Despite headlines screaming “the worst oil spill in history,” it turns out the BP blowout disaster wasn’t really as big a deal as you’d have thought.
Oh, well… sorry.
According to the feds, 74% of all the oil leaked into the Gulf has already been removed. “Much of the rest,” The New York Times summarizes a government report released today, “is so diluted that it does not seem to pose much additional risk of harm.”
Nearly half -- 41% -- of the oil simply “evaporated, dissolved or dispersed” -- taken care of by Mother Nature herself. That’s a larger share of spill containment than all of BP’s burning, skimming, recovery, dispersing and plugging efforts… combined.
The report estimates about a million barrels of crude oil remains floating in the Gulf.
“Of course, it's not good to blow out your oil wells,” Byron King explains. “But we can be thankful that nature has oil-eating bacteria out there. Add oil to the seawater, with heat from the sun, and sunlight, and stir it up with wind and wave and you see that the oil is going away faster than many people expected.
“In a normal environment, oil-eating bacteria are in equilibrium with their surroundings. If there's not much oil in the water, the bacteria are few and far between. But if you add oil to the mix, the bacteria bloom.
“As the bloom progresses, more bacteria eat more and more of the oil. They eat the oil until it's mostly gone. When the ‘oil food’ is gone, the bacteria die off. The result is much less oil, and much more microscopic biomass in the water.”
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. Small question: If so many people hate this new video format, why is it grabbing so much attention?
Thank you for reading The 5 Min. Forecast! We greatly value your questions and comments. Please send all feedback to 5minforecast@agorafinancial.com
Showing posts with label Gulf of Mexico. Show all posts
Showing posts with label Gulf of Mexico. Show all posts
Wednesday, August 4, 2010
Friday, June 11, 2010
Nukes and Explosive Oil Prices
Whiskey & Gunpowder By Byron King June 11, 2010
Pittsburgh, Pennsylvania, U.S.A.
A reader named Marilyn, from Oregon, wrote with the following question:
“I’ve read Internet threads where people want to use a nuclear weapon to close the oil well blowout in the Gulf of Mexico. Even Matt Simmons, who’s a hero to me because of his Peak Oil work, says we might need to use a nuclear weapon to close the well. Can you discuss that?”
I sure can…
Underwater Nuclear Bursts
Here’s my background even to comment on the subject. It’s based on my Navy experience, from many years ago. I should say right here that these are my personal views. Nothing I say is an “official” statement on behalf of the U.S. Navy, Department of Defense or U.S. government.
A long time ago, in a galaxy far, far away, I flew a Navy aircraft built by Lockheed called the S-3. It was a graceful twin-engine, carrier-capable jet, and is now retired from Navy service (alas!).
If man was meant to fly, he’d have wings. Or the Navy/Lockheed S-3.
But when the S-3 was flying, one of its key missions was anti-submarine warfare (ASW). It was designed during the depths of the Cold War, when the world’s oceans were crawling with Soviet submarines. The S-3 was among the aircraft carrier’s ASW defenses.
To find Soviet submarines, the S-3 had a superb surface-search radar, and awesome electronic capabilities. The S-3 also carried a large load of sonobuoys that we’d drop in the water and use to listen for submarines.
The S-3 could carry air-delivered, conventionally armed torpedoes, if necessary. But the most powerful weapon capability for the S-3 was its ability to deliver a “special weapon,” namely a nuclear depth bomb called the B57. (This is all unclassified information, by the way. These days, you can look it up on the Internet.)
B57 Nuclear Depth Bomb, on carrying dolly.
Red nose is a plastic cover — please remove before flight.
Point is, back when I was flying S-3s, I became pretty smart about the ASW mission, and also about this particular special weapon. Thus do I know a few things about both nuclear weapons and underwater nuclear bursts.
What Could a Nuclear Weapon Accomplish?
Why are some people — the eminent Matt Simmons among them — discussing the use of nuclear weapons in the Gulf of Mexico? Does Matt know something that other people don’t? Well, I think Matt is off-base on this point. Don’t take it the “wrong” way, but Matt knows more about Peak Oil than he knows about underwater nuclear bursts.
As we used to say in the Navy, from a small splash, you get a big flash. Among people who have no or limited experience with nuclear weapons, this gives rise to many nuclear myths, if not fixations. That is, many people think that you can really DO SOMETHING with a nuclear weapon. Sorry to disappoint, but the last thing you want to do with a nuclear weapon is trigger it, particularly in a misplaced effort to seal a blownout oil well.
There’s GOT to be a better way to seal an oil well than this...
Let’s just consider the explosion. Yes, you can put a lot of energy into the earth — and the water and atmosphere — with a nuclear blast. But is that really what you want? There’s such a thing as putting “too much” energy on your target. And you still might not accomplish the mission.
Nuclear effects — especially subsurface nuclear effects — are not predictable. So even with the best efforts you will doubtless have many unintended consequences. It might seem like a good idea to place a nuclear bomb next to the leaking oil well, cook it off, move an immense level of energy toward that awful oil well and seal it up with fused glass. Except it doesn’t work that way.
Start at the Beginning
Let’s start at the beginning. You need to drill a hole first, into which to place your device. Hey, BP (BP: NYSE) is already drilling two holes next to the blownout well. The two holes are for relief wells. So now you want to drill a third hole for the nuclear device?
Then you need a nuclear device to emplace in the hole. Except that the U.S. has no nuclear devices rated for 5,000-foot and deeper water depths. Sure, U.S. special weapons are built to withstand multi-G accelerations, and all sorts of launch and drop shock loads. The devices can function in the vacuum of space. They can even pass through transient re-entry heating. But there’s no weapon design out there — none that I’ve ever heard of — to deal with the high external pressure under a mile or more of water.
That goes for nuclear-armed torpedoes as well — which I can’t discuss except to say that long ago, the Navy developed weapons to chase down Soviet deep-diving submarines. If you ever read Tom Clancy’s book The Hunt for Red October, he has a particular Soviet submarine diving to over 2,000 feet. That’s all I’ll tell you.
