30 May 2010

Some Things, Once Broken, Can't Be Fixed

After 40 days and 40 nights the ruptured wellhead in the Gulf of Mexico continues to gush oil and gas. Plans A, B, and C have failed. Plans E, F, and G are next. The world is realizing that some things may be beyond the reach of current technology to fix, especially things that haven't happened before at this scale or in this environment.

Presumably much will be learned from the attempts to deal with this event that will be of use in (inevitable) future disasters of a similar nature. We seem to be willing to boldly go where none has gone before long before we learn how to boldly fix the messes we are capable of making when we get there.

Who knew it could be this bad? Well, both BP and various U.S. regulatory agencies should have known. If they didn't know, what business did they have permitting or undertaking such activities? Or is U.S. policy to roll the dice and hope problems don't become apparent until the opposition party is in a position to take the blame? Or, even more cynically, is our policy to accept a certain loss of life, treasure and environmental quality as part of the price for a well-oiled society.

The Deepwater Horizon event has probably resulted in the release of one or two million barrels of petroleum into the sea. Thus it is fast gaining on the leading releases of modern times (see list here).

When financial firms were incompetent and took on too much risk some of them went out of business or became wards of the state. Could the same happen to an oil company? BP is exposed to tens of billions of dollars of costs, fines, judgments and liability from this accident. Its market capitalization is already down to $134 billion. Another industrial accident put paid to Union Carbide Corporation (Bhopal disaster).

It is certainly evident that this disaster will drive up the cost of oil exploration and development. There will be greater regulatory burdens, higher insurance costs, and more costly (and one hopes more effective) procedures and other requirements. Deepwater drilling is accepted because it is supposed to keep oil prices down by increasing supply (or at least by preventing supply from declining as fast as it otherwise might). But drilling this particular well in this particular way will result in higher oil prices. Enjoy your oil.

[crossposted from the HaraBara blog]

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