Patterico's Pontifications

6/9/2010

The Impact of Obama’s Offshore Moratorium

Filed under: Economics,Obama — DRJ @ 2:26 pm



[Guest post by DRJ]

President Obama decreed a 6-month moratorium on offshore oil exploration as a result of the BP oil spill, a decision that has sent shock waves through the Gulf Coast and the oil industry. Here is one example among thousands:

“In a letter to Louisana’s senators, Cliffe F. Laborde and J. Peter Laborde, Jr., who own and operate a small Louisiana-based shipping company that services oil rigs in the Gulf, argue that President Obama’s decision to shut down 33 deep-water wells for six months “makes no sense and should be reversed.”

“To shut down the entire industry is overkill and analogous to shutting down all commercial air traffic after one plane crash due to pilot error,” they write. The Labordes note that there are 4,000 deepwater wells out of the 50,000 total wells in the Gulf, and that “MMS conducted a safety assessment of each of the deepwater rigs in the days following the blowout and found no significant problems.”

The Labordes, who employ over 200 people and have a $14 million payroll, argue that many oil rig-related jobs will go away and might not ever return.”

The rest of the letter is available at the link.

I also received a letter from someone who worked a lifetime in the oil industry. I’m reprinting it in full beneath the “More” prompt.

— DRJ

“An American Tradition

Over a century ago, we found that there was more oil available than what oozed out of the ground in Pennsylvania, so we started learning to drill holes to get it. Our first equipment consisted of cable tool rigs with practically no control for geologic anomalies. This problem was resolved by the development of rotary rigs. During the early phases of this development, enterprising individuals like E. P. Halliburton recognized a need for improved cementing practices and developed portable pumping and mixing equipment rapidly adopted by the industry because they contributed to the efficiency of their operations. Progressive individuals recognized the need for such tools as down hole logging instruments and utilized the services of such unusual organizations as the French company named Schlumberger. The industry was developed by such individuals who were interested in improving our economy. As individuals proposed solutions, the good ones were adopted by all, with the result that there has been consistent improved development of the industry. Early in the development of the industry, it was recognized that standards should be adopted so that various suppliers’ products and services could be shared. The American Petroleum Institute (API) was formed and rapidly became the developer of standards needed in this new industry — as had the SAE for the automotive industry. For a century, it has served to promote and improve equipment, procedures and practices related to the industry. It has guided the development of not only the drilling operations, but refining of products as well. The API sponsors organizations such as the Society of Petroleum Engineers who educate and train workers in the industry. It is significant that the entire industry was developed by the private sector without governmental interference other than OSHA, which had little impact because it was in the interest of operators to have safe operations.

Problems occasioned by inexperience arose as they always will, so The Texas Railroad Commission (RRC) was delegated to establish procedures for resolving them. The rapid development of such vital resources necessitated limiting production to minimize waste. The RRC was there to handle it. The wanton risks of a few had to be restrained, and the RRC took care of those conditions. Because of inexperience, there were serious blowouts, fires and other damages to private properties and individuals, and many participants had their life long aspirations destroyed by a single quirk of fate. But there was a common desire to promote the industry, and the RRC, communities, and citizenry cooperated to help it progress. A blowout, such as that at Spindle top, was dangerous and costly, but the governments involved worked with the operators to make a bad situation less onerous. As a consequence, the dangerous and risky “oil business” prospered — with the result that many millionaires provided unexpected benefits for not only Americans, but the entire world. Hardly a generally used item we possess is not derived from or the result of the efforts of these pioneers of a century ago. The procedures and practices developed in the U S have been utilized world wide to improve the living standards of all. Just a typical American success story, and one we should be proud of.

How times have changed. An industry which has contributed so significantly to the welfare of all is being vilified because of a few radical environmentalists and politicians with no understanding. The petroleum industry — and especially those in America — have more expertise than all the governments and politicians put together. They can resolve their problems without interference by the government. Right now, the best thing the government can do is what they should be qualified to do — protection of the environment from the damages caused by the blowout in the Gulf. Rather than castigating the company for a failure probably caused by someone’s mistake, the government should be attempting to help them resolve the problems and, if possible, keep this outstanding organization which is gambling billions of dollars to improve our society from going into bankruptcy. Rather than threatening all energy developers with onerous assessments, we should try and determine how best they may be assisted in their attempts to develop more energy for us. All the energy developers are striving to be successful, make a profit and provide economical energy for all. Most are expert in their operations. Threats by the government to penalize the industry for such a disaster serve no useful purpose and will eventually harm us in the U S by the loss of such direly needed resources.”

22 Responses to “The Impact of Obama’s Offshore Moratorium”

  1. Rather than castigating the company for a failure probably caused by someone’s mistake, the government should be attempting to help them resolve the problems and, if possible, keep this outstanding organization which is gambling billions of dollars to improve our society from going into bankruptcy.

