The massive oil spill in the Gulf of Mexico’s Macondo field could not have come at a worse time. Just as the Obama administration was finally opening up new offshore tracts for lease, this had to happen. All new licenses for deepwater wells have been frozen, pending an investigation into the causes of the current blow out. The 5,000 barrels a day that are leaking is, so far, just a tiny fraction of the 75,000 barrels that washed ashore in Santa Barbara in 1969, which I personally helped clean up. But, its magnitude will surpass the 1989 Exxon Valdez disaster in a matter of days.
I haven’t heard Sarah Palin say “drill baby, drill” since last week, possibly because four red states are about to see their tourism industries destroyed by fouled beaches just as summer vacations begin (see map below). Ooops! Maybe all those tourists are now headed for California? There goes my parking spot at the beach. Today’s cleanup estimate is at $4.6 billion.
The $1.6 billion that is in the Oil Spill Liability Trust Fund, which is funded by an eight cent per barrel tax on every barrel produced or imported into the US, will get cleaned out. No doubt British Petroleum (BP), the lease holder, and Transocean (RIG), the subcontractor, will get absolutely taken to the cleaners over this. The insurers for the rig, probably Lloyds of London, will take a multibillion dollar hit on claims. Shipping rates for Suezmax crude carriers are already climbing, as the prospects of greater offshore supplies recede into the future. Some one third of total US oil production is offshore.
It is clear that either a blowout preventer valve was missing from this site, an insane cost cutting risk at this depth, or malfunctioned. It has long been a dirty little secret that offshore drillers routinely ignore regulations that are strictly enforced by the states on the US mainland.
Anyone who has worked closely with these wells, as I have, knows that they can blow up at any time, and that you can’t spend enough on safety. Too bad for RIG, which is a first rate company, with about half of its offshore rigs on long term leases to Brazilian oil company Petrobras (PBR). As for BP, may they roast in Hell. Not only is their safety record deplorable, I am still smarting from the $75,000 I lost as my personal underwriting share when Morgan Stanley took them public in 1987.
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