The BP oil spill and American Capitalism

8 May 2010

The explosion on the BP oil rig Deepwater Horizon on April 20 off Louisiana’s coast, which took the lives of 11 workers and has resulted in a massive oil slick that threatens economic and environmental ruin for the Gulf Coast, stands as a powerful exposure of American capitalism.


Each day brings new revelations that federal regulators under both the Bush and Obama administrations aided and abetted BP and the oil industry as they disregarded safety and environmental precautions that might have prevented the disaster.

Some of the most recent revelations include:

• In 2000 the Minerals Management Service (MMS) requested industry advice on problems related to the cementing used around deep sea well caps to stop blowouts. The oil industry never produced recommendations, and no regulation was put in place.


• A 2002 study conducted by the MMS revealed that vital equipment on oil rig blowout preventers did not function. In laboratory testing of one manufacturer’s shear rams—devices used to sever pipes after a blowout—half failed. Seven other makers refused to have their shear rams tested.


• In 2002, Pers Holland, a Norwegian researcher commissioned by the MMS, found that two sets of shear rams should be used in blowout preventers, rather than the industry standard of one. Holland reported that using a single cutting device could result in failure to plug leaks in 10 percent of all blowouts. The MMS disregarded Holland’s proposal.


• A study commissioned by the MMS in 2004 raised serious doubts as to whether equipment in blowout protectors could even function under deep sea oceanic pressures. No standards were put in place.


• Deepwater Horizon lacked an “acoustic switch,” a backup mechanism for triggering the blowout preventer in the case of an explosion. The US oil industry found these units’ $500,000 price too expensive and MMS did not require them, although they are mandated by Norway and Brazil.


• The number of drill site inspections carried out by the MMS fell by 41 percent between 2005 and 2009, even as the number of drill rigs operating in US waters increased. The number of penalties issued by MMS for regulatory violations fell from 66 in 2000 to 20 last year.


• In June of 2009, the MMS exempted BP from producing a legally-mandated environmental impact study for the site where Deepwater Horizon would drill. Obama was earlier warned by the National Oceanic and Atmospheric Administration (NOAA) that MMS studies approving offshore drilling were not reliable.


These decisions led directly to the deaths of 11 workers aboard the Deepwater Horizon and the environmental catastrophe in the Gulf. The workers killed in the BP explosion are only the latest casualties. According to data from the International Regulators Forum, from 2004 through 2009 offshore oil workers on US rigs were four times more likely to be killed in industrial accidents and 23 percent more likely to be injured than oil workers in European waters. While there were 5 “loss of well control” disasters on US drill rigs in 2007 and 2008, in five other major offshore drilling nations—the UK, Norway, Australia, and Canada—there were none.


Since 2001 there have been 69 deaths, 1,349 injuries and 858 fires or explosions on oil rigs operating in the Gulf of Mexico alone, according to the International Association of Drilling Contractors.


The incestuous ties between the MMS and the oil industry have not been severed with the election of Obama. Obama was in fact the top recipient of BP “employee donations” in the 2008 election cycle, and the company has mobilized tens of millions in a massive lobbying campaign that has brought on board such powerful Washington insiders as Democratic Party kingmaker John Podesta, former Democratic House majority leader Thomas Daschle and former Republican Senator Alan Simpson (a key member of Obama’s bipartisan budget committee). Current CIA director Leon Panetta has also served on BP’s “external advisory council.”

Only weeks before the Gulf disaster, in an open sop to the oil companies, Obama declared his intention to make large regions of the US coastline available for oil drilling.The Deepwater Horizon explosion is the result of decades of “deregulation,” which proclaimed that the “free market” could best regulate itself. Beginning in the late 1970s, the US government, under both Democratic and Republican administrations, has worked to systematically eliminate all constraints on corporate profit-making.


The result has been disastrous for the population of the US and the world. Corporations controlling vast social resources make decisions affecting millions of people on the basis of profit. Working hand in glove with “regulators,” little more than wholly owned subsidiaries of industry, the corporate elite targets for elimination any outlay that diminishes profit returns to the top executives and shareholders, whether it be environmental protection, product safety, or workers’ safety—as a spate of recent deadly workplace accidents has revealed.


