Thursday, June 24, 2010

BP Oil Spill: A Fuller Picture

BP's sub-contracted Deepwater Horizon oil rig — a 30-story, fifth-generation, ultra-deepwater, dynamically-positioned, column-stabilized, floating, semi-submersible Drilling Unit — exploded on April 20th and sank two days later, unleashing a gushing discharge of oil into the Gulf of Mexico that promises to upset the ecological stability of a vast region for years.

This devastating oil spill is a great industrial disaster with widespread negative effects for both the environment and those who live, work and play in the impacted areas. And we mourn the loss of those who died in the explosion.

This crisis is far from over, but we can take steps now to examine the accident and our responses to it. If we are to have any assurance that a catastrophe of this kind and degree is not repeated, we need to have a clear-eyed and unflinching view of all of the contributing factors involved.


Oil companies like BP are protected by a $75M cap on damages put in place by an act of Congress in the Oil Pollution Act of 1990. After the Exxon-Valdez disaster (1989) had been cleaned up and nearly paid for by Exxon, oil companies lobbied Congress for liability limits that would establish a maximum amount they would have to pay in the event of a disaster. A Republican Congress and President Bill Clinton together enacted law requiring that oil companies be limited to paying $75M for cleanups, leaving the taxpayer with any remaining costs. In return for this legislative favor, the government could now tell the oil companies where they could or could not drill.

BP entered into an agreement with the state of Louisiana to drill in 500 foot waters off their coast. But the federal government superseded that agreement and told BP that it could only drill farther out in much greater depths; where no well had ever been broken and under conditions the government had never before monitored. And for this dangerous adventure, BP would only need allocate $75M toward any possible mishap. In the case of an oil company worth hundreds of billions of dollars, a $75M cap, well below the $14 billion estimated for the cleanup, amounts to a corporate bailout. BP, by the way, presently earns roughly $6 billion per quarter.

The liability cap is, at bottom, an instance of private enterprise -- Big Oil -- successfully lobbying the power of government to gain undeserved market advantages. This government-granted advantage becomes an incentive to hazard short cuts, hide secret problems and cozy up to willing regulators for further advantage. It is a perverse incentive based on the secure knowledge that no matter what the extent of an incident, BP would easily survive to mark down the relatively minor financial loss as a ledger entry under “The Cost of Doing Business.”

Without such a forgiving cap, BP would be forced into the position of having to rigorously assess the risks of drilling in dangerous, relatively inaccessible 5,000 foot deep waters and possibly suffer the actual cost of a potentially uncontrollable and financially devastating spill.

The ruptured well at the bottom of the sea is so deep underwater that no one can physically get to it because of the intense pressure and freezing cold. This inaccessibility is a factor in the several failed attempts to stop the spill using robotic submersibles. Had BP been allowed to drill on land or in more shallow waters currently off-limits, a similar accident would have been manageable and remedied in short order. Environmentalists should ask that bans on drilling in lower risk areas like ANWR and the shallow-water continental shelf be rescinded. Today, we are drilling in high risk areas because cheaper, less risky sources of oil have been deemed off limits.


The federal government regulates off-shore drilling. The entity charged with setting safety guidelines, conducting safety inspections and enforcing safety regulations is the Minerals Management Service (MMS), an Executive Branch agency under the Department of the Interior.

This agency is notorious for its corruption and incompetence and begging for a shakeup. MMS had never required any of the critical backup systems -- the deadman, the autoshear, the underwater robots -- to be tested and many of the cost-cutting measures adopted by BP, and condemned by its critics, were approved by the agency charged with oversight.

A regulatory rule was ignored requiring oil companies to submit proof-positive that any blind shear rams in use would actually shear pipe and seal a well 5,000 feet down. MMS went on then to approved BP’s Macondo Prospect permit without requiring this proof. MMS has in fact approved hundreds of permits without requiring this proof and BP claims that no such proof was ever requested of them. MMS commissioned a study by the Scandinavian SINTEF Group that documented over 100 failures of blow out preventers. The group formally recommended a redundant system saying, "All subsea B.O.P. stacks used for deepwater drilling should be equipped with two blind shear rams." MMS did not incorporate this recommendation into their regulatory regime.

