Oil Catastrophe Looms.

Weekend Update – May 1, 2010

Baltic Dry Index. 3354 -05

LIR Gold Target by 2019: $3,000.

Tomorrow, the euro-zone finance ministers meet to finalise the hardship terms for tax and work shy Greeks, in return for their getting 120 billion euros of loans. In return, the hapless Greeks must use it to pay off Germany, France, Spain and Italy’s banks who largely hold their debt, plus a Swiss listed bank that’s just decamped to Luxembourg, presumably to ensure it isn’t left out of the bailout. In reality, the terms are all German, since it’s Germany putting up the largest part of the money, and the German press has taken an intense dislike to the Greeks. I am sceptical that the Greeks will do more than implement phase one of the hardship deal, before realising that national suicide won’t work and Greece exiting the Euro early next year. More next week on Greece mangled in a German wringer.

Today we update what is still just short of an ecological catastrophe in the Gulf of Mexico. By Monday morning’s opening it may be. I suspect that it will soon be a catastrophe for BP and its hapless owners, no matter what happens next. What happens next is a matter of some dispute, since there now seem to be far too many chiefs and bureaucrats involved, rather than oil engineering experts. With lawsuits already filed and the US tort bar from Los Angeles to Boston preparing more, what happens next will all too likely now be driven by a need to keep the bureaucrats and lawyers happy.

We open with a report that the well if not capped soon could go on to become a massive environmental disaster. Below that, roughly the state of things this Saturday morning.

Leaked report: Government fears Deepwater Horizon well could become unchecked gusher

By Ben Raines April 30, 2010, 2:18PM
A confidential government report on the unfolding spill disaster in the Gulf makes clear the Coast Guard now fears the well could become an unchecked gusher shooting millions of gallons of oil per day into the Gulf. "The following is not public," reads the National Oceanic and Atmospheric Administration's Emergency Response document dated April 28. "Two additional release points were found today in the tangled riser. If the riser pipe deteriorates further, the flow could become unchecked resulting in a release volume an order of magnitude higher than previously thought."

Asked Friday to comment on the document, NOAA spokesman Scott Smullen said that the additional leaks described were reported to the public late Wednesday night. Regarding the possibility of the spill becoming an order of magnitude larger, Smullen said, "I'm letting the document you have speak for itself."In scientific circles, an order of magnitude means something is 10 times larger.

In this case, an order of magnitude higher would mean the volume of oil coming from the well could be 10 times higher than the 5,000 barrels a day coming out now. That would mean 50,000 barrels a day, or 2.1 million gallons a day. It appears the new leaks mentioned in the Wednesday release are the leaks reported to the public late Wednesday night. "There is no official change in the volume released but the USCG is no longer stating that the release rate is 1,000 barrels a day," continues the document, referred to as report No. 12.

"Instead they are saying that they are preparing for a worst-case release and bringing all assets to bear."The emergency document also states that the spill has grown in size so quickly that only 1 to 2 percent of it has been sprayed with dispersants.
http://blog.al.com/live/2010/04/deepwater_horizon_secret_memo.html

May 1, 2010
Five-year clean-up fear as huge slick comes ashore
Rising winds and 10ft-high seas threatened last night to overwhelm a desperate effort by the US military and thousands of commercial fishermen to contain the giant oil slick creeping hour by hour into some of the world’s most sensitive wetlands.

As BP accepted full responsibility for the Gulf Coast disaster for the first time, President Obama kept open the option of increased offshore drilling. Locals in the Mississippi delta said that federal help had come too late and wildlife officials forecast a clean-up that could take up to five years after the explosion on the Deepwater Horizon oil rig.

The first filmy layers of oil, floating on the sea’s surface, reached the coast on Thursday night near the Pass a l’Outre, the northernmost of three major outlets for the Mississippi on the east side of the delta. Heavier oil is expected to start pushing up the creeks and canals over the weekend, driven by a stiff onshore wind that yesterday was creating 5ft swells even in partially protected waters.