In industry after industry the story is the same—mining, auto production, transportation, telecommunications and, of course, the finance industry. Indeed, the eruption of toxic oil from the bottom of the sea has its parallel in the eruption of toxic assets that set off a financial crisis in 2008. Led by the Obama administraiton, national governments responded to this disaster by bailing out those responsible—the financial elite—and leaving the working class to foot the bill. In this sense, the crisis in the Gulf and the crisis in Greece are connected by a common social and economic system.

The assets of BP, Transocean, Halliburton and their executives—hundreds of billions of dollars—must be appropriated and used to make the people of the Gulf whole and to put in place a massive environmental cleanup program. The executives and regulators whose policies caused the disaster should be criminally prosecuted.

The stranglehold of the corporate and financial elite over society and its resources must be broken. This requires the implementation of a socialist program for energy production. The big energy corporations must be seized and converted into public utilities, democratically run by the working class in the interest of social need.

Tom Eley

The Ministry of Oil Defense

Shortly after the Marines rolled into Baghdad and tore down a statue of Saddam Hussein, I visited the Ministry of Oil. American troops surrounded the sand-colored building, protecting it like a strategic jewel. But not far away, looters were relieving the National Museum of its actual jewels. Baghdad had become a carnival of looting. A few dozen Iraqis who worked at the Oil Ministry were gathered outside the American cordon, and one of them, noting the protection afforded his workplace and the lack of protection everywhere else, remarked to me, "It is all about oil." The issue he raised is central to figuring out what we truly pay for a gallon of gas. The BP spill in the Gulf of Mexico has reminded Americans that the price at the pump is only a down payment; an honest calculation must include the contamination of our waters, land, and air. Yet the calculation remains incomplete if we don't consider other factors too, especially what might be the largest externalized cost of all: the military one. To what extent is oil linked to the wars we fight and the more than half-trillion dollars we spend on our military every year? We are in an era of massive deficits, so it pays to know what we are paying for and how much it costs. The debate often hovers at a sandbox level of did-so/did-not. Donald Rumsfeld, the former defense secretary, insisted the invasion of Iraq had "nothing to do with oil." But even Alan Greenspan, the former Federal Reserve chairman, rejected that line. "It is politically inconvenient to acknowledge what everyone knows," Greenspan wrote in his memoir. "The Iraq war is largely about oil." If it is even partly true that we invade for oil and maintain a navy and army for oil, how much is that costing? This is one of the tricky things about oil, the hidden costs, and one of the reasons we are addicted to the substance -- we don't acknowledge its full price.

If we wish to know, we can. An innovative approach comes from Roger Stern, an economic geographer at Princeton University who in April published a peer-reviewed study on the cost of keeping aircraft carriers in the Persian Gulf from 1976 to 2007. Because carriers patrol the gulf for the explicit mission of securing oil shipments, Stern was on solid ground in attributing that cost to oil. He had found an excellent metric. He combed through the Defense Department's data -- which is not easy to do because the Pentagon does not disaggregate its expenditures by region or mission -- and came up with a total, over three decades, of $7.3 trillion. Yes, trillion.

And that's just a partial accounting of peacetime spending. It's far trickier to figure out the extent to which America's wars are linked to oil and then put a price tag on it. But let's assume that Rumsfeld, in an off-the-record moment of retirement candor, might be persuaded to acknowledge that the invasion of Iraq was somewhat related to oil. A 2008 study by Nobel Prize-winner Joseph Stiglitz and Harvard University budget expert Linda Bilmes put the cost of that war -- everything spent up to that point and likely to be spent in the years ahead -- at a minimum of $3 trillion (and probably much more). Again, trillion.

Gulf oil spill threat widens

Louisiana (Reuters) - Oil from BP's out-of-control Gulf of Mexico oil spill could threaten the Mississippi and Alabama coasts this week, U.S. forecasters said on Monday, as public anger surged over the country's worst environmental disaster.

Government and BP officials are warning that the blown-out deepwater well feeding the catastrophic spill may not be shut off until August as the company begins preparations on a new but uncertain attempt to contain the leaking crude.

On Tuesday, President Barack Obama will hold his first meeting with co-chairs of an oil spill commission he tapped to probe the worst oil spill in U.S. history and make policy recommendations about U.S. offshore oil drilling.

The commission will be similar to those that looked into the explosion of the space shuttle Challenger in 1986 and the Three Mile Island nuclear accident in 1979.

Also on Tuesday, U.S. Attorney General Eric Holder will meet with federal prosecutors and state attorneys general in New Orleans. It will be Holder's first trip to survey the damage before what legal experts believe will be a criminal investigation into the disaster.