Rounding out the scandal, MMS staff were perpetually being found in compromising positions. Tim Dickinson reports in Rolling Stone magazine:

“When agency staffers weren't joining industry employees for coke parties or trips to corporate ski chalets, they were having sex with oil-company officials. But it was American taxpayers and the environment that were getting screwed. MMS managers were awarded cash bonuses for pushing through risky offshore leases, auditors were ordered not to investigate shady deals, and safety staffers routinely accepted gifts from the industry, allegedly even allowing oil companies to fill in their own inspection reports in pencil before tracing over them in pen.”

Far from being out of the loop, BP told MMS on Feb. 13th that it was trying to seal cracks in the well about 40 miles off the Louisiana coast. MMS was also well aware of risk factors connected to the failed blowout preventer. An investigation by The New York Times revealed that:

"MMS repeatedly declined to act on advice from its own experts on how it could minimize the risk of a blind shear ram failure in the blowout preventer. It also shows that the Obama administration failed to grapple with either the well-known weaknesses of blowout preventers or the sufficiency of the nation’s drilling regulations even as it made plans this spring to expand offshore oil exploration."

The government has also failed us in a number of ways since the spill. What the Executive Branch should have done early on, but did not, was review the plans for coping with the disaster and intervene decisively to move crusty bureaucracy in flexible and responsive directions. Instead, we have seen classic bureaucratic stalling, obstruction and confusion.

In one case, the implementation of plans to dredge and build sand berms along the coastline in effected states has been held up the U.S. Army Corps of Engineers, the agency that must approve these plans, because the barriers may impede natural water flows.

In another case, the Obama administration declined a Dutch offer to aid in the clean up partly because of the pro-union, protectionist Jones Act, which restricts foreign-built and foreign-staffed sea craft from operating in U.S. waters. The Bush Administration waived the Jones Act to help with relief efforts in the wake of Hurricane Katrina and Hurricane Rita. The Obama Administration should do the same and, to date, has not. The Dutch offered to fly their skimmer arm systems to the Gulf three days after the oil spill started. The offer was apparently turned down because EPA regulations do not allow water with oil to be pumped back into the ocean. But if all the oily water was retained in the tanker, the capacity of the system would be greatly reduced because most of what is pumped into the tanker is sea water.

It is also perplexing that only 20 America's 2,000 skimming barges are being deployed in the Gulf on the off chance that the other barges might be needed for oil spills elsewhere. These few vessels performing cleanup operations off Louisiana were halted for 24 hours while the U.S. Coast Guard fulfilled its regulatory function of inspecting them for fire extinguishers, life vests, etc.

Alabama Governor Riley complained that there is no single person in charge. Both Gold Coast governors have developed plans with the Coast Guard's command center, but those plans were frustrated when agencies like the Environmental Protection Agency and the U.S. Fish and Wildlife Service asserted themselves. Says Riley, "It's like this huge committee down there and [for] every decision that we try to implement, any one person on that committee has absolute veto power." For example, the EPA has repeatedly changed its mind regarding the chemical dispersants that Louisiana is allowed to use.


Some of the cleanup methods being employed are actually very harmful to people, the environment and marine life. More so than oil. Oil naturally breaks down in sea water over time through weathering, feasting micro-organisms, and solar decomposition. Oil is a common, natural presence in the environment, including in the Gulf of Mexico. A 2009 article in Environmental Science and Technology reported that the naturally occurring Coal Oil Point seep field off the coast of Santa Barbara has leaked up to 200 barrels of oil into the ocean every day for perhaps thousands of years. Yet marine organisms still prosper there.

In response to the Gulf spill, toxic dispersants like Corexit (banned in Europe) are being used. Dispersants don't clean, they disperse. They prevent oil from rising to the surface of the water which limits its exposure to nature's cleansing agent: the Sun. Keeping oil below the surface with dispersants hampers the natural process of decomposition. The warmer the water and the greater the solar exposure, the faster oil breaks down. One gallon of a Corexit and oil mixture is capable of rendering 383,141 gallons of water highly toxic to fish. And BP has ordered another 805,000 gallons of these type dispersants to dump into the Gulf.

There is, though, one proven technique that has been used to quickly stop deep water oil leaks: a controlled nuclear detonation. This technique has quickly and permanently stopped oil leaks in 4 out of 5 attempts by Russia in the 1960’s and 1970’s. The US government can authorize such an option.


