Saturday, May 15, 2010

Corruption is why we win.

A Deepwater BP oil spill conspiracy theory.

BP is struggling like a fumbling moron to contain the oil leak in the Gulf of Mexico. From the information we get, after being passed through the filters of PR departments and corporate news organizations, we get the impression that they are incompetent idiots who don't know what they are doing. But there's a lot of money involved in this thing, and chances are that quite a few very smart people are being paid a lot to think about this problem. Chances are they know what they're doing a lot more than we do, and a lot more than we're being told.

Here is the story that we see, based on what we're told, and what we assume:

1. It is in everyone's best interest that this oil spill be stopped as soon as possible. It is especially in BP's interest, because they're the most directly financially impacted by it, and they're the ones who look bad as it drags on.

2. It's good that BP is taking responsibility for dealing with the leak. They're responsible for causing it; they should be responsible for stopping it. Let them do it, because it's only costing them money, which is better than having someone else pay to deal with their problem.

3. They are struggling and failing to contain this leak, which means that it is a very hard problem and they're in way over their heads.

4. The government is on the same page as BP and everyone else.

Here is another version of the story. This one is again based only on news and assumptions. To be clear, what is proposed here is indeed a speculative conspiracy theory.

1. BP is not in the business of environmental preservation and recovery. They didn't immediately switch from a company whose goal is to make money from oil, to a company whose (temporary) goal is only to save the environment. As a corporation, they are still legally required to make as much money as possible for their investors. Having a company that makes money by exploiting the environment, in charge of an environmental rescue operation, doesn't seem all that smart.

We let this pass, because we confuse the multiple meanings of the word "responsible." Yes, we think, BP should be responsible for this because why should someone else pay for it? So if BP says they will handle it, we step out of the way and hold the door open for them. But being responsible for it also means being in charge, and doing it their way. We let them have total control, because stepping in on this will cost money.

2. Stopping the oil leak as quickly as possible is not in everyone's best interests. Yes BP wants to look as good as they can in this situation, but they have a lot of different people to look good for. First and foremost are the investors. Nothing would look better to the investors than coming up with a way to get out of this disaster while still turning a profit on it. Secondly there are government regulators. BP must look good enough to the government so that they're not fined, sued, or face changes in policy that make it harder to do their business. Third are average people. Unfortunately, we only matter insomuch as we can affect those in groups 1 and 2. It should be no surprise, that amounts to very little. Fourth and last are the sea creatures directly affected by the spill. Clearly, those most affected by the environmental aspects of the disaster, are of the least concern for BP. This is not an environmental rescue operation; it is an oil and profits rescue operation.  Stopping the leak as quickly as possible is secondary to doing it as profitably as possible.

3. BP has a cap on what they can be charged for in terms of environmental damage. They probably blew through this upper limit on the first day of the leak. That means that as far as they're concerned, given 2 possible solutions to dealing with the leak, the environmental cost of each simply does not factor in. Stupidly, everyone has stood aside and said "Your problem, not mine!"… but in doing so, our environmental problem slipped through the cracks and became just an economic problem, and we didn't even see it happen.

I don't think that BP has any further legal responsibility to fix this mess as quickly or best as they can. Whether they fix it tomorrow, or take a year, they've already reached the limit of what they're legally liable for. However, they still have a legal responsibility as a corporation, to fix this mess as profitably as they can. That means, if they can find a way that involves continuing to pump oil out, they will choose that over a way that involves blocking up the well.

We may think that the cost of the lost oil is a major factor, but I don't think it is. As far as economics goes, this oil field is essentially limitless. BP would be able to pump oil out of it for much longer than it matters. The well running dry is a problem for future investors, not today's. What matters today is time and flow, because any time spent not pumping out the most oil that you can handle, is money wasted. So a solution that involves stopping the flow of oil, keeping it intact for future recovery, yet delaying when that can happen, is an unfavorable solution.

