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News of BP PLC's (NYSE ADR: BP) Gulf Coast oil spill was only hours old when Money Morning readers first weighed in on the tragedy. The chief concern: U.S. taxpayers will yet again be stuck with the tab for a problem caused by corporate malfeasance and lax governmental oversight.
Stricter government regulation could enforce safety shut off valves with remote control operations – a device that could have prevented the current disaster. The hefty $500,000 price tag on the safety control has been a past deterrent, but hard to argue against in the wake of the billion-dollar Gulf spill.
But investors understand that the long haul is what really matters, meaning that there's perhaps a bigger question here than who's at fault, and what will this cleanup cost….
Washington wants to limit U.S. dependence on foreign oil and create jobs, while also protecting natural resources and preventing future spill disasters. But the United States faces a future in which oil prices are likely to soar as thirsty nations compete for dwindling supplies.
Clearly, our leaders in Washington, the U.S. energy sector and U.S. environmental agencies and interests will have much to debate in the months and years to come.
This prompted last week's installment of Money Morning Question of the Week: Is U.S. offshore oil drilling going to disappear – why or why not? How does the industry affect you as an investor, taxpayer and consumer?
Here is a collection of thoughtful reader responses regarding the future of drilling and the oil spill.
Drilling Can't End Soon Enough
My answer to your question is: I hope so – and the sooner, the better.
How do you risk-manage something like this? When the outcome of something going wrong is unacceptable (and I definitely view a spill as unacceptable), seems to me youjust don't do it.Not to mention that decreasing, not increasing dependence on oil is supposed to be the order of the day given the economic and political realities surrounding the energy situation on our planet.
So the bottom line: I am hoping that sanity will reign and that we will move away from oil and in the direction of solutions where the worst-case scenario is still acceptable – so that risk management is even possible – and which are, furthermore, sustainable.
– Cara T
Lesson Learned – Hopefully
Years ago I heard someone say, "Experience is what you get when you don't get what you want." By that definition, BP and the other companies associated with the Gulf oil catastrophe are getting a lot of experience, and in the short term we are likely to see permits to drill offshore restricted, or even eliminated completely. However, there is too much oil in offshore reservoirs to declare a permanent moratorium on drilling for it and using it.
Despite this catastrophe, I don't see Brazil or others stopping development of their resources, although I am quite sure that they will pay very close attention to how we deal with this situation. They are not fools, and they will certainly want to learn from our experience.
And down the road, when oil is in shorter supply, and much more expensive, the U.S. will again open up some offshore locations for exploration. There will certainly be those who will protest vigorously, but ultimately the promise of those billions of barrels of oil will overcome the resistance. It may well not happen under the current administration, but eventually the political and economic forces will align themselves, and efforts to tap these reserves will resume.
And when it happens, the lessons learned in this debacle, along with those learned in other offshore drilling locations around the world, will hopefully provide the means to develop them safely. I'm not sure that I think that this is a good idea, but my reservations about the wisdom of drilling in such locations are irrelevant. At some point, drilling will resume.
– Gordon F.
Cars Drive Need for Oil
Drilling will continue. The impetus for offshore drilling is controlled by the demand for oil. Government regulations always bend in favor of the majority, and the majority of people (with money) own cars. Offshore drilling will continue as long as cars run on oil.
Drilling in deep ocean is just another job that is created by demand. As long as we let
our cars determine our destination, our destination will be where the oil is. "Safety" is relative to the profits and risks, and the data will be modified accordingly. New devices, higher profits, higher risks – but people will still keep driving even when they don't have to.
– Dan C.
Must Continue
It would be folly to not continue offshore drilling in the U.S.
We must continue to drill and find safeguards to avoid the repeat ofthe catastrophic event of late. To stop now will do nothing but keep us enslaved to foreign powers that hate us !
– Walter T.
Epic Disaster
The current "oil spill", which in actuality should be called a "man-made" leak of epic proportions, will be the greatest ecological disaster seen to date, by an order of magnitude you guys just don't seem to get…
– Lynn A.
No Other Choice
There is no way this country can and will survive at this time without continuation
of oil and gas drilling on our own leases both on shore and offshore. We do not have an alternative resource at our disposal at the present time to keep the country going. We should continue drilling and exploring where known deposits are located!
– Posted on our Web site 5/6/10 by "Richard M. Samic, Sr."
Killing by Drilling
The oil company (BP) will never, never live long enough to make up for and compensate for the loss of the animals that depend upon unpolluted waters. When will we learn and take action; when there are dead oceans and no longer anything living therein? Won't that be too late?
Our government…they are too busy taking payoffs to do anything about these types of tragedies. It is you and I, the public, John and Mary Q, [who] stand to lose the most…
– Posted on our Web site 5/10/10 by "Helen"
Oil Drilling is Not the Answer
Every thing to do with oil is based on greed from the drilling to the filling station .The government is not one bit interested in the people, only in filling their own pockets.
Oil is going to run out – every one knows it, but they do not come up with a plan to take its place. They better get serious soon or it will be too late…
The only way is to offer an incentive so the ordinary backyard mechanics and scientists get to work on the problem. They are the ones that made America what it is today.