Wigwam Test
So let’s say that we overcome the initial obstacles of drilling a hole and emplacing a weapon. Let’s say that we can put a nuclear device down there next to the well. What happens with an underwater nuclear blast?
From unclassified sources, I can tell you that the deepest underwater nuclear explosion on record is the Operation Wigwam test, conducted on May 15, 1955. Wigwam consisted of a subsea 30-kiloton nuclear detonation, or a bit over twice the power of the 1945 Hiroshima blast.
The Wigwam test blast was about 450 miles southwest of San Diego, Calif. (29 Deg N, 126 Deg W) in open ocean, with water depth of 16,000 feet. The purpose of the test was to look at the vulnerability of submarines to deep underwater nuclear explosions. (I can’t tell you much on that, but it’s not pretty.)
The Wigwam nuclear device — a very large B7 “Betty” specially reinforced and rigged as a depth charge — was suspended by a 2,000-foot cable from a barge. The dry weight of the bomb was 8,250 pounds, and 5,700 pounds when submerged. After it detonated, here’s what the blast wave did, just before the fireball exited through the surface.
“Beware, beware!” Little splash, big flash. Cover your eyes and hope you’re upwind.
Oil, Water and... Radionuclides?
Right now we have a well spewing oil into the Gulf of Mexico. It looks like BP is getting the well under control. The relief wells are also going down, slowly but steadily. We can envision this tragedy coming to an end.
At this point, do we want to let loose a nuke and have radioactive particles mix with the oil and water? Do we want radioactive water vapor rising into the atmosphere just south of New Orleans?
And what of the shock wave? Do we want to rip the seafloor to shreds? Do we want a nuclear-level shock wave traveling through the seafloor in the vicinity of the BP oil well? What will that do? Will it break other oil pipelines installed on the bottom?
What of an oceanographic phenomenon called “bottom bounce”? That’s a situation in which the shock wave bounces off layers of seawater and travels back down to the ocean floor to be reflected even further out. You could, possibly, put destructive levels of energy many dozens of miles away from the burst point. You could break things faraway. So you see where I’m going with this.
What about the oceanic environment? This is not the early days of the Cold War. We know a lot these days about the complex biology of the ocean. Radioisotopes, like strontium and iodine, concentrate as you move up the food chain.
Your basic oyster is a filter feeder, moving hundreds of thousands of gallons of seawater through its system over its lifetime. This causes isotopes to concentrate to a level that can poison wildlife and people. Anybody or anything that eats these critters will surely suffer from radiation damage to every level of cellular function, and almost certainly to reproductive cells. More specifically, radioactive strontium and iodine concentrate in the bones and thyroid glands, respectively.
This is all straightforward, established science. If you want things to get even uglier, and last a real long time, you’ll use a nuclear weapon out in the Gulf of Mexico.
Bottom line is that we need to get the nuclear weapon discussion off the table. Put the nukes back in the bunkers, where they belong.
Where to from Here?
Marilyn, I’m glad you asked your question. But a nuke clearly isn’t the right choice.
With that said, another question comes to light…
With a small percentage of oil still flowing out of the well, a massive cleanup ensuing, more goverenment regulation and the effects of a drilling moratorium tying the hands of our energy industry – where do we go from here?
I’ll start by making a statement I’ve made before and I’ll make again: the cheap and easy oil is GONE. Finding new energy to fuel our nation is going to be harder, more regulated and more expensive.
Is a U.S. moratorium the right choice? I’ll let you decide that.
But there’s one matter that you won’t have a choice on: the higher price you pay for oil.
With oil sitting north of $70 a barrel I can’t imagine it getting any cheaper.
Indeed, a few years from now we may look back and deem this period the point where the U.S. lost its edge in energy.
That’s all for now. Thanks for reading...
Until we meet again,
Byron W. King
P.S.: As if the BP oil spill weren’t bad enough. As if this indefinite moratorium and the expensive regulations that are sure to follow weren’t worse enough...
There’s another reason oil is going to get painfully more expensive. In fact, the disaster in the Gulf and the moratorium are just icing on the cake! There are powerful forces lining up against the U.S. and they’re looking to start an absolute oil war.
But I specialize in preparing my subscribers to profit from the skyrocketing energy prices that are on their way. Some of my recommendations from 2009 alone are up 36.3...53.6...61.8...even 102.5%.
To find out more about the coming oil war...and what to do right now to be ready to profit from much higher energy prices...click here.
Pittsburgh, Pennsylvania, U.S.A.
A reader named Marilyn, from Oregon, wrote with the following question:
“I’ve read Internet threads where people want to use a nuclear weapon to close the oil well blowout in the Gulf of Mexico. Even Matt Simmons, who’s a hero to me because of his Peak Oil work, says we might need to use a nuclear weapon to close the well. Can you discuss that?”
I sure can…
Underwater Nuclear Bursts
Here’s my background even to comment on the subject. It’s based on my Navy experience, from many years ago. I should say right here that these are my personal views. Nothing I say is an “official” statement on behalf of the U.S. Navy, Department of Defense or U.S. government.
A long time ago, in a galaxy far, far away, I flew a Navy aircraft built by Lockheed called the S-3. It was a graceful twin-engine, carrier-capable jet, and is now retired from Navy service (alas!).
If man was meant to fly, he’d have wings. Or the Navy/Lockheed S-3.
But when the S-3 was flying, one of its key missions was anti-submarine warfare (ASW). It was designed during the depths of the Cold War, when the world’s oceans were crawling with Soviet submarines. The S-3 was among the aircraft carrier’s ASW defenses.
To find Soviet submarines, the S-3 had a superb surface-search radar, and awesome electronic capabilities. The S-3 also carried a large load of sonobuoys that we’d drop in the water and use to listen for submarines.