And so, we don't see the best solutions being tried first. We see instead the quickest, cheapest solutions that would allow the oil to keep flowing, regardless of how how unreliable they may be.

With things like "relief wells" being drilled to relieve pressure, I wouldn't be surprised if when BP finally regains control of the oil from this well, we are told that they must maintain a much higher flow rate than would otherwise be allowed, "in order to prevent additional catastrophes".

4. If true, this suggests that BP is pulling the wool over government's eyes. But like BP, the government has a lot of smart people, and like with BP, there is a lot of money at stake for the government. Obama states that he will not rest until the flow of oil is stopped. And yet BP is given free reign to attempt oil containment schemes that don't involve stopping the oil at all.

Like corporations, governments have multiple people that they must cater to. There are of course the people, and there are corporations, and there is also themselves. This means balancing doing the right thing, doing the wrong thing, and trying to look good while doing it. Obama can't attack BP yet, and say "You're doing it wrong", because then he not only ignores the oil industry's interests, he also enters a costly battle against them.

The government must try to balance doing what's best for the environment, letting corporations have their way, and making it look like they did the best they can. They need BP to get the well under control, because no one else is willing to cover that cost. It is too late in the middle of a crisis to change policy and agitate anyone. Instead, governments tend to wait until crises are averted, and only then launch investigations into "what went wrong". New policies will be introduced "to ensure that this will never happen again". These are token policies that will satisfy some, but won't stop the innovativeness of industry from cutting corners to get around them. No, new policies are not meant to slow industry to prevent future disasters, they're the illusion of due diligence in dealing with the last disaster. All part of the cleanup.

Ironically, the worst things that we see happening with this disaster, are probably mostly technically legal.

So we will see BP fumble around for awhile. They'll come up with a solution that, miraculously, forces them to keep churning out profits. Then there will be a long period of studies on the impact of the disaster, and there will be debates on various internet forums, and there will be little news. Back to normal for the oil industry, for the suffering Gulf coast, for the dying sea, and for the world.


bobisimo said...

Here is an applicable comic for you:

As far as your comment about lost income, that's the one I don't get. Imagine billions and billions of dollars slowly seeping out of a vault. Wouldn't that drive you crazy?

Michael Devine said...

I like the Bad Editorial Cartoon in the comic. If that doesn't really exist, someone should create it. Big government sitting on the eagle of freedom?! It's SO TRUE!

I forgot to write up a part about Obama quoting the figures for oil flow rate that BP gave, despite everyone else estimating it is much much higher. As part of the post-crisis policy changes, government will talk about ways they're "restoring trust" with corporations or junk.

Yeah, a leaking vault would drive me crazy. But say it's not my vault, that someone is just giving me access to it for now, and it has trillions and trillions in it, and I already spent many millions hiring a safe-cracker (who caught on fire and sank to the bottom of the sea).

It's this quote that made me realize BP doesn't care about losing a few million barrels of oil: "a reservoir nearly the size of the Gulf, with an estimated trillions of barrels of oil and gas tucked away. It is this deposit that has me reminding people of what the Shell geologist told me about the deposit. This was the quote, 'Energy shortage..., Hell! We are afraid of running out of air to burn.'"

Another thing is... this isn't money that's already in their vault. In the oil industry, if you waste a few million (or billion?) dollars to make a few billion, that's fine. They strip mine northern Alberta, wasting vast amounts of energy as long as it means profit. They don't say "Let's keep this safely in the vault until a time when we can get to it in a less wasteful way."

Jennifer and Neil Devine said...

Makes sense, I like to idea of them trying to drill even more wells and have a higher output.

Of course BP wants to just make money - it's like those guys whose job it is to determine whether it's cheaper to let a few people get injured or die and sue a car company, or to recall a bunch of cars with safety defects.

It does seem odd that they don't have some big clamp that they can't just put on the well and shut it off for good. But i'm no engineer.