Insights & Advice


A Gulf War of our own

Beneath the rough, weather-roiled waves of the Gulf, blue fin tuna and other species of ocean life are spawning right now. Above those schools, a river of oil has depleted oxygen in the water. The tuna and their young are forced to the surface for more oxygen. As they break the surface, the thick, reddish sheets of oil quickly coat their gills.

Mercifully, most fish die quickly. As they do, hungry birds, some endangered, dive for this mass of floating carcasses bobbing within the slick, fouling their feathers. They struggle desperately, wings flapping to escape the trap. For those lucky enough to regain the shore, it matters little. As the expected waves of oil approach the shoreline, birds and other wildlife will soon follow the fate of the fish. Even now, the vanguard of this invading army of death, golf-ball-sized clumps of tar, is already washing up on the shores of Louisianan and Alabama.

This invasion flowing from the bottom of the Gulf at the rate of 210,000 gallons a day could continue for another two months or more. If so, it will transform the southeastern coast of the Gulf into an environmental battle ground. Depending upon which way the wind blows, oil could penetrate deeply into inland marshes and shallow estuaries, further decimating a huge swath of 10 of the nation’s wildlife preserves as well as Louisiana’s $1.8 billion seafood industry.

And like any battle, the outcome right now is in jeopardy. All efforts to turn back this invading tide have been met with little success thus far since the April 20th explosion that engulfed a floating oil rig owned by BP, the British-based oil conglomerate. Everything from booms, to burning, to chemical dispersants has been thrown at the toxic crude. Yet, because of rough seas in the Gulf, which has hampered containment efforts, and the relentless daily spewing of more and more oil from three cracks in the remnants of the well head, BP has been forced into a last ditch effort to save the Gulf.

The company, which faces over $13 billion in damages thus far, has started drilling the first of two relief wells at a depth of over 5,000 feet beneath the sea floor. Once finished, they plan to inject cement into the wells, thereby plugging the leak. It is a risky plan since both new wells are being drilled into the same deposit of oil and gas that caused the original blowout.

If another blowout were to occur, it could release as much as 240,000 barrels of oil a day into the ocean. That’s almost 50% more than the company’s worse-case estimate for the first well and equal to two-thirds of daily supply pumped from Prudhoe Bay, the largest U.S. oil field. The first well is expected to be completed by July 15. BP, along with Transocean Ltd., will begin the second well on May 14. In the meantime, the company is pursuing as many containment ideas as possible. Right now they are lowering another containment device called a “top hat” plug on to the leak.

Given the shameful display of BP executives during testimony in Congress this week, I do not have a lot of confidence in a company that tries to pin the blame for the leak on others. BP blamed another company that manufactured a key safety device for the accident. They, in turn, blamed a third company that was plugging the well with concrete. If you can’t at least accept responsibility for the accident, how can BP expect to solve it?

At risk, aside from the devastation to wildlife, the livelihoods of Gulf fishermen and the potential impact on tourism, is the potential closing of the Gulf ports and Mississippi river to commerce due to fire risks. Experts give that a low probability but in a war such as this, we must be prepared for any and all possibilities. I just wish we had better commanders on our side.

Posted in Macroeconomics, The Retired Advisor