    Does your correspondant believe that BP should be required to pay for the cost of cleanup?

    One of the recurring left-wing complaints about the last several decades has been that we have been repeatedly socializing risk while privatizing profit.

    Allowing oil companies to reap profits from offshore drilling while requiring the government to absorb the cost of cleaning up after their mistakes is another example of this.

    aphrael (e0cdc9)

  2. I’m sure he thinks BP should pay the costs of cleanup, just as Exxon did. It’s the law.

    As for me, I’m not that fond of BP. I think the Texas City refinery explosion report raises questions about BP’s decision-making. But it’s not an American company. IMO American oil companies operate much more safely and prudently.

    DRJ (d43dcd)

  3. BP is a bit of a problem company. Palin was going over the problems Alaska has had too.

    I think BP is on the record claiming they will pay for their damage. It’s a shame, though, that they will probably not be paying all the American companies that have been shut down to make a show about how serious Obama feels.

    And, long term, this makes it harder to justify doing business in America. You never know when the government will just shut you down even if you did no wrong. Premiums on insurance covering Acts of the One have got to cost quite a but.

    Who pays for the damage is a lawyer question. A leader question would have been how to avoid this disaster, and especially how to quickly prevent damage to our coasts. We refused help we needed, we have still failed to get enough booms (though available) where they need to be, and the damage is going to be permanent.

    That’s an interesting Torts hypo. If I cause a disaster that burns down my neighbor’s house, but because the fire department is run by an idiot the entire city burns down too, am I on the hook?

    This is an emergency. Obama needs to stop worrying about demonizing and kicking asses and resolve the emergency. He needs to talk to the CEOs and leaders, deal with requests from local governments, and he needs to have done this more than a month ago. That’s why the emergency is this bad… he’s constantly worried about political cost instead of leadership.

    And another issue I strongly worry about is whether environmental concerns about drilling pushed oil companies to go after much more difficult operations that ultimately caused greater damage to the environment. Obama shutting down the industry is yet another knee jerk reaction that doesn’t weigh the real effects.

    Dustin (b54cdc)

  4. BP reminds me of when I lived in New York and the new Metropolitan Transportation Authority took over operations of the city’s subways. Faced with growing vandalism and declining service reliability, the MTA’s answer was … paint it. Throw a new coat of paint on everything and hope that will fool the public into believing you’ve fixed all your problems, the public’s own lying eyes to the contrary. And the system careened towards total collapse for two decades before something finally had to be done.

    BP had a major safety problem under their former leadership — Texas City’s 15 deaths being the most obvious example — and both the old and new leadership’s answer apparently was to digitally and graphically ‘paint it'; that is, rebrand BP as the oil company the most concerned about the environment, adopt a pretty green flower-looking logo for all your service stations and hope that would convince the public and the government that they had changed.

    The feds don’t get off clean (so to speak) in this — government laws and drilling restrictions in lower-cost land and near-shore areas forced the oil companies out into the Gulf far enough to the point where the drilling technology far outstripped the ability to handle a drilling disaster. But it’s also obvious BP was using ‘green’ PR ads mixed with campaign funds to grease the skids with the Obama administration (and to a lesser extent, the Bush administration before it) so they didn’t have to really worry about the latter problem until a disaster happened, and they were woefully unprepared to cope with plugging the leak, just as the administration was unprepared to handle an all-out effort to keep the oil from coming ashore.

    If Obama wants to put a halt to offshore drilling, at the very least he needs to ease restrictions on land-based drilling operations and red tape in the U.S. (here in West Texas, drilling for oil and gas on the mostly private or state-owned land isn’t a big problem; cross the border into southeastern New Mexico where the feds own most of the land and the Democrats are running the state government, and opening up new sections to drilling can be like pulling teeth).

    John (d4490d)

  5. There are hundreds if not thousands of wells in the gulf, yes? And 33 deep-water, yes? And we recently had one bad accident because standard procedures for converting an exploratory well into a production well were not followed, correct?

    If anything, it sounds to me that converting exploratory wells to production wells in deep water might be put at a moratorium, but nothing more.

    This is typical bureaucratic nonsense. Something goes bad because of not doing it the right way, and instead of owning up to it, everybody does the headless chicken finding a few scapegoats and pretending to address the problem with new regulations. Whether it is a leaking oil well or a melt-down in the sub-prime mortgage market.

    And the public, largely dependent on sound bites that say little of real import, feels reassured.

    I think Dustin is right that because of perceived risk and the dislike for seeing derricks from the coast, more deep wells were done.

    I don’t think we’ll know the “real story” for 5 years, but I think there was a lot more that could have been done to contain the damage, like sand berms and using straw, etc., etc.

