the beginning of August, it was estimated that at least 4.1 million
barrels of oil had leaked into the Gulf of Mexico. Strangely
enough though, cleanup crews have been finding only a small percentage
of that reaching the surface.
reason for this is that the oil is being devoured by microbes and
algae before it reaches the surface. These organisms break down
oil as nutrients for themselves. Also helping is warmer than
normal Gulf temperatures that speed the growth of these microbes.
this sounds too good to be true, crews in the past have witnessed
the same phenomena. Ecologists who have dealt with previous oil spills
say it is unusual for crews to recover more than one or two percent of
There is still much work to be done
and we may not understand the true ecological damage for years. Mother
Nature, however, is reminding us again of how resilient
she is and we can thank her for helping with much of the
|Your Energy Manager
Topic: Gulf of Mexico
Energy Consultants, Inc. is committed to helping its clients make
well-informed and cost-effective decisions regarding
their energy supply and consumption. We are sending you this newsletter
to help you understand how decisions that are made, or not made, affect
your company's bottom line.
|Big Spill, Big Implications
The Gulf oil spill has captured our
attention for months. We watched incredible videos of oil gushing
from the wellhead 5,000 feet below the surface and have seen
the damage it has wreaked on the surface. The well is now
capped but the story is far from over. We will certainly see
new safety rules for future wells and environmentalists will use
the accident to renew their calls for a moratorium or ban on
offshore drilling. The Federal Government, never shy about
passing new rules and regulations, will undoubtedly develop more - even
though the proper enforcement of existing rules and inspections could
probably have prevented the accident.
Normally, when a hurricane or other natural disaster strikes this area
so key to natural gas and oil production, we see an increase in prices. After the Gulf oil spill, however, there
was no such change. There was a brief spike in price in late April and
early May, which can be attributed to the initial chaos following the
disaster. Soon after, prices returned to pre-accident conditions
and at this time are actually trading lower.
It seems the Gulf oil spill was not enough to influence the cost
of natural gas and oil. But the local economies along the Gulf
have been dealt a blow, while some are still trying to
recover from hurricanes Katrina and Rita five years ago. The
biggest blow may be yet to come, in the form of lost jobs,
should the Federal Government overreact to this tragic accident.
|Facts and Figures
April 20, 2010 an explosion aboard the $365 million
Deepwater Horizon rig owned by Transocean Ltd. and leased and
operated by BP killed 11 crew members and injured 17
others. It also caused oil to gush unimpeded into the Gulf
for 85 days. Depending on sources, and we
have seen a wide range of estimates, the actual amount of oil
released into the Gulf probably lies somewhere between 4 million and
200 million gallons. An unexpected build up of natural gas caused
an explosion and subsequent failure of Horizon's "blowout
preventer". As the name implies, the blowout preventer
was designed to contain oil in the event of an accident.
This particular blowout preventer had just recently passed inspection,
when by their own admission, BP managers misinterpreted the inspection
At the time of
the spill, many concerns arose. People predicted the oil could be
hazardous to cleanup crews, that it could alter shipping lanes and
that it would lead to the closing of more oil rigs. These and many
other fears were legitimate concerns at the onset of the
accident but few have come true, at least with the
severity that some had predicted.
of the greatest fears was that the oil spill would cause the prices of
oil and natural gas to spike. Natural gas is also affected by this
disaster because gas rigs mine the same areas with similar technology
as the oil rigs. While the onset of the spill saw a brief increase in
prices, the price per barrel of oil has stabilized and remains
relatively unchanged. To see an illustration of how prices have
actually reacted, click here.
after the spill, the federal Mineral Management Service reported
that three offshore natural gas rigs had been shut in. Doing so
blocked nearly 6.2 million cubic feet of natural gas from reaching the
market. While the figure may seem large, it
accounts for less than one tenth of a percent of the total natural gas
we produce daily. In
the same way, crude oil supplies have not suffered much from the spill.
Two oil rigs were shut in and one was evacuated. As for the
Horizon rig, it was just completing it's final testing stages, so
this rig was not yet part of our nations supply portfolio. Also, with a
slumping economy we see inventories of crude oil and its
refined products are at 25 year highs. The predictions of
shortages and skyrocketing prices were obviously overstated.
Paying for the Damage
The Gulf oil spill is certainly an ecological disaster
unrivaled in American history. However, it has not led to higher
prices for natural gas and oil that are so important to our
economy. Higher prices, however, may result from the action that
our Federal Government feels compelled to take.
has imposed a six-month moratorium on Gulf deep-water drilling.
Furthermore, no new wells may be drilled during the next two years as
the government reviews permit applications under new rules and the
industry fends off legal challenges from drilling opponents.
Ironically, current environmental laws already make it difficult to
explore for natural gas and oil; which is why these rigs must be placed
so far out to sea and have to drill so deep.
A drilling moratorium would also cost many their
jobs, at a time when unemployment in America is already at
9.5%. More layoffs are the last thing people in the Gulf
States want and their Attorney Generals have quickly
challenged the Federal ban on drilling.
In an effort to
send a strong message to the oil and gas industry the federal
government has fined BP $20 billion. The money
will purportedly be used to help local
businesses adversely impacted by the spill. How the
money is actually spent is yet to be seen. We only need look
back a few years to see how the enormous sums taken from "big
tobacco" got commingled and spent from "general funds".
The money taken from BP to date, has contributed to a 54% tumble
in their stock price. This reimbursement may not be the end of
BP's liability and has undoubtedly caused concerns amongst thousands of
retired workers who rely on BP pensions.
Energy Consultants we continue to
watch the unfolding of events surrounding the oil spill. We will keep
our clients informed on how this tragic accident might impact
their energy prices.