U.S. officials are treating the disaster, in its 42nd day on Monday, as the country's biggest environmental catastrophe.

Although Louisiana's wetlands and fishing grounds have been the worst hit so far by the spill, the National Oceanic and Atmospheric Administration said moderate southerly and southwesterly winds this week may start moving oil closer to the Mississippi and Alabama coasts.

"Model results indicate that oil may move north to threaten the barrier islands off Mississippi and Alabama later in the forecast period," NOAA said in its 72-hour prediction on the expected trajectory of the huge oil slick.

Mississippi and Alabama have escaped lightly so far, with only scattered tar balls and oil debris reaching its coasts.

But the NOAA forecast was a sober reminder that oil from the unchecked spill, broken up and carried by winds and ocean currents, could threaten a vast area of the U.S. Gulf Coast, including tourism mecca Florida, as well as Cuba and Mexico.

Following the failure this weekend of BP's attempt to plug the spewing mile-deep well, public anger over the spill and how it occurred is growing, as tens of thousands of Gulf Coast residents face a pollution impact on their livelihoods.

A group calling itself Seize BP, which has already staged anti-BP protests, said on Monday it would organize demonstrations in more than 50 U.S. cities from Thursday to Saturday to protest the damage from the leaking oil.

The group demands that BP's assets be immediately seized and held in trust to pay compensation for the spill triggered by the April 20 explosion of the Deepwater Horizon rig.

'JOBS VANISHING, CREATURES DYING'

"The greatest environmental disaster with no end in sight! Eleven workers dead. Millions of gallons of oil gushing for months (and possibly years) to come. Jobs vanishing. Creatures dying," Seize BP said in a statement.

The public anger and frustration over the spill poses a major domestic challenge for Obama, who has been forced to admit publicly that the U.S. government and military do not have the technology to plug the leaking well and must leave this to BP and its private industry partners.

Obama, who made his second visit to the Gulf disaster zone on Friday, is sending three of his top energy and environmental officials back there this week. He is trying to fend off criticism that his administration acted too slowly in its response to the spill.

The crisis could swell into a political liability for the Democratic president as his administration and party, bloodied by bruising healthcare and economic policy debates, head toward congressional elections in November.

Louisiana's commercial and recreational fishing industry already has been dealt a blow by the spill. Fishing boats bobbed idle on Monday at the Venice Marina in Louisiana, which would normally be a hive of activity during the long Memorial Day weekend.

"Just take a look around, it's quiet," marina owner Bill Butler said as he sat wistfully looking at the idle boats.

As a health precaution, U.S. authorities have closed all fishing in 25 percent of Gulf of Mexico U.S. federal waters.

The Gulf Coast is one of America's richest ecosystems and a vital breeding ground for a $6.5 billion seafood industry.

ULTIMATE HOPES IN RELIEF WELL

BP executives say the company will try several immediate options to try to control the leak, including the planned deployment of a containment cap in the next few days, but the ultimate solution may only lie in the drilling of a relief well that is expected to be completed in August.

The drilling of two relief wells, which began in May, is an expensive but more reliable way to intercept and cap the leaking well.

The Gulf spill has surpassed the Exxon Valdez disaster off Alaska in 1989 as the worst U.S. oil spill, with an estimated 12,000 to 19,000 barrels (504,000 to 798,000 gallons/1.9 million to 3 million liters) leaking per day.

BP is now preparing a containment cap to place on top of a lower marine riser package (LMRP), a piece of equipment that sits atop the failed well blowout preventer on the seabed.

Remote vehicles have begun cutting away pipes atop the blowout preventer to allow a tight fit with the cap, and will saw through the main riser pipe in "next day or two," a BP spokesman said on Monday.

If the containment operation works -- and BP expects to know later this week -- then at least some of the leaking oil could be piped to the surface.

Oil and Gas Dispute

Gov. Bill Ritter was quite angry as he confronted the oil and gas industry for saying a proposed ballot initiative to increase severance tax revenues, would cause Coloradans utility bills to increase, as well as higher pump prices, and turn local governments against energy firms.

Ritter was speaking to the Rocky Mountain News editorial board affirming the initiative, which calls for the removal of an ad valorem tax credit which now allows energy companies to cut their state severance tax by a significant amount. At an event later that day, Ritter told the attendies the measure has garnered more than 137,000 signatures - nearly double the 76,000 needed to get on the ballot in November. If passed it will raise about $321 million a year - most of the money going to scholarships.

