Styles 2010 energy round-up

Geoff Styles, as preeminent an energy blogger as there is, has a little round-up of 2010 in energy, which is worth reading in full (including links), so I won't paraphrase it exhaustively here. He comments that the two truly unforeseen and shaping events of the year were Deepwater Horizon and "the less spectacular but no less profound awakening to the possibilities of the shale gas revolution." His comment on shale gas is particularly insightful:

That might help explain why the developers of renewable electricity sources such as wind have struggled so much this year, despite receiving $3.9 billion in direct cash grants from the US Treasury. They're not competing with $90 oil; the US generated less than 1% of its electricity from petroleum this year, through September. Instead, they're competing with gas at an effective price of $25/bbl or less.

Here's the killer graph:
Shale gas really is a game-changer, but its continued rapid growth is not a foregone conclusion. The two massive unknowns that I will be watching closely in 2011 are the environmental impact (already much debated and increasingly feared), and how it evolves outside of North America - in previously gas-vulnerable Europe, and even more so in China, where the reserves are likely enormous and the government has the power to develop them rapidly, if desired.

With that, Merry Christmas to you and your loved ones, and I will get back to mine.

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.

Regulation vs. torts

Responding to libertarian commenters, Paul Krugman argues that torts are not nearly as effective as environmental regulations in practice.

Commenters say, but isn’t that an equally strong reason to believe that regulation won’t work either?

Well, here’s the thing: regulation demonstrably does work where tort law doesn’t. Consider the environmental issue: in reality, the perpetrators of oil spills never pay most of the cost; but in reality, environmental regulation has led to much cleaner air and water. (Look up the history of Los Angeles smog or the fate of Lake Erie if you don’t believe me.)

Tyler Cowen dissects Krugman's argument in his typical incisive and dispassionate style, scoring points (except I don't think he's keeping score) like:

There is in fact an agency regulating off-shore drilling and in the case under question it totally failed. How can Lake Erie, an orthogonally related success, be cited but this very directly relevant failure not be mentioned?

As usual, Cowen comes across as eminently sensible and I find it hard to disagree with much that he says. Am I just too rushed, and/or not trying hard enough?

Dead zones vs. oil spills

While ethanol producers have been quick to spin the Deepwater Horizon tragedy toward their own advantage, NRDC's Nathanael Greene has a quick rebuttal:

The nitrogen runoff from corn grown all along the Mississippi causes a huge dead zone in the Gulf every summer. As this map shows, the dead zone at least as large as the oil spill and it takes a huge toll on the marine life and region's economy every summer. With about a third of the corn crop going to make corn ethanol, it should be clear that more corn ethanol is not a real solution.

He's referring to this image from the NYT, which makes a side-by-side visual comparison easy; in fact, the hypoxic zone looks considerably larger than the oil spill to date.

A hypoxic zone is in some ways not as destructive as an oil spill - it will not cripple fragile marshland ecosystems, for example - but the impact on marine life alone is no doubt harmful for the coastal fishing industry that could be (and once was?).

It is not news that corn ethanol is hardly an environmental angel, but it is worth keeping in the public conscience as the Deepwater Horizon leak continues unabated and the inevitable public backlash builds in strength.

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.

Energy back-of-the-envelope of the day

Geoff Styles calculates that the newly-approved Cape Wind will generate only slightly more energy than is leaking from the single well drilled by Deepwater Horizon:

Cape Wind and the Macondo prospect that the Deepwater Horizon rig was drilling into represent opposite poles of the energy spectrum, and not just because the latter is now leaking oil into the marine environment at a rate that the latest estimate puts at 5,000 barrels per day, much higher than initially thought. Cape Wind would tap into the clean and renewable, but extremely diffuse energy sources that surround us. After taking into account the restrictions imposed by DOI, its 130 turbines would on average generate as much electricity as a gas turbine power plant consuming a quantity of natural gas equivalent to 6,000 bbls/day of oil. In other words, it takes a very large array of offshore wind turbines to match the energy in the oil currently leaking from a single well. Platforms similar to what BP might have been planning to install after successfully completing the exploration of Macondo routinely produce up to 20 times that much oil.

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.