The S-3 could carry air-delivered, conventionally armed torpedoes, if necessary. But the most powerful weapon capability for the S-3 was its ability to deliver a “special weapon,” namely a nuclear depth bomb called the B57. (This is all unclassified information, by the way. These days, you can look it up on the Internet.)
B57 Nuclear Depth Bomb, on carrying dolly.
Red nose is a plastic cover — please remove before flight.
Point is, back when I was flying S-3s, I became pretty smart about the ASW mission, and also about this particular special weapon. Thus do I know a few things about both nuclear weapons and underwater nuclear bursts.
What Could a Nuclear Weapon Accomplish?
Why are some people — the eminent Matt Simmons among them — discussing the use of nuclear weapons in the Gulf of Mexico? Does Matt know something that other people don’t? Well, I think Matt is off-base on this point. Don’t take it the “wrong” way, but Matt knows more about Peak Oil than he knows about underwater nuclear bursts.
As we used to say in the Navy, from a small splash, you get a big flash. Among people who have no or limited experience with nuclear weapons, this gives rise to many nuclear myths, if not fixations. That is, many people think that you can really DO SOMETHING with a nuclear weapon. Sorry to disappoint, but the last thing you want to do with a nuclear weapon is trigger it, particularly in a misplaced effort to seal a blownout oil well.
There’s GOT to be a better way to seal an oil well than this...
Let’s just consider the explosion. Yes, you can put a lot of energy into the earth — and the water and atmosphere — with a nuclear blast. But is that really what you want? There’s such a thing as putting “too much” energy on your target. And you still might not accomplish the mission.
Nuclear effects — especially subsurface nuclear effects — are not predictable. So even with the best efforts you will doubtless have many unintended consequences. It might seem like a good idea to place a nuclear bomb next to the leaking oil well, cook it off, move an immense level of energy toward that awful oil well and seal it up with fused glass. Except it doesn’t work that way.
Start at the Beginning
Let’s start at the beginning. You need to drill a hole first, into which to place your device. Hey, BP (BP: NYSE) is already drilling two holes next to the blownout well. The two holes are for relief wells. So now you want to drill a third hole for the nuclear device?
Then you need a nuclear device to emplace in the hole. Except that the U.S. has no nuclear devices rated for 5,000-foot and deeper water depths. Sure, U.S. special weapons are built to withstand multi-G accelerations, and all sorts of launch and drop shock loads. The devices can function in the vacuum of space. They can even pass through transient re-entry heating. But there’s no weapon design out there — none that I’ve ever heard of — to deal with the high external pressure under a mile or more of water.
That goes for nuclear-armed torpedoes as well — which I can’t discuss except to say that long ago, the Navy developed weapons to chase down Soviet deep-diving submarines. If you ever read Tom Clancy’s book The Hunt for Red October, he has a particular Soviet submarine diving to over 2,000 feet. That’s all I’ll tell you.
Wigwam Test
So let’s say that we overcome the initial obstacles of drilling a hole and emplacing a weapon. Let’s say that we can put a nuclear device down there next to the well. What happens with an underwater nuclear blast?
From unclassified sources, I can tell you that the deepest underwater nuclear explosion on record is the Operation Wigwam test, conducted on May 15, 1955. Wigwam consisted of a subsea 30-kiloton nuclear detonation, or a bit over twice the power of the 1945 Hiroshima blast.
The Wigwam test blast was about 450 miles southwest of San Diego, Calif. (29 Deg N, 126 Deg W) in open ocean, with water depth of 16,000 feet. The purpose of the test was to look at the vulnerability of submarines to deep underwater nuclear explosions. (I can’t tell you much on that, but it’s not pretty.)
The Wigwam nuclear device — a very large B7 “Betty” specially reinforced and rigged as a depth charge — was suspended by a 2,000-foot cable from a barge. The dry weight of the bomb was 8,250 pounds, and 5,700 pounds when submerged. After it detonated, here’s what the blast wave did, just before the fireball exited through the surface.
“Beware, beware!” Little splash, big flash. Cover your eyes and hope you’re upwind.
Oil, Water and... Radionuclides?
Right now we have a well spewing oil into the Gulf of Mexico. It looks like BP is getting the well under control. The relief wells are also going down, slowly but steadily. We can envision this tragedy coming to an end.
At this point, do we want to let loose a nuke and have radioactive particles mix with the oil and water? Do we want radioactive water vapor rising into the atmosphere just south of New Orleans?
And what of the shock wave? Do we want to rip the seafloor to shreds? Do we want a nuclear-level shock wave traveling through the seafloor in the vicinity of the BP oil well? What will that do? Will it break other oil pipelines installed on the bottom?
What of an oceanographic phenomenon called “bottom bounce”? That’s a situation in which the shock wave bounces off layers of seawater and travels back down to the ocean floor to be reflected even further out. You could, possibly, put destructive levels of energy many dozens of miles away from the burst point. You could break things faraway. So you see where I’m going with this.
What about the oceanic environment? This is not the early days of the Cold War. We know a lot these days about the complex biology of the ocean. Radioisotopes, like strontium and iodine, concentrate as you move up the food chain.
Your basic oyster is a filter feeder, moving hundreds of thousands of gallons of seawater through its system over its lifetime. This causes isotopes to concentrate to a level that can poison wildlife and people. Anybody or anything that eats these critters will surely suffer from radiation damage to every level of cellular function, and almost certainly to reproductive cells. More specifically, radioactive strontium and iodine concentrate in the bones and thyroid glands, respectively.
This is all straightforward, established science. If you want things to get even uglier, and last a real long time, you’ll use a nuclear weapon out in the Gulf of Mexico.
Bottom line is that we need to get the nuclear weapon discussion off the table. Put the nukes back in the bunkers, where they belong.
Where to from Here?
Marilyn, I’m glad you asked your question. But a nuke clearly isn’t the right choice.