The Executive Branch has proposed a controversial six-month moratorium on offshore drilling against the advice of experts. The result would be that, after an international bidding war, the best and safest rigs would be redeployed elsewhere in the world to satisfy world demand and leave the U.S. with the oldest, least desirable and least safe rigs. This would simply increase the probability of another major disaster. An arbitrary six-month moratorium on new deep-water drilling would further damage the already faltering economies of the Gulf states and could result in the loss of 20,000 oil industry jobs. The drilling industry estimates the moratorium would cost rig workers as much as $330 million per month in wages. And this does not take into account businesses serving those rigs, like machine-shop workers.

Making matters worse, the White House is engaged in a cynical, politically-motivated public relations campaign that would dishonestly lay all of the blame on private enterprise to obscure its own culpability. This indignant kabuki dance has helped to fuel a general anti-business hostility in the nation that is inciting consumers and activists to target small business-people who own BP gas station franchises for boycotts and vandalism. Attacking and boycotting these small businesses has no impact on BP. The majority of BP stations are privately-owned. Instead, these actions only hurt local business and the low-skilled employees they hire. And much of the gasoline sold at BP gas stations comes from other sources. No practical good can come of grandstanding and demonizing BP. No amount of bullying, boasting, threatening, or emoting will solve a complex technical problem.

Leveraging the hostility it has fueled, the government now demands that it should take over the claims payment process by appropriating financial assets for disbursement to injured parties on its own terms. First of all, the government does not have a good track record of efficiency in handing out aid to disaster victims -- or, in some cases, non-victims. And having the government disburse claims money gives the illusion that the government is solving the problem when it has only seized assets to distribute according to political calculation.

The compensation process is the proper function, first, of the private sector and, second, the judicial system. Instead, the White House is expropriating vast sums of money from a private enterprise to distribute to whomever it deems worthy of compensation. That is precisely what is happening with the $20 billion shakedown of BP to compensate people allegedly harmed by the spill. This should guarantee a steady stream of claimants and rooms full of indifferent bureaucrats and attorneys. The takeover of the claims process also fosters the illusion that politicians are doing something, diverting attention from their own culpability.

Further exacerbating the problem has been the two-month-long partisan media blackout of the government's obstructions and incompetence before and after the spill. Faking reality does not change it. And the media have once again failed to perform its watchdog function.


The proper role of government in a free society is limited; that is, limited to the protection of individual rights within a framework of objective law. The government should and must protect individuals from violence, fraud and willful negligence.

The federal government owns the property where BP and other oil companies drill for oil in the Gulf of Mexico and has an obligation to ensure its proper and safe use. This should include ensuring that no action take place on that property that would egregiously pollute the common environment or endanger the lives and livelihoods of the people there. A property owner has both rights and responsibilities in this respect and must take pains to avoid causing harm.

All property owners should regulate; that is, control or direct by rule, principle or method the uses to which their property is put. You may apply a rule in your own home that admits no handguns and all guests must comply. The federal government may likewise set rules regarding what types of activity take place on its property and parties to lease agreements must comply. In the case of the homeowner, a simple acknowledgment may suffice. In the case of complex and dangerous deep-sea oil exploration, rigorous standards, inspections and enforcement actions are necessary. In both cases, transparency on the part of the guest is required.

Any breach of established rules should be met with impartial enforcement for the benefit of the innocent. As it is, the Interior Department, through MMS, holds the keys to access to offshore drilling. It is through government dereliction, corruption and graft that BP receives unfair advantages in the marketplace.


What needs to be addressed is a legal and policy framework that encourages and rewards misconduct on the part of Big Oil.

Total liability: Government-imposed liability caps should be removed to expose oil companies to the actual cost of damages in the event of an incident. In this way, self-interest begets compliance. Oil companies that would like to make money instead of lose it will take extreme measures to avoid the consequences of bankruptcy. It is the artificial removal of risk through government intervention that introduces hazard into the equation by falsifying reality. Capping liabilities does not eliminate real damage. It simply transfers the real costs from the guilty to the innocent.

Insurance: Rather than relying on corrupt and incompetent government bureaucrats to police risk, oil companies should submit to the oversight of insurance companies who stand to lose a great deal in cases of negligence or other bad behavior. An insurer would certainly require the oil company to put up a substantial performance bond as a safeguard against a breach of contract. And if the oil company is held fully liable for damages, they would be foolish not to take out policies that match their exposure.

