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Sunday, June 20, 2010

A presumptuous command of oil


Special to The Japan Times

HONG KONG — Bosses of Big Oil have solemnly assured a U.S. congressional inquiry that they would never, ever, be as reckless or negligent as BP in causing the disastrous oil spill in the Gulf of Mexico.

In chorus they have claimed they all follow ultra-careful drilling procedures and have cleanup plans in the unthinkable event of an accident. Congressman Ed Markey pointed that they were the selfsame plans that BP had, even down to the promises to look after the walruses — creatures that have not lived in the Gulf of Mexico for 3 million years.

President Barack Obama has boldly kicked BP's ass and extracted an apology and an initial $20 billion for an escrow account to pay for the damage, including looking after people whose lives and livelihoods have been ruined by the spilling oil. He's made it plain that this is only a down payment and that BP will cough up every last cent until the spill is stopped and the beaches and wetlands restored to pristine health.

Too bad that Obama is being driven to a large extent by the political fear that the American electorate will whup his own ass in the November midterm elections if he can't show he has the situation under control. Despite the stream of commands and demands for action from the Obama administration, the best technology for deepwater oil belongs to the oil companies — not the government — and that technology is not good enough.

Grim Obama addressed the nation from the Oval Office, usually used by his predecessors for issues of war and peace. The situation in the Gulf of Mexico is grave even on the limited information that BP and the U.S. government have released. Latest reports say nearly 60,000 barrels a day of oil is spilling from the well, not the 40,000 of a few days ago or the 15,000 to 20,000 weeks ago or the 5,000 original estimate.

It is exactly two months since the Deepwater Horizon rig explosion that killed 11 workers and sent the oil gushing toward the U.S. coast. All attempts to cap the flow have failed. Unofficial reports claim that the explosion may have caused grave damage to the structures several hundred meters beneath the seafloor. The blogosphere, including The Oil Drum, a sounding board for geologists and other oil professionals, is filling with dire forecasts.

One expert compared the blown pipeline to an old garden hose that has sprung several leaks: If you cap the nozzle, the water will force its way through the myriad small holes; or, instead of closing the nozzle, it may be better to open it and capture the flow as it gushes out. The blown well was not even supposed to begin producing oil until 2015.

Some fringe scientists, their voices getting stronger with every failure to stem the flow, claim that the only solution is to use a nuclear weapon to stop the oil.

The strained relationship between BP and Obama should be worrying. Weeks on, the essential need is for a combined command center deploying the best resources of technology — still in the hands of BP — and disaster management. But instead of united and unified Mission Control fighting to contain the oil, it is more like a country club split by squabbling between jealous members.

Yes, Obama has shown that he is BP's boss, but at the price of driving the company to bankruptcy, takeover or beyond. About $75 billion value has been wiped off BP's shares — almost half their value. Its credit rating has been reduced six notches to BBB, two levels above junk, and payouts to pension funds and other shareholders will dry up for at least two years. Has Obama considered the question of whether he would prefer BP to be Western-owned and headquartered Britain or taken over the Chinese?

BP's chief financial officer claimed that the phased payments to the $20 billion account, with reduced investments in drilling and the sale of some oil fields, would ensure the company's financial stability — if $20 billion is the final cost. Credit Suisse has already estimated that the bill will come to $40 billion.

Even cash-rich BP, which benefits by billions with every rise in the price of oil, may not be able to withstand the relentless and remorseless attacks on the integrity and competence of its top management. Its hapless chief executive, Tony Hayward (who tetchily said several weeks ago that he wanted the spill to be fixed so that he could get his own life back), appeared before a U.S. congressional committee and stonewalled every question about whether cost cutting and skimping on safety were primary contributors to the explosion.

Hayward's constant claims that he had not been involved in decisions, or that BP was still investigating, won him no friends among members of Congress who have already decided that incompetent and cheapskate management prepared the way for America's biggest environmental disaster.

Among the questions to be asked are whether excessive cost-cutting by the oil company and laziness by government officials in enforcing the rules, or the continuing greedy thirst for oil, led BP into cutting-edge deepwater drilling without plans or expertise to cope with a potential leak or explosion.

Further beyond are issues of shareholder control of the management of companies, and the role of the media in creating heroes out of mere mortal business executives. Lord John Browne, largely responsible for creating modern BP until he was forced to step down because of revelations about his private life, was almost sanctified as the model modern corporate executive who internationalized and took BP deep into U.S. waters while cutting costs to the bone.

As for Obama, yes, he has shown the power of the U.S. president to command an oil company. But, like King Canute, he has not been able to show his power over the waves or spilling oil or indeed the greedy thirst of his people for oil. With 5 percent of the world's population, the U.S. consumes 25 percent of the oil. In energy use per capita, the U.S. is twice as greedy as Japan or rich European countries and consumes six times as much as China, though China is climbing rapidly.

One of the sad statements from Louisiana, one of the worst affected areas, was that Americans want MORE drilling because it provides jobs and income and oil.

When King Canute challenged the waves, he risked getting only his feet wet, and he was being ironic. Obama has yet to learn that presidents, however smart, do not have absolute power. Humble admission of his limits and better attempts to persuade and cooperate might have served him better.

Kevin Rafferty is editor in chief of PlainWords Media, a consortium of journalists interested in economic development issues.


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