With that said, another question comes to light…
With a small percentage of oil still flowing out of the well, a massive cleanup ensuing, more goverenment regulation and the effects of a drilling moratorium tying the hands of our energy industry – where do we go from here?
I’ll start by making a statement I’ve made before and I’ll make again: the cheap and easy oil is GONE. Finding new energy to fuel our nation is going to be harder, more regulated and more expensive.
Is a U.S. moratorium the right choice? I’ll let you decide that.
But there’s one matter that you won’t have a choice on: the higher price you pay for oil.
With oil sitting north of $70 a barrel I can’t imagine it getting any cheaper.
Indeed, a few years from now we may look back and deem this period the point where the U.S. lost its edge in energy.
That’s all for now. Thanks for reading...
Until we meet again,
Byron W. King
P.S.: As if the BP oil spill weren’t bad enough. As if this indefinite moratorium and the expensive regulations that are sure to follow weren’t worse enough...
There’s another reason oil is going to get painfully more expensive. In fact, the disaster in the Gulf and the moratorium are just icing on the cake! There are powerful forces lining up against the U.S. and they’re looking to start an absolute oil war.
But I specialize in preparing my subscribers to profit from the skyrocketing energy prices that are on their way. Some of my recommendations from 2009 alone are up 36.3...53.6...61.8...even 102.5%.
To find out more about the coming oil war...and what to do right now to be ready to profit from much higher energy prices...click here.
Tuesday, May 25, 2010
If You Build It : Kevin Costner Builds Oil-Water Separation Machines
By LIZ ROBBINS
For 15 years, Kevin Costner has been overseeing the construction of oil separation machines to prepare for the possibility of another disaster of the magnitude of the 1989 Exxon Valdez spill.
Does this evoke his tagline from “Field of Dreams?” It seems that Mr. Costner, the 55-year-old actor, environmental activist and fisherman, was ready for the current spill in the gulf.
Disturbed by the effects of the Valdez spill in Alaska, Mr. Costner bought the nascent technology from the government in 1995 and put $24 million of his own money into developing it for the private sector.
“Kevin saw the Exxon Valdez spill, and as a fisherman and an environmentalist, it just stuck in his craw, the fact that we didn’t have separation technology,” said John Houghtaling, Mr. Costner’s lawyer and business partner as chief executive with Ocean Therapy Solutions, which developed the technology.
Mr. Costner’s brother, Dan, is a scientist who worked on the project and was also in New Orleans this week.
On Wednesday, BP’s chief operating officer, Doug Suttles, said that the company had approved six of Ocean Therapy’s 32 machines for testing. All boast centrifuge processing technology — giant vacuum-like machines that suck oil from water, separate the oil, store it in a tanker and send the water, 99.9 percent purified, back into the gulf.
“I’m very happy the light of day has come to this,” Mr. Costner said at a news conference in New Orleans. He said he was “very sad” about the spill, “but this is why it’s developed.”
“It’s prepared to go out and solve problems, not talk about them,” the actor said of the technology.
Mr. Houghtaling of Ocean Therapy Solutions said that the company had trained independent contractors and were bringing in scientists from U.C.L.A. to deploy the machines, which were waiting on a barge in Venice, La., on Wednesday afternoon.
The technology was available for use 10 years ago, Mr. Houghtaling said. “These machines have been very robust, but nobody’s been interested in them until now,” he added.
BP officials and Ocean Therapy are working to determine where best in the gulf to test the machines, and if all goes well, the technology will be running within the week, he said. “We just need the green light from BP.”
He said that the largest four machines have the capability of separating 210,000 gallons of oil from water a day, 200 gallons a minute.
Monday, May 24, 2010
The $150 Billion Question: Is BP Too Big to Fail?
May 24, 2010
Dear Outstanding Investments Reader:
The oil blowout in the Gulf of Mexico continues. The world's third-largest publicly-held oil company, BP (BP: NYSE), is squarely at ground-zero -- literally and figuratively.
Can this blowout also blow up BP? Or put another way, is BP too big to fail? That's the $150 billion question. And sooner or later, we're going to find out.
Getting Worse, for How Long?
How bad is the oil spill? It's bad and getting worse. I said a few weeks ago that this oil spill would get worse before it gets better. We're still in that "getting worse" phase. The continuing oil spill is so bad that it's hard to say how truly bad it is.
Conventional wisdom is that oil rises through water and floats on the top. Conventional wisdom is also wrong. In a May 19th alert, I discussed how much of the gushing oil remains deep underwater in the Gulf of Mexico. No one knows much about where the underwater oil is, or where and how it's harming aquatic life in the water column. Meanwhile, topside, we have oil washing ashore in significant, gooey amounts, into the coastal marshes and other fragile ecosystems. It's just awful.
According to Roger Helm, of the U.S. Fish & Wildlife Service (and quoted in the Washington Post), "We've never really seen this kind of thing. This one's coming in a way that has a lot of us working to understand, what is going to be the longer-term impact? […] How do we get our brain around this?"
The Aliens Have Landed
"How do we get our brain around this?" Well, first you have to understand what it means to have a deepwater blowout. This has NEVER happened before. It's an entirely new form of chemistry and physics. Throw out the old books.
Deepwater work involves extreme risks and events that are difficult to foresee. Just the mechanical tolerances for equipment -- down to the smallest of components like seals, gaskets and wire bundles -- are close to basic, atomic, physical limits of strength. Yes, the technology is impressive. That's because it's at the far edge of the envelope, at the limits of industrial capability.
Add to this that in the deep sea, strange things happen. There are bacteria that eat iron (look at the remains of the Titanic, for example). Natural gas forms into solids called clathrates. Other kinds of materials -- metals, coatings and fluids -- behave unpredictably.
When you're in deepwater, you cross over something like an "event horizon." You're not just dealing with complicated systems any more. You've gone from complicated to complex – which represents a big difference in terms of predicting things. Small inputs can trigger large, asymmetrical responses.
The allegory is that the aliens have landed, and they're tearing up the place. It's like First Contact or something. No one has ever had to deal with this scope of disaster before.
