Posted by: bmeverett | May 6, 2010

The Gulf Spill

You can’t have an energy blog without discussing the huge oil spill from the Deepwater Horizon platform in the Gulf of Mexico. Here goes.

First of all, let’s acknowledge that this was a terrible incident. Eleven people are presumed dead, and the spill is creating a huge mess which will, in the absence of some miracle, foul some shoreline, kill a lot of animals and birds and disrupt many lives and livelihoods. Something went badly wrong, and the cost will be high.

It will be a while before we understand what happened. Catastrophic accidents generally require multiple failures. We know in this case that a severe fire occurred on the platform. We also know that a device in the well known as a “blowout preventer” failed. These devices shut off the flow of oil by sealing the well. They can be triggered manually by the operators or automatically when the well pressure exceeds a specified level. We don’t yet know why this critical failure occurred.

We are already seeing the usual frenzied overreaction from the press which, instead of reporting factually, prefers to use terms like “catastrophic” ”devastating” and “Armageddon” and likes to indulge in wild speculation about how bad the spill could ultimately be. The 24-hour news cycle is a very mixed blessing.

Lawyers are descending on the region, licking their chops over multi-billion dollar litigation aimed at BP, Transocean, Halliburton and anyone else who can be tagged with any responsibility. People with legitimate claims for compensation will be lost in the throng of those who see an opportunity for a quick buck. If BP is smart, they will set a very low threshold for claims and pay out lots of money to anyone who has even a remotely credible claim.

Democratic politicians are wailing about the environment, the need to suspend offshore drilling and the horrors of corporate abuse. Republican politicians are either hiding or trying to blame President Obama, since they see a nice chance to get revenge for the irresponsible behavior of Democrats over Hurricane Katrina.

A thoughtful response to this issue would focus on four.

First, the US economy is heavily dependent on oil, which powers 95% of our transportation system. The US uses roughly 300 billion gallons of oil products every year worth roughly $1 trillion. Someday, there may be economically viable alternatives to oil in transportation, but there are none today. ExxonMobil paid out between $5 and $10 billion in compensation and clean-up costs for the Exxon Valdez spill in 1989 – a big chunk of change, but small in comparison to the size of the industry. Despite the best efforts of industry and governments, catastrophic spills like these tend to happen every 20 years or so. Even if we were to have a $10 billion spill every year, the cost would amount to 3¢ per gallon of oil consumed. The costs of an oil spill can be very high to the people affected. Our response, however, should not do more harm than good.

Second, the industry’s oil spill performance has been improving. During the 1970s, there were five major oil spills around the world totaling 384 million gallons. During the 1980s, there were another five spills totaling 231 million gallons, including 11 million gallons from the Exxon Valdez. The 1990s were a bad time, but only because Saddam Hussein spilled 240+ million gallons onto Arabian Gulf beaches during the Second Gulf War. Apart from that massive act of vandalism, there were 7 major spills totaling 173 million gallons. Between 2000 and 2009, there were 11 major spills, but the total amount of oil was only 43 million gallons. The current spill in the Gulf of Mexico is leaking roughly 0.2 million gallons per day. Overall, the global oil industry has produced roughly 34 trillion gallons of oil since 1970 while major spills have accounted for about 1 billion gallons – approximately 1 gallon spilled for every 34,000 gallons delivered successfully to the consumer. Over the last decade, the rate of major oil spills has been about 1 gallon per 300,000 gallons delivered successfully.

Third, of the 31 major oil spills that have occurred over the last 40 years, 23 have resulted from shipping accidents, which accounted for two-thirds of the oil spilled. Offshore platforms and other fixed facilities accounted for one-third of the oil spilled. If we cut back offshore operations in the US, that oil will be replaced by imported oil moved into the Gulf Coast by tanker – a much more fragile supply system. The world’s oil tanker fleet includes ships of all different sizes, but the total is roughly the equivalent of 1,000 VLCC supertankers. Tankers are more vulnerable simply because they move around and can run into things, including rocks, piers and each other. It makes no sense to shift our oil supply from less vulnerable to more vulnerable systems.

Finally, demands that “this must never happen again” are silly. The global oil supply system is very efficient and safe, but it is a human system, and it will occasionally fail. This doesn’t mean the oil industry should shrug its shoulders and say “stuff happens”. Every effort should be made to prevent these incidents. Nonetheless, they will occur. People first started to think about this problem in the early 19th century, when railroads began operation in England. Early locomotives burned wood, and their smokestacks showered the surrounding countryside with sparks, occasionally igniting crops and houses and other structures. The proper answer was to (a) try to reduce the incidence of fires and (b) compensate people for damage that was not their fault. The English were smart enough to avoid (c) banning trains.

We have two models we can apply to our response to this oil spill. The first is the Three Mile Island model. In March, 1979, Unit #2 of the Three Mile Island nuclear power plant near Harrisburg, Pennsylvania experienced a frightening failure that threatened to release radiation into the surrounding community. The situation was brought under control without any serious radiation leaks, but this incident catalyzed a political overreaction that led to the virtual shut-down of the US civilian nuclear program. Although there are some signs that a few new nuclear plants might be built over the next 10-15 years, a more reasonable reaction to safety concerns in 1979 would probably have allowed us to build another 100 nuclear power plants in addition to the 100 or so already in operation, replacing 100 of the coal plants we built instead. Our air would be cleaner, and we would be emitting less carbon dioxide to the tune of about 75 million metric tons per year.

The second model is the way we manage the airline industry. Despite extensive efforts in aircraft design, air traffic control and aircraft operations, we have a catastrophic air crash every once in a while. These accidents are frightening, but we all realize that we need air travel and that it’s very safe. As a result, we allow experts at the National Transportation Safety Board (NTSB) to investigate every accident in a serious and professional way. The NTSB works with the airlines and aircraft manufacturers to determine precisely what happened in that particular instance and how that failure can be prevented in the future. One the investigation is complete, the NTSB can order changes in design, manufacture, operation or air traffic control procedures, and everyone involves cooperates.

This process has been very successful, and air travel just gets safer and safer. If the investigators suspect an aircraft design flaw caused the crash, they will sometimes order that particular aircraft model grounded pending the outcome of the investigation. They have never grounded the entire fleet or called for a ban on future aircraft production.

The airline model is much better. In today’s combative political environment, however, our elected officials are quick to jump to the Three Mile Island model. Most seem to be worrying mainly about how best to use the oil spill to jockey for political position. We used to have at least some grown-ups in Congress. I really miss them.


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