    So the one once again acts decisively to do spin control and make the situation worse, and once again we need to ask is he really this incompetent or is he “not wasting a good crisis”, or some combination of the two.

    MD in Philly (5a98ff)

  6. Isn’t it the case that Teh One grossly distorted the positions of the experts that he stated were on board with this moratorium?

    Has anyone discussed raising the limits of liability by over $9,000,000,000 after the fact?

    JD (b49131)

  7. raising the limits of liability by over $9,000,000,000 after the fact

    This is like a religious experience for trial lawyers. Ex post facto doesn’t apply when this kind of cash is at stake.

    That’s 4.5 billion in fees, since this will go to appeal! Somewhere Joe Jamail is feeling like a low rent chump (not really)!

    MD mentioned somewhere how many people in Britain rely on BP as part of their retirement portfolio. Obviously they should have demanded BP be more careful. They deserve to pay a substantial portion of their investment to fix this (even though we’re at the emergency phase, not the who pays for it phase). But Obama could probably handle this a little more carefully. If they break their word to make this right, maybe then you can demonize them.

    Dustin (b54cdc)

  8. Not sure if it was me, Dustin, but the point was raised.

    MD in Philly (5a98ff)

  9. My memory sucks. Next thing you know, I’ll be asking you if you settled your gambling debt with JD.

    Dustin (b54cdc)

  10. I don’t remember who said it either, Dustin, but someone did raise the point that a lot of British pensioners own BP stock.

    DRJ (d43dcd)

  11. Obama seems to be finding every way that he can to further discourage economic growth in this company.

    You know the old saying. First is chance, second is coincidence. Third time it is enemy action.

    SPQR (26be8b)

  12. I don’t remember who said it either, Dustin, but someone did raise the point that a lot of British pensioners own BP stock.
    Comment by DRJ — 6/9/2010 @ 3:53 pm

    It was Mike K.

    Stashiu3 (44da70)

  13. In number 11, “company” should have read “country”.

    SPQR (26be8b)

  14. You’re all Glenn Greenwald anyway, I’m pretty sure.

    Dustin (b54cdc)

  15. “But it’s not an American company.”

    DRJ – I’m sure it’s still got plenty of American subsidiaries. I doubt if the former Amoco or other U.S. acquisitions have completely disappeared.

    daleyrocks (1d0d98)

  16. http://dailycaller.com/2010/06/09/louisianas-sen-landrieu-blasts-interior-secretary-salazar-on-gulf-drilling-ban/

    My link-fu is teh suck, but this points out that the experts that Barcky and Salazar used to establish support for their position did not agree to said position, nor was it even presented to them. This was a purely political choice by Barcky. At the bottom, note how Salazar claims that BP will be responsible for the results of the government’s political choices in the aftermath of this disaster. I hope BP gives them the bird.

    JD (de02cc)

  17. Isn’t this a good thing to do? One clear reason that this accident happened was that the regulatory agency responsible for oversight was doing a bad job. Another thing made clear by this mess is that neither the oil industry nor the government is prepared to handle this type of problem. Third thing is that the damage limits may be capped well below the actual costs.

    So let’s put a hold on this activity until we’ve got the regulatory/inspection system in place to prevent it. A Containment/recovery systems developed to deal with a failure should one occur. And finally, laws in place so that damages awards aren’t capped below the costs of the spill.

    I will say that in the industry where I work it’s common to put production on hold and leave it there until we know that quality problems have been addressed.

    Time123 (b7cad2)

  18. You haven’t been paying attention if you think six months will be enough, it look quite some time for
    them to find oil with a mobile platform, huge amounts of capital invested, then again he wasn’t upset with $5.00 gallon gasoline, only that it would rise to quickly to that point

    ian cormac (ba1de9)

  19. B P got the Texas City refinery another in Whiting IN, and several other properties when they merged (took over) AMOCO. They got half of the Alaska production and pipeline when they took over SOHIO.

    Hazy (996c34)

  20. Time123,

    Do you really think all the oil exploration and service companies can go 6 months without working — not to mention all the grocery stores, cleaners, doctors, barbers, restaurants, department stores, etc., in the communities that depend on the money these people earn and spend?

    It would be like ordering America’s commercial airlines to stop flying for 6 months after 9/11 and believing it wouldn’t hurt anyone.

    DRJ (d43dcd)

  21. “I will say that in the industry where I work it’s common to put production on hold and leave it there until we know that quality problems have been addressed.”

    Time123 – I don’t believe there has been a serious leak from a U.S. rig in the Gulf since the 1960s, going from memory. That’s a pretty freaking good environmental safety record given the amount of drilling. The sky is not falling.

    daleyrocks (1d0d98)

  22. DRJ – You have to think of it in terms of features and bugs. What seems like an obvious bug to you may be a feature to others.

    JD (de02cc)


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