We're facing a deepwater super-well, spewing immense volumes of oil under immense levels of pressure into freezing water, through badly damaged equipment. Uncontrolled, this thing could blast oil into the benthic regions of the Gulf of Mexico for years. Science fiction has become science fact. Wrap your brain around it.
Kill the Well
The best hope for the near term is that BP kills the well this week. BP has moved pumping equipment, drilling mud and cement into position. The total energy available for pumping is in the range of 50,000 horsepower. That's the equivalent power output of ten standard railway locomotives.
In some respects, the pumping power is similar to a "fracking" job, like with fracturing the Marcellus Shale or Bakken Shale. The plan is to inject drilling mud into a series of valves at the bottom of the blowout preventer. The idea is to "out-pump the well," in the words of one BP representative with whom I spoke last week.
If the well won't take the kill-shot, then we might see uncontrolled oil gushing for up to three more months. That's how long it will take two different rigs to drill "relief" wells to intersect the existing hole, and pump it full of cement. Here's the BP graphic.
Will the relief well work? It ought to. These kinds of things have worked in the past. But it's going to take time -- three months or more -- and every day of blowout is more oil pouring into the Gulf, with more environmental damage.
Plus, keep in mind that under the best circumstances the relief well won't be easy to accomplish. For example, when the relief well gets near the bottom of the existing well, they'll have to "steer" the bit precisely, so as to bust through the cement and steel casing. It's like hitting a coffee can at 18,000 feet.
How Much Oil?
Meanwhile, how bad is the ongoing oil spill? It's likely that the oil volumes coming from the blown out well are more than the previously-advertised 5,000 barrels of oil per day. Just consider that BP is recovering anywhere from 2,500 to 5,000 barrels of oil per day, via the 4-inch wide "insertion tube" -- add that to the additional crude spilling directly into the water and it’s pretty clear to see the total could be more than 5,000 barrels a day. The amount varies, day to day, because the oil is mixed in with gas slugs. Sometimes the tube sucks up a lot of oil. Sometimes it's mostly gas.
To my mind, it's no big shock that the oil volumes have apparently increased over the past month, since the blowout occurred.
Initially, there was probably crud or debris down in the pipes that choked-back some of the oil flow. Then over time, those blockages were blasted out of the way by the continuing pressure of the oil blowout.
Now, we have oil and gas coming out of the reservoir, and up the casing pipe at high velocity. It's likely there are small bits of rock, sand, clay and whatever else in that fluid stream. So the continuing flow is essentially sand-blasting the innards of the blowout preventer and pipe system. The flow of oil may actually be widening its own path. That's why we see increased amounts of oil and gas over time.
Ugly Images
You want to see something ugly? Here goes.
This image is oil billowing out of the cracked riser pipe. It's just above the blowout preventer, manufactured by Cameron International (CAM: NYSE). This uncontrolled oil plume is in addition to the other oil that's moving "up" the riser piping (on the left of the photo).
As I've mentioned, some of the oil is being sucked out of the broken riser. (It's further along the pipe system.) This oil and gas moves up a long pipeline to the surface. There, it gets processed for temporary storage aboard a drilling ship named the Discoverer Enterprise, owned by Transocean, Ltd. (RIG: NYSE) . In addition to recovering the oil, the Enterprise is flaring about 14 million cubic feet of natural gas per day.
We can see a lot of what's going on via streaming video from the deep-sea remotely operating vehicles (ROVs). Some of these remarkable systems are manufactured and serviced by Oceaneering International (OII: NYSE). The ROVs show hard evidence that large volumes of oil are still entering into the water column, despite the physical recovery of the 5,000 or so barrels per day.
Too Big to Fail?
The continuing BP oil spill has prompted many comparisons with the Exxon Valdez oil spill, 20 years ago. Exxon shares took a big hit, and then recovered. So by analogy, a lot of handicappers are wondering if BP shares are taking the same kind of hit, and will come out of this and recover.
Well, Exxon Valdez was then, in Alaska. This is now, in the Gulf of Mexico. So every day, as things unfold, I ask myself how bad this can get for BP. BP management has stated that the company can weather this crisis. But let's ask it another way. Is BP too big to fail?
Right now, BP is paying through the nose. So far, BP has spent over $500 million on response-related costs, just in the first month. This deepwater blowout is unprecedented in so many ways -- expensive is just one of them. I've seen numbers like $10 billion, eventually, just for the out-of-pocket costs for well-control and oil spill abatement. Truth is, nobody knows and no one will know for many years.
Meanwhile, the U.S. plaintiff-lawyer community is lined up to take a chunk out of BP. So are the state governments, as well as the federal government. The Department of Justice is reviewing the facts, with the possible end of filing criminal charges against BP. Just recall what a criminal conviction did to the fortunes of, say, the late Arthur Anderson Co.
BP Is Important
Keep in mind, though, that BP is a critical part of the U.S. energy system. By extension, BP is important to the U.S. government and national energy policy.
The fact is that BP is the largest oil producer in the U.S., at over 400,000 barrels per day just from the Gulf of Mexico. Up north, BP has a dominant position at Prudhoe Bay, Alaska, a field that lifts about another 400,000 barrels of oil per day.
BP has a controlling interest in the Alaska Pipeline.
Then there's BP's nationwide, downstream refining and product-marketing system. Think about how many cars, trucks, buses, railway locomotives and airplanes run on BP fuel, delivered under one contract or another. Try sorting that mess out if BP goes down hard.
Consider that BP is a large, global concern. Every day, across the world, BP produces about 4 million barrels of oil equivalent (BOE). That's about 4.7% of the world's liquid energy supply. Also, BP has 42 major, new oil projects under development, and scheduled to be online by 2015, producing another 1 million BOE per day. Screw that up by putting BP out of business, and we'll probably see those $200 per barrel oil prices sooner than we thought.
