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The Spill and what to do about it

I seem to have hit upon an admittedly unusual case of prescience in my recent blog posts.  Just after I wrote last Friday's post on energy innovation, WANTED: 100,000 Innovators in 100,000 Garages, GE CEO Jeff Immelt, Microsoft Chairman Bill Gates and a number of other big-name CEOs asked Congress to more than triple its investment in clean energy research, development and deployment (RD&D).

Then this week Henry Waxman, Chairman of the House Committee on Energy and Commerce and Bart Stupak, Chairman of the Subcommittee on Oversight and Investigations, sent a letter to BP CEO Tony Hayward outlining the Committee's "serious questions about the decisions made by BP in the days and hours before the explosion on the Deepwater Horizon."  They're issues related to the company's decisions to favor cost and time over safety, issues I raised in my post the week before last, A ‘Crude' Awakening?

So I thought it fitting that today might be a good day to briefly revisit those two blog topics and offer some additional insight.

The Spill

The U.S. House Committee on Energy and Commerce is still conducting its investigation of what led to the explosion and sinking of the Deepwater Horizon, and then to the blowout that has to date spewed millions of barrels of oil into the Gulf of Mexico.  There's speculation that the Department of Justice will bring criminal charges in the case, but no certain word on that yet.  BP CEO Tony Hayward will address Congress tomorrow.

Waxman and Stupak's letter specifically details five "crucial" decisions BP made that "posed a trade-off between cost and well safety."

  1. The decision to use a well design with few barriers to gas flow
  2. The failure to use a sufficient number of "centralizers" to prevent channeling during the cement process
  3. The failure to run a cement bond log to evaluate the effectiveness of the cement job
  4. The failure to circulate potentially gas-bearing drilling muds out of the well
  5. The failure to secure the wellhead with a lockdown sleeve before allowing pressure on the seal from below

Emails between BP's engineers with language like "it will take 10 hours to install them [referring to the recommended 21 centralizers] . . . I do not like this" and "who cares, it's done, end of story, will probably be fine" pretty clearly reflect an eyes-wide-open acknowledgement of choosing riskier drill operations over safer (and more expensive and time-consuming) operations.

Who's to blame?

There's an interesting exchange in the comments section of the A ‘Crude' Awakening? post about who's to blame for this tragedy.  azblessed calls BP a "big, bad wolf" and says that the government is "letting them have their way."  A guest commenter invoked Thomas Friedman's "we have met the enemy and he is us" column suggesting that oil-dependent American consumers are where the buck stops.  To that azblessed replied, "No one, not even shareholders, asked BP to operate as cheaply & unsafely as they do. They did that all by themselves."

What to do about it

From an economics and business perspective, I prefer that the government create incentives for good behavior and/or disincentives for bad behavior rather than pure heavy-handed regulation.  If BP ends up paying $20 billion in restitution for this spill, that will create a strong incentive for other oil companies to operate more safely (or, more clearly, it will create a strong disincentive for trading safety measures in favor of a few hours' time and $10 million).

And while I'm not forcing my son to trade his gas-guzzler in for a Smart car, I do see our guest's point that it is in large part our dependence on fossil fuels that has driven oil companies a mile beneath the ocean's surface.  Yet I think there are three good ways forward:

  1. Continue to explore for fossil fuels where they are, like in coal mines in West Virginia and a mile under the Gulf of Mexico, but do so in a way that leverages all of our modern technology to be as safe as possible.
  2. To take from President Obama's Oval Office address last night, it's high time to really focus on developing non-fossil fuels energy technologies. There are a number of good reasons to do that, including leading the world in the next wave of important innovations, reducing our dependence on foreign energy, and producing energy more cleanly.
  3. I think that the best way to accomplish the goals that our presidents have been talking about (but not acting on) for more than thirty years (see Jimmy Carter's 1977 address) is to do what the CEOs' American Energy Innovation Council proposes: invest more in research, development, and deployment of clean energy production methods.


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Written on Wednesday, 16 June 2010 18:31 by Gary Yaquinto

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