– Posted on our Web site 5/10/10 by "Craig Thomas"
[Editor's Note: Thanks to all who responded to our seventh installment of the Question of the Week feature regarding offshore oil drilling. Be sure to answer next week's question: How has the market's "flash crash" affected your investment behavior? Do you like the steps taken so far to prevent this from happening again?
Send your answers to mailbag@moneymappress.com!
Is there a topic you want to see covered as a Question of the Week feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Money Morning:
Full Cost of Gulf Oil Spill Just Beginning to Surface - Money Morning:
BP Bites the Bullet: Analyzing the Full Cost of the Gulf Oil Spill - Money Morning News Archive:
Question of the Week Feature
these are cycles, now there will be difficulty in permits to drill offshore the atlantic coast, but lobbysts will do their job, and we will be back drilling ina few years. you need to have the most advance technics to control blow outs, not relaxe them, this is also cyclic. there are lots of wells in the gulf of mexico and anything could go wrong anywhere anytime. so i am for no drilling in the offshore atlantic. foreing governments may hate usa, but not their people. in the mean time you need to change rules for electing senators because they all have too much money, over 300 million dollars each to think as the poorer americans do, therefore, they are very slow at anything, they have so much money that time is not important to them….chao,
I find it interesting that the Gulf spill quantities are compared to what happened with the Exxon Valdez. What about the 1 billion gallons of oil that was spilled off the shores of Kuwait in 1991 when Iraq invaded the country of Kuwait and deliberatley destroyed its energy (oil) facilities?
Oil consumption will dictate future oil drilling in the Gulf. Maybe your Government will insist on comparable statdards that the drillers in the North Sea (off the east coast of England) have to meet in such hard and tasking conditions?
Maybe too, while your legislation increases the cap from $75 million to $10 billion for consequential damages they will introduce similar legislation to cover all of the equity losses incurred (estimated at $7 trillion) from, and stemming out of the actions and inactions, of the Wall Streer investment banks. You cannot have a rule of law for one area of the US (Louisiana, Mississippi, Florida, etc.)when the currrent and future losses (Consequential Damages) experienced throughout the entire US, because of the predatory actions of the Wall Street Investment banks, was even greater. Why have Senators Wilson and Menendez not introduced legislation to cover these losses too. The number of victims they would be serving would be 10-fold the interest of their current proposed legislation coverage!
Did the United States stop the space program when Appollo 1 caught fire on the launch pad or when the space shuttles blew up. No, we learned from our mistakes, took the appropriate corrective actions and continued.
Any of you guys ever hear of Canada (it's actually located just north of you and is your largest supplier of "foreign"oil). If you have been paying attention you will know that we also have what I believe is now the world's largest oil reserves in the Alberta tar sands which contains at least a one hundred year supply for North America located in a politically secure area right next door to you…and we have been the best of friends for a long time now. The Chinese are certainly interested and if you have any sense you should be too. Yes there are pollution issues with the tar sands but who is kidding who here. As you now know, if you didn't before, there are going to be pollution issues with any source of oil and oil is absolutely going to be required in any realistic scenario for a long time to come. Just open your eyes, look to the north, and realize that your best friends have the solution to this problem for you. You don't need to fight foreign wars or risk polluting the oceans (you know it will happen again, and again)..we have more oil than you will ever need in a secure area and the pollution issues associated with this supply are solvable. But you're going to have to be quick and get your heads out soon, because China and others are certainly not unaware of what we have here and are already buying in to secure supply. Your choice.
Oil drilling will continue. But the industry needs to reassure everyone that this incident, and the seemingly clumsy initial response,never happen again. This was far from the worse case scenario of a spill over 100,000 barrels a day from a 30,000 foot deep high pressure reservoir that might take more than 6 months to kill.
At least five different barriers to flow were breached here (cement, 2 sets of BOPs, a seal, and a fail-safe valve), each with a high probabilty of working (most 99+% effective in the past), but still a statistically nearly impossible disaster still happened. I would like to see contingency planning to deal with anything that might occur. That means equipment already designed and available to deal with a variety of possible scenarios (heavy oil to dry gas at different flow rates). This continual flow of oil to the surface several weeks after the incident is unacceptable going forward.
A "tool box" of different methods of stopping the flow, containing the oil/gas, collecting the oil or burning the gas before it affects large areas (what if this had been full of H2S gas?), and remediation plans for a range of scenarios are all necesary to be in place before the public will trust the industry again.
Gentlemen:
Given the inexhaustible American ingenuity and technology I feel that my suggestion is simple
minded, but here it is:
Pump the spilled oil into tankers and the rest will be History.
Good luck, EOrtega
One thing that is clear from the hearings in Washington about the Gulf spill is that each of the major corporations involved (BP, Transocean, and Schlumberger) are vigorously pointing the finger at each other as to blame. Reform of regulations must include making every contractor responsible for the total cleanup cost as a percentage of what they earned on the well's cost, then maybe they would be more motivated to work together to improve the overall risk management strategy rather than just their own actions.