Hundreds of oil workers recruited by BP and the US Government gathered in Venice, the delta’s major oil town, ready to deploy. Further east, the US Air Force mobilised Hercules transport planes equipped with chemical spraying systems. The navy sent inflatable skimming equipment and 66,000ft of booms to its main staging point in Gulfport, Mississippi.

----Sea-bed gushers left by the explosion are pumping 210,000 barrels of crude into the Gulf a day. If the leaks are not capped — and BP was still unsure yesterday what had caused them — the scale of the disaster will eclipse the Exxon Valdez tragedy within weeks. The slick is already 600 miles (965km) in circumference, posing a $2.5 billion threat this year alone to the Louisiana fishing industry and the risk of $3 billion (£1.9 billion) in lost revenues for the state’s tourist sector.

For the region’s wildlife, the timing could hardly be worse. It has come at spawning time for the Atlantic blue-fin tuna, and migration time for Gulf sea turtles. It is feared that hundreds of turtles may already be trapped in the slick.

----In a separate incident yesterday, a mobile rig turned over in a Louisiana canal as it was being taken to a scrapyard. It was not reported to be leaking oil.
http://www.timesonline.co.uk/tol/news/environment/article7113267.ece

Gulf of Mexico oil spill could involve heavier grade of oil, making cleanup more difficult
By From the Times-Picayune April 30, 2010, 3:31PM
The potential environmental damage from the Gulf of Mexico oil spill as it washes into Louisiana coastal estuaries increased Friday with the news that the petroleum involved might not be the light, easily treated Louisiana Sweet Crude, but a thicker, more viscous type that will be harder to remove from the marsh.

"When we analyzed the sample we got, it turned out to be stuff that was much heavier than typical south Louisiana crude," said Ed Overton, an LSU professor and one of the state's experts on oil spills. "It looks like it could be something heavier.

"South Louisiana crude is the easier type to clean up and contain. This other stuff would be a whole different ball game. A much tougher ball game."

Overton cautioned that his lab analysis was based on a single sample, and he has urgently been trying to get others. "We need to know, because this could change how we go about attacking this thing.

"I've been telling people all week that since this is Louisiana sweet crude, treating it won't be a big problem. But now we need to confirm this heavier stuff as soon as possible."
Louisiana "sweet" crude is prized by refiners because it contains a high percentage of the volatile compounds that are used for making gasoline, and a small fraction of asphaltenes, heavier, non-combustible compounds that are most commonly used for roads and roofs.

While the volatile compounds have high toxicity and can pose serious health risks to plants, fish, wildlife and humans including cancers and death, they evaporate quickly once exposed to oxygen and sunlight and are easy to treat during spills, Overton and other clean-up experts said.
http://blog.al.com/live/2010/04/gulf_of_mexico_oil_spill_could.html

Below more on errant blowout defaulter. Failure is nothing new it seems. Which rather begs the question why was the regulatory regime so lax, and why no standby plan B, required at all times?

Device to halt blowout faulted
117 preventer failures were cited in 1999 report
By LES BLUMENTHAL MCCLATCHY NEWSPAPERS April 30, 2010, 11:59PM

WASHINGTON — A 1999 report commissioned by the federal agency that oversees offshore drilling suggests failures of underwater blowout preventers designed to stop oil spills like the massive one threatening the Gulf Coast were far from unknown, the chairwoman of a key Senate panel said Friday.

Citing a Minerals Management Service report, Sen. Maria Cantwell, D-Wash., said there were 117 failures of blowout preventers during a two-year period in the late 1990s on the outer continental shelf of the United States.

“To find out the ultimate fail-safe weapon doesn't work is surprising,” said Cantwell, who as chairwoman of the Senate Commerce Committee's oceans, atmosphere, fisheries and Coast Guard subcommittee will play a role in any congressional investigation of the Gulf oil spill and the drilling rig explosion.

The unclassified version of the 1999 report said the failures involved 83 wells drilled by 26 rigs in depths from 1,300 feet to 6,560 feet.

A similar report released by the agency in 1997 found that between 1992 and 1996 there were 138 failures of blowout preventers on underwater wells being drilled off Brazil, Norway, Italy and Albania.

Both reports are highly technical. Classified versions of the reports included proprietary information that was redacted before the reports were released publicly.