Prosecution: The government must fulfill its proper role of protecting rights and conduct a thorough and objective investigation into the accident to determine if and where any criminal negligence might have occurred.

Adjudication: The courts should vigorously fulfill its role of redressing grievance by quickly and appropriately processing injury claims based on merit. Litigation is the purview of government. If litigation in this case becomes dragged out to the detriment of the actually injured, then this would be yet another example of the failure of government, not the private sector.

Non-intervention: Government needs to get out of the habit of handing out favors based on political calculation and personal aggrandizement. It is government intervention in the economy that creates lobbyists, corporatism and special interest groups who act rationally in their own interest in an un-free market. Corporations and special interest groups can only buy government favors when government is for sale.


We ought to acknowledge that oil has brought us a many life-enhancing, wealth-producing, comfort-creating advancements over the past hundred years or so and it remains an essential element in our lives. Not only does oil fuel the automobiles, freighters, jets, trucks, and industrial machinery that power our global economy, its derivatives are found in hospital products that ensure our health: durable, flexible plastic (oil) tubes that safely delivered food, coming from a sealed plastic (oil) bag that securely stores it; oil tubes designed to vacuum excess fluids; disposable foam (oil) cradles to prop up the patient’s arms or legs if necessary–made of oil so as to be disposable; disposable, sterile gloves are either latex or synthetic–that is, made of oil; disposable surgical masks and head-coverings; sanitary plastic (oil) trash-bags for medical waste. Infection in the hospital operating rooms used to be a highly-common and deadly product of surgery due to a lack of petroleum products.

There is also mounting evidence that oil is abiotic in origin; that is, not derived from fossils. Meaning that oil may well be a renewable resource generated from deep withing the Earth's crust that can serve mankind's needs indefinitely without reaching any mythical or hoped-for peak. There is no viable alternative to oil on the horizon and we should continue to find ways to safely and cheaply extract it for our use.

And there is no use in disparaging our use of a valuable resource by characterizing it as an “addiction.” We are no more “addicted” to oil than we were “addicted” to wood two hundred years ago for warmth or sailing ships. We "use" oil and its derivatives for many good things that make life agreeable and would be hard-pressed to do without it.

I hope the spill is stopped and the Gulf waters cleaned up as soon as possible. But I also hope that the oil already spilled can be salvaged for consumption to our benefit. If we are to continue are present lifestyles of prosperity, convenience and health, we will need to pursue the values of civilization and that includes continuing to explore for oil. Let's make sure we do it properly and avoid the many mistakes that went into causing our current crisis in the Gulf.

While BP is ultimately responsible for the spill – and for cleaning it up – the federal government is implicated in many significant ways as well. A lot of people have been calling for BP to be held to account, and they should be. But a fuller accounting will be one that includes all of the perpetrators and their degree of culpability. In that case, for all of its failures, the federal government must be placed in the docket as well.



Red tape keeps prized oil-fighting skimmers from Gulf, coastline
Chris Kirkham | The Times-Picayune | June 28, 2010
Just weeks after the oil spill crisis began to unfold in the Gulf of Mexico, the French foreign minister volunteered a fleet of oil skimming boats from a French company, Ecoceane. A month later, in early June, Ecoceane Chief Executive Eric Vial met with BP and Coast Guard officials to present the idea.

Morning Bell: Obama’s Oil Spill To-Do List
Rory Cooper | The Foundry | June 30th, 2010
The oil spill crisis in the Gulf of Mexico gets worse by the day. Oil spews from the broken well, further polluting our water and shores. The clean-up efforts drag on with bureaucratic interference, making matters worse. And what is the Obama administration doing?

Why Is the Gulf Cleanup So Slow?
by Paul Rubin | Wall Street Journal | July 2, 2010
As the oil spill continues and the cleanup lags, we must begin to ask difficult and uncomfortable questions. There does not seem to be much that anyone can do to stop the spill except dig a relief well, not due until August. But the cleanup is a different story. The press and Internet are full of straightforward suggestions for easy ways of improving the cleanup, but the federal government is resisting these remedies.

Obama decried, then used, some Bush drilling policies
By Neil King Jr, Keith Johnson | Wall Street Journal | July 6, 2010
Less than four months after President Barack Obama took office, his new administration received a forceful warning about the dangers of offshore oil drilling.