Beyond the raw numbers, BP has a critical energy relationship with the government of Russia. BP also has a large contract with the government of Iraq to resurrect Iraq's oil industry. So BP is important to the strategic aims of Russia and the West (certainly to the U.S.). Put BP out of business, and then what? Break out your prayer rug and face Mecca, I guess.
If push comes to shove, you should expect that BP will have the full backing of the UK government. BP is a huge employer in Britain. BP pays an immense amount of taxes to the UK government, and the UK government needs those funds. Pres. Obama may have returned a bust of Winston Churchill to the British, early in his presidency. But the British will want Obama's head on a platter if BP goes down under his administration.
Right now, the dividend yield for BP is 7.4%. That's nice, but the high return probably includes the risk that the BP board will -- sooner or later -- slash the dividend. It would be unseemly for BP to be paying large dividends, at the same time that it's also diverting funds to well-control and cleanup costs, not to mention handling damage claims. So the dividend is no longer safe, in my view.
BP -- Professional Defendant
Here's something else. BP may as well change its business model to include being a professional defendant. In years to come, BP will devote immense amounts of money and management time to litigation.
BP may even have a hard time making future energy development deals, due to the Deepwater Horizon legacy issues. I can hear it now. "Oh yes, you're the company that blew out that well in the Gulf of Mexico." The image problem may extend to BP having a hard time recruiting talent in years to come, due to the stigma.
Back to the Question
So we come back full circle to that question. Is BP too big to fail? I don't think BP will "fail." That is, BP is going to "pay" but not fail.
I'll feel a heck of a lot better about BP's prospects if (when?) BP kills that well this week. I'm not down there on the water, and I only know what I've been told. But I have a good feeling about BP killing the well. They literally have the horsepower to do it, if it can be accomplished at all.
If this week's kill-shot doesn't work, then I believe BP will nail the well in three months with the relief wells. But killing the well now is obviously better, in every way. With an immediate well-kill, there's a HUGE cleanup bill ahead of BP. But the "good" news is that the oil spill will stop. At least there won't be more oil gushing out every day.
Will the Short-Sellers Fail?
There's been a lot of short-selling of BP in recent weeks. A lot of players are betting that the share price for BP will fall, and even that BP will fail. Watch out, boys and girls. If BP kills that well this week, watch for a spike in the share price, with plenty of short-covering.
If you want to sell into that short-covering, then be ready to pull the trigger fast. I think BP shares will pop up after a successful well-kill, and then pull back after the shorts do their covering thing.
If there's no well-kill? If BP has to continue drilling relief wells? Ugh. More oil blowing out for three more months. Bad becomes much worse. The markets will hate BP. And BP stock will slide downwards.
It's Not Just BP That's Down, Lately
Final point. BP shares are way down in the past month. The Gulf of Mexico disaster is a big part of it. But then again, due to world economic issues the price of oil has dropped from the $85 per barrel range to the $70 range. So the entire oil sector is down.
Chevron, for example, is down about 10% in the past month. So is Conoco-Phillips. Exxon Mobil is down about 12% in the same time period. Thus it's safe to say that the BP share slide is not entirely due to the Gulf of Mexico well blowout. If (when) the price of oil goes back up, that alone will lift BP shares.
Is BP too big to fail? Well, BP sure is taking its hits. I'll climb out on a limb and say that I think BP will be around for many years to come. And the company will recover from this horrible mess.
That's all for now. Thanks for reading...
Byron W. King
Dear Outstanding Investments Reader:
The oil blowout in the Gulf of Mexico continues. The world's third-largest publicly-held oil company, BP (BP: NYSE), is squarely at ground-zero -- literally and figuratively.
Can this blowout also blow up BP? Or put another way, is BP too big to fail? That's the $150 billion question. And sooner or later, we're going to find out.
Getting Worse, for How Long?
How bad is the oil spill? It's bad and getting worse. I said a few weeks ago that this oil spill would get worse before it gets better. We're still in that "getting worse" phase. The continuing oil spill is so bad that it's hard to say how truly bad it is.
Conventional wisdom is that oil rises through water and floats on the top. Conventional wisdom is also wrong. In a May 19th alert, I discussed how much of the gushing oil remains deep underwater in the Gulf of Mexico. No one knows much about where the underwater oil is, or where and how it's harming aquatic life in the water column. Meanwhile, topside, we have oil washing ashore in significant, gooey amounts, into the coastal marshes and other fragile ecosystems. It's just awful.
According to Roger Helm, of the U.S. Fish & Wildlife Service (and quoted in the Washington Post), "We've never really seen this kind of thing. This one's coming in a way that has a lot of us working to understand, what is going to be the longer-term impact? […] How do we get our brain around this?"
The Aliens Have Landed
"How do we get our brain around this?" Well, first you have to understand what it means to have a deepwater blowout. This has NEVER happened before. It's an entirely new form of chemistry and physics. Throw out the old books.
Deepwater work involves extreme risks and events that are difficult to foresee. Just the mechanical tolerances for equipment -- down to the smallest of components like seals, gaskets and wire bundles -- are close to basic, atomic, physical limits of strength. Yes, the technology is impressive. That's because it's at the far edge of the envelope, at the limits of industrial capability.
Add to this that in the deep sea, strange things happen. There are bacteria that eat iron (look at the remains of the Titanic, for example). Natural gas forms into solids called clathrates. Other kinds of materials -- metals, coatings and fluids -- behave unpredictably.
When you're in deepwater, you cross over something like an "event horizon." You're not just dealing with complicated systems any more. You've gone from complicated to complex – which represents a big difference in terms of predicting things. Small inputs can trigger large, asymmetrical responses.
The allegory is that the aliens have landed, and they're tearing up the place. It's like First Contact or something. No one has ever had to deal with this scope of disaster before.
We're facing a deepwater super-well, spewing immense volumes of oil under immense levels of pressure into freezing water, through badly damaged equipment. Uncontrolled, this thing could blast oil into the benthic regions of the Gulf of Mexico for years. Science fiction has become science fact. Wrap your brain around it.