American Oil

Jurors will be deliberating soon on whether fraud was committed in a oil and gas royalty lawsuit near Houston, Texas. The lawsuit was filed by M&M and E.L.Resources against D.S.T.J. Corporation with a claim of not receiving seven months of royalties on a well that was later closed down. Twenty-one leases stated that D.S.T.J. were to pay a 5% royalty to the plaintiffs in which 4 were located in an area owned by residents of Blackman Tract in Jefferson County. Court papers state that D.S.T.J. was drilling at the well which was functioning from Oct. third until it was shut down in March. The plaintiffs claim that D.S.T.J. didn't pay any royalties during the operations of the wells at that time. It's stated in the lawsuit that the non-payment constitutes an obligational default of the contract. D.S.T.J. responded with a counter suit alleging that the plaintiffs lease provisions were improper, and the plaintiffs were involved in shady dealings in the agreement which was effective in preventing them from further production of the tract. So D.S.T.J. had to close production of the wells due to the plaintiffs including fraudulent provisions in the lease. The jury will decide if the plaintiffs fraud was the reason the well was closed or will D.S.T.J. pay royalties for the production time for the seven months the well was in operation. Royalties can be denied in a few ways. Oil and gas producers reporting lower levels than they produce in order to circumvent paying the royalties. Inflating production expenses is another way they scheme to avoid paying royalties. Texas landowners will lease several acres and don't have many options when royalties are denied to them that they should rightfully be receiving. There is no one authority in Texas for ensuring the landowner that they will receive their royalties. And because of that, landowners have no recourse when drilling companies fail to pay royalties. So the only option is to file a lawsuit through a Houston Oil and Gas Lawyer or a Houston Fraud Lawyer to recover the royalties that are rightfully theirs.




OIL Articles
Oil and Gas Dispute
Gov. Bill Ritter was quite angry as he confronted the oil and gas industry for saying a proposed ballot initiative to increase severance tax revenues, would cause Coloradans utility bills to increase, as well as higher pump prices, and turn local governments against energy firms. Ritter was speaking to the Rocky Mountain News editorial board affirming the initiative, which calls for the removal of an ad valorem tax credit which now allows energy companies to cut their state severance tax by a significant amount. At an event later that day, Ritter told the attendies the measure has garnered more than 137,000 signatures - nearly double the 76,000 needed to get on the ballot in November. If passed it will raise about $321 million a year - most of the money going to scholarships.


Oil Price History and Analysis
Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply.The U.S. petroleum industry's price was heavily regulated through production or price controls throughout much of the twentieth century. In the post World War II era U.S. oil prices at the wellhead averaged $26.64 per barrel adjusted for inflation to 2008 dollars. In the absence of price controls, the U.S. price would have tracked the world price averaging $28.68. Over the same post war period the median for the domestic and the adjusted world price of crude oil was $19.60 in 2008 prices. That means that only fifty percent of the time from 1947 to 2008 have oil prices exceeded $19.60 per barrel


OIL News

Royalty Fraud in the Texas Oil and Gas Drilling Industry .
Jurors will be deliberating soon on whether fraud was committed in a oil and gas royalty lawsuit near Houston, Texas. The lawsuit was filed by M&M and E.L.Resources against D.S.T.J. Corporation with a claim of not receiving seven months of royalties on a well that was later closed down. Twenty-one leases stated that D.S.T.J. were to pay a 5% royalty to the plaintiffs in which 4 were located in an area owned by residents of Blackman Tract in Jefferson County. Court papers state that D.S.T.J. was drilling at the well which was functioning from Oct. third until it was shut down in March OIL .




Oil Companies Eye Iraq's Multibillion-Barrel
As multinational military forces have left Iraq, international petroleum companies have eagerly descended - seduced by the long-term potential of vast oil reserves off-limits to foreigners for decades. Yet lingering violence, legal questions and political uncertainty make doing business in this country a gamble. In the first international oil auction held last June, widely seen as a failure, the Iraqi government awarded a firm contract to only a consortium of British Petroleum and the China National Petroleum Co. to further develop the Rumaila field over 20 years. Iraq recently forged an initial agreement with a group comprising Exxon Mobil and Royal Dutch Shell to develop the West Qurna field, and one with an ENI-led consortium of Occidental Petroleum and Korea Gas for the Zubair oil field. ...