Best possible hope in Gulf oil disaster overlies peak oil reality

BP is today attempting to operate a new tight-fitting oil containment cap on its gushing Gulf of Mexico well – definitely answering all speculation about damage to its Macondo wellbore.

The oil giant has stated it will run up to 48 hours of pressure tests, which apparently began yesterday [Monday, June 12]. The best possible hope is that the new oil containment cap shuts off all emerging oil, and the well structure can handle the high pressures – and then, the whole thing be promptly cemented shut via the relief wells, the first of which has a further 30 feet (9 metres) to go. BP would like to have the disaster under control by July 27, when it is due to report second-quarter earnings and address investors.

Of course, the Gulf of Mexico clean-up operation would still require many years of work, and BP must continue to fight for its future. It must sell assets – $10 billion in "noncore, upstream assets" over the next 12 months, according to BP spokesman Mark Salt in Houston – and borrow heavily if it is to survive. Chief Executive Tony Hayward has toured the world in recent weeks in what Reuters dubbed “a quest for cash to ward off takeovers and help pay for the worst oil spill in US history.” According to the Wall Street Journal, BP has added “$9 billion in credit lines from a number of banks on top of savings made by suspending dividends and cutting capital expenditure.”

BP’s shares have rallied slightly this week on the containment cap news after hitting a 14-month low in June. According to a July 12 LA Times report:

Shares of beleaguered BP jumped 8% Monday on hopes for the latest attempt to
stop the gulf oil leak and reports that BP may be turning to Apache Corp., a
Houston-based exploration and production company, for a $10-billion asset sale.

And this, remember, is still the best possible case scenario. This is as good as it gets for BP. It’s ignoring the very real possibility of wellbore damage – the fear of which was cited by Coast Guard Admiral Thad Allen (“We don’t know if the well bore has been compromised or not”) in the decision to halt the original May 28 "top kill" attempt. And it overlooks the very real likelihood of storms delaying procedures.

Indeed, analysts are speculating that it’s the vast scope of the problem, and associated clean-up costs, that is saving BP from takeover.

Phil Weiss, a senior energy analyst for Argus Research, was quoted in the LA Times report cited above that “Neither Exxon nor another major should be willing to take on that kind of unknown liability risk.” It continues that even if BP manages to raise $10 billion in asset sales, it would have to sell more over coming months as the scale of the clean-up, along with additional legal costs, becomes apparent.

The Gulf States are facing years of environmental problems, even if the oil stops leaking today. According to a July 13 Associated Press report:

"I think we're going to see oil out in the Gulf of Mexico, roaming around,
taking shots at us, for the next year, maybe two," Billy Nungesser, president of
Louisiana's oil-stained Plaquemines Parish, said Monday. "If you told me today
no more oil was coming ashore, we've still got a massive cleanup ahead."

Tony Wood, director of the National Spill Control School at Texas
A&M-Corpus Christi said the sloppiest of the oil — mousse-like brown stuff
that has not yet broken down — will keep washing ashore for several months, with
the volume slowly decreasing over time.

He added that hardened tar balls could keep hitting beaches and marshes each time a major storm rolls through for a year or more. Those tar balls are likely trapped for now in the surf zone, gathering behind sand bars just like sea shells.

"It will still be getting on people's feet on the beaches probably a year or two from now," Wood said.

And, yes, this is still best-case scenario. One deepwater well blowout, in an accessible area rich in oil company expertise (compared to, say, Arctic waters) has set off a chain of environmental devastation that will continue to cause further clean-up costs for a minimum of two years; the oil company involved was forced to secure $9 billion in loans and sell off $10 billion of assets just to secure its short-term survival as it faced the $100-million-per-day costs of the ongoing Gulf spill.

This is one accident. That’s the reality of deepwater drilling. And, on the subject of reality, we are becoming wholly reliant on deepwater drilling - it's all the West has got left. It’s not possible to meet the world’s growing demand for energy without it.

Royal Dutch Shell’s boss, Peter Voser confirmed – in a June 27 report carried in the Guardian newspaper, Shell: deepwater drilling will go on – that: “Given the rise in the population and the rise in the developing world of energy needs, we will have to develop those resources in deep waters, so my expectation is that we will go forward with it, but it will need some changes.”

The real issue behind all this is, of course, is peak oil. The easy-to-reach supplies have gone. Tar sands and deepwater sources is all the Western world has. The very fact that such hard-to-reach, expensive and environmentally disastrous exploitation is even taking place speaks volumes about peak oil. It’s just a pity that no major media commentator has picked up on the phrase.

But for now, I'm happy to harp on about the best possible case for the Gulf region. Like many commentators, I am wilfully allowing my optimism to obscure some of the darker realities. This ongoing disaster is a symptom of peak oil, which, as it plays out over the coming years will be followed by a decline in the energy sources our lives rely on (both hydrocarbons and nuclear). It likely won't be the only deepwater leak, for that matter. But I'm still optimistic. I'm optimistic that life will go on as oil supplies dwindle, although I believe economies will tumble and there will be big changes ahead.

I truely, honestly hope and pray that the Gulf Oil leak will be contained this week and the well cemented in by the end of the month. Likewise, I believe that the coming changes forced on us by changing energy supplies in the near future will, while painful in the short-term, be something I and my children will live through. I wouldn't be human otherwise.