils will buy out BP’s half of the venture for 500,000 pounds—less than the price of a nice apartment in London—even though the joint venture is apparently worth more than 7 million pounds."

2) "BP and D1 Oils planted more than 200,000 hectares of the stuff—25% of the worldwide jatropha planting."

3) Jatropha is a water hog, using 5x as much water per unit of energy as sugarcane and corn. So much for not competing with food for scarce resources...

Iraq plays too hard on oil auctions

After an embarassing license round in which BP was the only major to buy in and 7 of 8 oil and gas fields remained idle, it's becoming clear that Iraq will need to be more accommodating with its terms to entice Western oil majors to play:

Iraq's hopes for an oil-revenue fueled postwar recovery suffered a sharp blow Tuesday as the foreign oil companies it counted on to help develop its vast reserves greeted the country's first oil auction in over 30 years with grumbles and just one deal.

...

Under the 20-year service contracts on offer, the companies would be paid a per barrel fee for any crude they produce in excess of a minimum production target. But the price requested by all the companies was at least twice as high — and in a couple of cases almost 10 times higher - than what the oil ministry was willing to pay.

Two oil executives from different companies at the auction complained that Iraq was offering too little money given the prevailing security risks and political uncertainty. They also complained that they were not given enough time to revise their bids — sometimes as little as 15 to 30 minutes. Both spoke on condition of anonymity because of the sensitivity of the issue.

New BP chairman from... Ericsson?

In surprise selection, BP picks Ericsson CEO Carl-Henric Svanberg to be its new chairman. BP had a hard time filling the post and I don't think many people saw this coming (Svanberg has lots of emerging markets and govenrment interaction experience, but none in the oil industry), but it is not the first time a European supermajor has looked to telecom for new direction. It will be interesting to see what Svanberg can bring to the table that outweighs his lack of experience in the resources sector.