BP and the Macondo Spill

BP and the Macondo Spill

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BP and the Macondo Spill The Complete Story Colin Read Professor of Economics and Finance, SUNY College, Plattsburgh, USA Palgrave macmillan

Colin Read 2011 Softcover reprint of the hardcover 1st edition 2011 978-0-230-29358-8 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2011 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-33303-5 ISBN 978-0-230-30508-3 (ebook) DOI 10.1057/9780230305083 A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 20 19 18 17 16 15 14 13 12 11

Contents List of Illustrations About the Author vii ix 1 Timeline for the Deepwater Horizon Oil Spill 1 2 Introduction 5 Part I The Natural and Economic History of Oil 3 A Brief Natural History of Oil 11 4 The Science and Refining of Oil 15 5 Oil in Our Past and Present 21 6 Demand for Oil in Our Future 30 7 The Industry of Oil Extraction 37 Part II The Uneasy Mix of Oil in Our Natural Environment 8 The Dirty Dozen before the Deepwater Horizon 47 9 The Case of the Exxon Valdez 64 10 A Brief History of Oil Rig Fires 75 11 Exploration, Drilling, and Extraction U.S. Environmental and Safety Records 80 Part III The Macondo Prospect and What Went Wrong 12 The Macondo Prospect 97 13 What Went Wrong A Congressional Perspective 106 14 Lessons for BP from More Considered Reviews 124 15 The Principal Agent Problem and Transocean 138 16 The Management of Risk 143 v

vi Contents Part IV The Spectacle of the Spill 17 For All the World to See 153 18 Partners in the Problem 160 19 Engineering a Solution 165 20 The Toll on the Environment 174 Part V Politics, Courts, and Markets 21 The Politics of Oil 181 22 A Complicated Legal Quagmire 190 23 The Market Response 202 Part VI Where Do BP, Big Oil, and Energy-Starved Consumers Go from Here? 24 Reform of Regulatory Oversight 209 25 What Do We Do with the World s Insatiable Need for Energy 214 26 Conclusion 218 Notes 220 Glossary 229 Index 233

Illustrations Figures 4.1 Global energy consumption derived from U.S. Energy Information Administration data 16 4.2 Numbering of alkanes and energy equivalents 19 5.1 The graph of a demand curve 22 5.2 Worldwide energy demand expectations by the Energy Information Agency of the United States Government 23 5.3 The supply and demand for a commodity 25 6.1 Rate of growth of GDP and energy demand over the development cycle 31 6.2 Population growth in three economic worlds 33 6.3 Marketed daily energy consumption in barrels of oil equivalency 35 12.1 Types of offshore drilling platforms 101 20.1 Deepwater Horizon Oil budget courtesy of the Flow Rate Technical Group 175 22.1 The Consumer Sentiment Index in the U.S. in the months following the spill 195 23.1 BP stock prices in the U.S. (New York) and England (London) as a function of spill events 203 23.2 Weekly stock prices before the spill 204 23.3 Weekly stock prices since 2003 in London and New York 205 Tables 6.1 World Population 1750 2150 (millions) as projected by the United Nations Population Division 32 6.2 Urbanization and global population 1950 2030 (millions) 34 10.1 Fires and Explosions in the Gulf of Mexico Oil and Gas Extraction Industry, 2006 2009 75 11.1 EPA violations by oil exploration companies since September 2003 83 11.2 OSHA violations by oil drilling companies 85 11.3 Offshore oil production quantities among the various major oil companies 86 11.4 Offshore lease activity 87 vii

viii Illustrations 11.5 Offshore oil spills by company 1964 2009 88 11.6 Oil exploration company spills 2000 2009 90 11.7 Worker injuries in exploration by major oil exploration companies 91 11.8 Four year fatality figures for oil exploration companies 2006 2009 92 22.1 Various public estimates of flow rates over the timespan of the spill 200

About the Author Colin Read is Professor of Economics and Finance, former dean of the School of Business and Economics at SUNY College, Plattsburgh, and a columnist for the Plattsburgh (New York) Press-Republican newspaper. He has a PhD in economics, a JD in law, an MBA, a masters in taxation, and has taught environmental and energy economics and finance for 25 years. Colin s recent books include Global Financial Meltdown: How We Can Avoid the Next Economic Crisis, The Fear Factor, The Rise and Fall of an Economic Empire, and a book on international taxation. He has written dozens of papers on market failure and volatility, and housing markets. He writes a weekly column in the Plattsburgh Press-Republican newspaper, and appears monthly on a local PBS television show to discuss the regional and national economy. He has worked as a research associate at the Harvard Joint Center for Housing Studies and served the Ministry of Finance in Indonesia under contract from the Harvard Institute for International Development. His consulting company can be found on the Internet at www.economicinsights.net. In his spare time he enjoys floatplane flying from his home on Lake Champlain that he shares with his wife, Natalie, daughter, Blair, and dog, Albert. ix