Cantwell's office said there were no newer studies, but a 2007 paper from the Minerals Management Service said between 1992 and 2006 there were 39 actual blowouts.

Blowout preventers, which can weigh up to 500,000 pounds and stand 50 feet tall, are bolted on the top of a wellhead on the seafloor and in an emergency can cut off the flow of oil to prevent a gusher. The blowout preventers can be activated by throwing a switch on the drilling rig. They also sare upposed to activate automatically in the event of a major problem or, in some cases, can be activated by acoustic sound waves produced from a ship.
http://www.chron.com/disp/story.mpl/business/deepwaterhorizon/6984731.html

We end with trouble escalating for error prone BP. Well at least as far as their North American operations seem to be involved. This might be a good time to be short BP. This might be a good time to be short the industry.

Another BP offshore operation scrutinized
19 members of Congress asking if corners were cut on Atlantis platform
By LISE OLSEN Copyright 2010 Houston Chronicle April 29, 2010, 7:59PM
BP faces an ongoing federal probe over concerns that the oil giant illegally cut safety corners in rushing completion of its massive Atlantis offshore production platform, described by BP as the deepest oil production platform in the world.

The allegations have been raised by 19 members of Congress, a Houston-based safety expert, a whistle-blowing contractor and a Washington, D.C., nonprofit organization.

BP, which calls itself the leader in deep-water offshore oil development in the Gulf of Mexico, began operations at the Atlantis platform in October 2007 at a site about 124 miles offshore in 7,000 feet of water and expanded production last year, according to government records and BP's annual report.

The allegations suggest the company rushed into production by skipping or skimping required engineering inspections, putting profits ahead of the need to protect workers from accidents and the environment from potentially catastrophic oil spills, according to allegations sent to regulators.

----Daren Beaudo, a BP spokesman, insists the company designed and built the platform to meet “global industry engineering standards, including review and approval of pro-ject design and construction procedures by professional engineers.” BP has “found no evidence to substantiate the organization's claims with respect to Atlantis project documentation,” he added.

“The engineering documents for Atlantis have the appropriate approvals, and platform personnel have access to the information they need for the safe operation of the facility,” he said in a written statement.

-----The allegations stem from a whistle-blower who worked as a contractor for BP and later provided BP documents to a Washington nonprofit called Food and Water Watch.

A local safety expert and engineering consultant, Mike Sawyer, said he prepared an independent evaluation of BP's Atlantis subsea database at the request of Food and Water Watch. Sawyer said he voluntarily reviewed the database listing of more than 7,000 design documents, reports and drawings from Atlantis and found they were “incomplete or unapproved” by engineers even after Atlantis began production.

-----The mineral service, which shares responsibility for investigating offshore platforms and drilling rigs with the Coast Guard, is conducting the current probe of BP Atlantis, according to a letter to congressional members from the service's director, Elizabeth Birnbaum.
Beaudo of BP said the company would “cooperate fully” with the investigation of Atlantis.
http://www.chron.com/disp/story.mpl/business/deepwaterhorizon/6982554.html

Transocean and deep sea rigs.

http://www.deepwater.com/fw/main/List-by-Water-Depth-77.html

First it was Icelandic ash shutting down Europe’s airspace. Now we have BP’s oil shutting down the Gulf recreation and hospitality industries, I wonder what our third calamity is going to turn out to be. For the sake of the planet, I can only hope that it’s not Gordon Brown being re-elected next week!

"Reading out the figures in a shrill, rapid voice, Gordon Brown proved to them in detail that they had more oats, more hay, more turnips than they had had in Blair’s day, that they worked shorter hours, that their drinking water was of better quality, that they lived longer, that a larger proportion of their young ones survived infancy, and that they had more straw in their stalls and suffered less from fleas."

With Apologies to George Orwell and Animal Farm.

UK General Election polls. The hung Parliament Approaches.
http://www.ukpollingreport.co.uk/blog/

Odds Checker. UK General Election Betting Odds.
http://www.oddschecker.com/specials/politics-and-election/next-uk-general-election/most-seats

More on Monday. Have a great May Day weekend, or was that Mayday!

GI.