Kill the Well
The best hope for the near term is that BP kills the well this week. BP has moved pumping equipment, drilling mud and cement into position. The total energy available for pumping is in the range of 50,000 horsepower. That's the equivalent power output of ten standard railway locomotives.
In some respects, the pumping power is similar to a "fracking" job, like with fracturing the Marcellus Shale or Bakken Shale. The plan is to inject drilling mud into a series of valves at the bottom of the blowout preventer. The idea is to "out-pump the well," in the words of one BP representative with whom I spoke last week.
If the well won't take the kill-shot, then we might see uncontrolled oil gushing for up to three more months. That's how long it will take two different rigs to drill "relief" wells to intersect the existing hole, and pump it full of cement. Here's the BP graphic.
Will the relief well work? It ought to. These kinds of things have worked in the past. But it's going to take time -- three months or more -- and every day of blowout is more oil pouring into the Gulf, with more environmental damage.
Plus, keep in mind that under the best circumstances the relief well won't be easy to accomplish. For example, when the relief well gets near the bottom of the existing well, they'll have to "steer" the bit precisely, so as to bust through the cement and steel casing. It's like hitting a coffee can at 18,000 feet.
How Much Oil?
Meanwhile, how bad is the ongoing oil spill? It's likely that the oil volumes coming from the blown out well are more than the previously-advertised 5,000 barrels of oil per day. Just consider that BP is recovering anywhere from 2,500 to 5,000 barrels of oil per day, via the 4-inch wide "insertion tube" -- add that to the additional crude spilling directly into the water and it’s pretty clear to see the total could be more than 5,000 barrels a day. The amount varies, day to day, because the oil is mixed in with gas slugs. Sometimes the tube sucks up a lot of oil. Sometimes it's mostly gas.
To my mind, it's no big shock that the oil volumes have apparently increased over the past month, since the blowout occurred.
Initially, there was probably crud or debris down in the pipes that choked-back some of the oil flow. Then over time, those blockages were blasted out of the way by the continuing pressure of the oil blowout.
Now, we have oil and gas coming out of the reservoir, and up the casing pipe at high velocity. It's likely there are small bits of rock, sand, clay and whatever else in that fluid stream. So the continuing flow is essentially sand-blasting the innards of the blowout preventer and pipe system. The flow of oil may actually be widening its own path. That's why we see increased amounts of oil and gas over time.
Ugly Images
You want to see something ugly? Here goes.
This image is oil billowing out of the cracked riser pipe. It's just above the blowout preventer, manufactured by Cameron International (CAM: NYSE). This uncontrolled oil plume is in addition to the other oil that's moving "up" the riser piping (on the left of the photo).
As I've mentioned, some of the oil is being sucked out of the broken riser. (It's further along the pipe system.) This oil and gas moves up a long pipeline to the surface. There, it gets processed for temporary storage aboard a drilling ship named the Discoverer Enterprise, owned by Transocean, Ltd. (RIG: NYSE) . In addition to recovering the oil, the Enterprise is flaring about 14 million cubic feet of natural gas per day.
We can see a lot of what's going on via streaming video from the deep-sea remotely operating vehicles (ROVs). Some of these remarkable systems are manufactured and serviced by Oceaneering International (OII: NYSE). The ROVs show hard evidence that large volumes of oil are still entering into the water column, despite the physical recovery of the 5,000 or so barrels per day.
Too Big to Fail?
The continuing BP oil spill has prompted many comparisons with the Exxon Valdez oil spill, 20 years ago. Exxon shares took a big hit, and then recovered. So by analogy, a lot of handicappers are wondering if BP shares are taking the same kind of hit, and will come out of this and recover.
Well, Exxon Valdez was then, in Alaska. This is now, in the Gulf of Mexico. So every day, as things unfold, I ask myself how bad this can get for BP. BP management has stated that the company can weather this crisis. But let's ask it another way. Is BP too big to fail?
Right now, BP is paying through the nose. So far, BP has spent over $500 million on response-related costs, just in the first month. This deepwater blowout is unprecedented in so many ways -- expensive is just one of them. I've seen numbers like $10 billion, eventually, just for the out-of-pocket costs for well-control and oil spill abatement. Truth is, nobody knows and no one will know for many years.
Meanwhile, the U.S. plaintiff-lawyer community is lined up to take a chunk out of BP. So are the state governments, as well as the federal government. The Department of Justice is reviewing the facts, with the possible end of filing criminal charges against BP. Just recall what a criminal conviction did to the fortunes of, say, the late Arthur Anderson Co.
BP Is Important
Keep in mind, though, that BP is a critical part of the U.S. energy system. By extension, BP is important to the U.S. government and national energy policy.
The fact is that BP is the largest oil producer in the U.S., at over 400,000 barrels per day just from the Gulf of Mexico. Up north, BP has a dominant position at Prudhoe Bay, Alaska, a field that lifts about another 400,000 barrels of oil per day.
BP has a controlling interest in the Alaska Pipeline.
Then there's BP's nationwide, downstream refining and product-marketing system. Think about how many cars, trucks, buses, railway locomotives and airplanes run on BP fuel, delivered under one contract or another. Try sorting that mess out if BP goes down hard.
Consider that BP is a large, global concern. Every day, across the world, BP produces about 4 million barrels of oil equivalent (BOE). That's about 4.7% of the world's liquid energy supply. Also, BP has 42 major, new oil projects under development, and scheduled to be online by 2015, producing another 1 million BOE per day. Screw that up by putting BP out of business, and we'll probably see those $200 per barrel oil prices sooner than we thought.
Beyond the raw numbers, BP has a critical energy relationship with the government of Russia. BP also has a large contract with the government of Iraq to resurrect Iraq's oil industry. So BP is important to the strategic aims of Russia and the West (certainly to the U.S.). Put BP out of business, and then what? Break out your prayer rug and face Mecca, I guess.