Our vehicle purchasing decisions drive the need for oil and affect our use of military intervention in foreign oil fields to protect our supply. Since the electrical power industry is the only realistic alternative that is actually in the process of replacing some fossil fuels with renewable, domestically produced (=USA jobs) energy sources, my next vehicle will be electric.
The only way to control the price of energy in the USA is for the general public to embrace reduction of consumption. Our 5% of the world's population should use 5% of the world's energy so each of us should reduce our consumption to only 20% of what we are doing now. Drive 1/5 of the miles, reduce electricity to 20%, use only 20% of your daily water, etc.
I heard the BP chairman use the same 'defense' as 'Joe' above; what he conveniently excludes [along with the "airplanes go down but we do not discontinue flight" is the economic impact to
the U.S. and our new dependency on Chinese seafood that uses anti-biotics to fight the effects of their polluted fisheries and our massive 'dead zones' of economic destruction wrought by BOTH
pollution and oil spills [same thing] that devastate zones as big as Massachusetts in the Gulf [prior to the recent 'spill' and the size of Delaware outside of Peugeot Sound. The Cheapeasake Bay has virtually no fishing, crabbing, or shrimp left after 25 years of abuse [with no rebound in sight]. This is a serious economical and ecological issue. Energy Security and oil production are important, the estuaries and fishing as a food source is important. The economic loss and dependency on foreign lands for our food sources is important [food security]. But you cannot have one destroy the other or the overall systemic weakness in the infrastructure will cost you more in the ‘long haul’ than the money saved on safety and regulation administration in the short hall. [short term gain = long term $pain]
I am a republican and have never considered myself an environmentalist until now. I am completely disgusted and in shock at BP's complete lack of any solution to this problem.
Why the Pickens plan still does not get any serious consideration as a bridge to a long-term solution to our energy problems is beyond me. Natural gas is relatively clean, abundant and cheap. Oil is clearly not clean, not abundant and expensive. Why does our government have such disdain for natural gas as a solution to our problems?
its so simple it hurts….we need to switch our entire transportation fleet to electric cars and plug them into our underutilized electric grid (our greatest infrastructure asset) All of our vehicles can then be nucleor powered, solar, coal etc….
Outlawthe internal combustion engine in 15 years and we will have completely transitioned from oil to electric,,,,let our military keep the oil and our construction industry work on diesel its so simple it hurts the brains of politicians……
Offshore, drillling well continue it may slow down due to tougher legislation in the U.S., but countries such as Brazil, Nigeria, and Denmark it well continue strong. Oil in the long run is getting scarcer and pricer. This well drive the demand for offshore drilling companies well learn from this mistake and hope the U.S. government doesn't over react.
For the last 60 years I have been constantly amazed how quickly many people are so ready to condem systems and structures they have little knowledge of. Several months ago a major bridge and national highway in Minnesota collapsed into the river it was engineered to cross. The finger pointing began almost immediately by media and public with little knowledge of engineering. A commission was formed as to how this could have happened and been prevented. A major Washington state floating bridge is setting on the bottom of the lake after a new bridge had been built and installed. Human error? Which part was human error? The financing of the bridges, the building of the bridges, or the toll booth that collects the fare? BP (the financial recipient of any profits and the one that eats the loses if there is a "dry hole"), won the lottery to drill in the awarded sector, was supervised by Mineral Management Service, a U S government agency charged with enforcing the pertinent regulations, Trans Ocean, the owner of the Deep Water Horizon, and the company that does the actual drilling, and Halliburton the company, a sub contractor that was to "mud the casing" and convert the well from exploratory well to a production well. Each of these companies have considerable experience in their niche of the processes. All collaborate with one another as profit is the unifying feature of this arrangement. No one, including the other companies that offer supporting functions to the stated mission, wants, needs an accident of any type or size. The media failed first and foremost and has in every pseudo disaster that I can remember. Where were they when observing the US government taking inventory of the Miles of booms and Sea Curtain they never ordered, received or had ready for a situation of this type? Where were the bureaucrats responsible for oversight functions. Google the data covering at sea accidents with drilling platforms which are certified by ABS and Coast Guard and under continuous scrutiny. The "Chief Finger Pointer" needs to glance or better still take a hard look at the image in his mirror. The Finger in Chief hasn't convinced this observer that he has experience at any occupation, appreciates what it takes to develop any structure or even a Taco Bell restaurant, much less develop healthcare, manage the banking mess, create shovel ready jobs other than work in a cemetary! The tragedy is, this man in charge was born 100 years to late, as he could have plied his talents in community organizing a Soviet Gulag. This is an opportunity to develop better systems of exploration, mitigation procedures for these types of situations and enjoy the benefits of our own oil as opposed to purchasing from those that have raped us for years past and have every desire to continue this dependency. The Chinese have 3 oil companies that have drilling operations on land and at sea and contracts with Cuba, Venezuela, and others around the earth. For those with a greed streak, please register with those governments to sue, when they have a "blow out" at sea or on land, so the litigation procedures are already in place when an event occurs.