If push comes to shove, you should expect that BP will have the full backing of the UK government. BP is a huge employer in Britain. BP pays an immense amount of taxes to the UK government, and the UK government needs those funds. Pres. Obama may have returned a bust of Winston Churchill to the British, early in his presidency. But the British will want Obama's head on a platter if BP goes down under his administration.
Right now, the dividend yield for BP is 7.4%. That's nice, but the high return probably includes the risk that the BP board will -- sooner or later -- slash the dividend. It would be unseemly for BP to be paying large dividends, at the same time that it's also diverting funds to well-control and cleanup costs, not to mention handling damage claims. So the dividend is no longer safe, in my view.
BP -- Professional Defendant
Here's something else. BP may as well change its business model to include being a professional defendant. In years to come, BP will devote immense amounts of money and management time to litigation.
BP may even have a hard time making future energy development deals, due to the Deepwater Horizon legacy issues. I can hear it now. "Oh yes, you're the company that blew out that well in the Gulf of Mexico." The image problem may extend to BP having a hard time recruiting talent in years to come, due to the stigma.
Back to the Question
So we come back full circle to that question. Is BP too big to fail? I don't think BP will "fail." That is, BP is going to "pay" but not fail.
I'll feel a heck of a lot better about BP's prospects if (when?) BP kills that well this week. I'm not down there on the water, and I only know what I've been told. But I have a good feeling about BP killing the well. They literally have the horsepower to do it, if it can be accomplished at all.
If this week's kill-shot doesn't work, then I believe BP will nail the well in three months with the relief wells. But killing the well now is obviously better, in every way. With an immediate well-kill, there's a HUGE cleanup bill ahead of BP. But the "good" news is that the oil spill will stop. At least there won't be more oil gushing out every day.
Will the Short-Sellers Fail?
There's been a lot of short-selling of BP in recent weeks. A lot of players are betting that the share price for BP will fall, and even that BP will fail. Watch out, boys and girls. If BP kills that well this week, watch for a spike in the share price, with plenty of short-covering.
If you want to sell into that short-covering, then be ready to pull the trigger fast. I think BP shares will pop up after a successful well-kill, and then pull back after the shorts do their covering thing.
If there's no well-kill? If BP has to continue drilling relief wells? Ugh. More oil blowing out for three more months. Bad becomes much worse. The markets will hate BP. And BP stock will slide downwards.
It's Not Just BP That's Down, Lately
Final point. BP shares are way down in the past month. The Gulf of Mexico disaster is a big part of it. But then again, due to world economic issues the price of oil has dropped from the $85 per barrel range to the $70 range. So the entire oil sector is down.
Chevron, for example, is down about 10% in the past month. So is Conoco-Phillips. Exxon Mobil is down about 12% in the same time period. Thus it's safe to say that the BP share slide is not entirely due to the Gulf of Mexico well blowout. If (when) the price of oil goes back up, that alone will lift BP shares.
Is BP too big to fail? Well, BP sure is taking its hits. I'll climb out on a limb and say that I think BP will be around for many years to come. And the company will recover from this horrible mess.
That's all for now. Thanks for reading...
Byron W. King
Sunday, May 16, 2010
Corporations:Unaccountable,Out of Control,Environmental Terrorists !
From Wall Street to the Gulf of Mexico, the news lately has been full of disasters caused by big corporations. They're out of control. Unaccountable. And they're getting away with it because they've bought so much influence in Washington.
It's time to take on the corporate lobbyists who have a stranglehold on our democracy. So on Monday at noon, thousands of progressives from MoveOn, AFL-CIO, SEIU, Jobs for Justice and National People's Action are going straight to K Street in Washington, DC to let the corporate lobbyists and their friends in Congress know we've had enough.
Since you don't live in the DC area, you probably think you can't be there. But we've rigged up an awesome virtual "march" web page that will allow you to still make your voice heard—right from your desk. You can join the event live from your computer anytime between 11:45 a.m. and 2 p.m.
Click here to RSVP:
At the virtual march, you can:
* Check out live video and a live blog from the march site.
* Make sure the march's message reaches Washington by letting your senators know we need to end the domination of corporations in Washington, DC.
* Talk to other virtual marchers and share a photo of yourself with your own rally sign.
RSVP to join the march online and add your voice here.
Hope to see you there, and thanks for all you do.
–Ilyse, Amy, Tim, Milan, and the rest of the team
P.S. The virtual march will be posted at this link tomorrow, if you want to bookmark it now!
Want to support our work? We're entirely funded by our 5 million members—no corporate contributions, no big checks from CEOs. And our tiny staff ensures that small contributions go a long way. Chip in here.
It's time to take on the corporate lobbyists who have a stranglehold on our democracy. So on Monday at noon, thousands of progressives from MoveOn, AFL-CIO, SEIU, Jobs for Justice and National People's Action are going straight to K Street in Washington, DC to let the corporate lobbyists and their friends in Congress know we've had enough.
Since you don't live in the DC area, you probably think you can't be there. But we've rigged up an awesome virtual "march" web page that will allow you to still make your voice heard—right from your desk. You can join the event live from your computer anytime between 11:45 a.m. and 2 p.m.
Click here to RSVP:
At the virtual march, you can:
* Check out live video and a live blog from the march site.
* Make sure the march's message reaches Washington by letting your senators know we need to end the domination of corporations in Washington, DC.
* Talk to other virtual marchers and share a photo of yourself with your own rally sign.
RSVP to join the march online and add your voice here.
Hope to see you there, and thanks for all you do.
–Ilyse, Amy, Tim, Milan, and the rest of the team
P.S. The virtual march will be posted at this link tomorrow, if you want to bookmark it now!
Want to support our work? We're entirely funded by our 5 million members—no corporate contributions, no big checks from CEOs. And our tiny staff ensures that small contributions go a long way. Chip in here.
Subscribe to:
Posts (Atom)