We should keep our eye on BP
The Deepwater Horizon well accident can and should be viewed in the larger context of BP's recent past and plans for the future. Looking at BP under the microscope has many unsettling implications.
The troubled recent history of BP
Prior to May 1, 2007, BP was run by Edmund John Philip Browne (Baron of Madingly). Browne actively cultivated a "green" image for BP, creating the slogan "Beyond Petroleum," making substantial investments in renewable energy and divesting the company of holdings in the Alberta tar sands. BP talked about climate change, made some environmentally sound decisions, and seemed to be a breath of fresh air when compared to Exxon and other major oil companies.
In March 2005, BP became "bad publicity" when an explosion tore apart its Texas City Refinery. The public initially focused on the loss of life as the accident killed 15 workers and injured nearly 200 others. Several factors changed the narrative. Details of cost and corner cutting at the facility painted the oil giant as something of a monster that endangered its employees to keep profits soaring. Because of its poor safety record, BP lost civil damage suits, was forced to admit responsibility, and upgrade the facilities. The blast also focused attention on the fragility of supplies as it crippled the third largest refinery in the U.S, causing ripples in supply and pump prices.
Evidence that the safety violations at the refinery were attributable to budget cuts imposed by Browne had sharks circling the legal waters in Texas. The situation looked grim for the company until it had a sudden streak of legal good fortune. First, BP appealed lower court decisions that would have forced Browne to testify about management decisions related to the refinery. Browne had the foresight to make campaign contributions totaling over $2 million to all 9 Republican justices on the Texas Supreme Court in the election cycle before the case was heard. The high court saw no conflict of interest in the campaign cash and ruled in Browne's favor. The Bush Department of Justice also rode to BP's defense. Federal prosecutors entered into a plea deal with the company that limited criminal penalties to a small fine and a slap on the wrist.
A year after the Texas City disaster, BP and Browne were back in the news in 2006 after a leak was discovered in the Trans-Alaska pipeline from Prudhoe Bay to Valdez. The leak was initially described as small, but several miles of pipe were subsequently found to be badly corroded. Apparently inspection and maintenance of a pipeline that carries 100,000 barrels of oil each day was not much of a priority for BP. Heck of a job, Browney.
"This is where it all started," says BP Prudhoe Bay field manager Kemp Copeland, pointing to a rust-colored steel pipe snaking its way across the bleak Alaska tundra 250 miles north of the Arctic Circle. Normally this line carries 100,000 barrels of oil a day, the first step in a journey that takes crude from America's biggest oilfield to the Trans-Alaska Pipeline and then on to the port of Valdez, where it is loaded into supertankers bound for the West Coast and millions of gas-hungry drivers.
But the 34-inch pipe has been down since March, when a dime-sized hole caused by corrosion sent nearly 5,000 barrels of crude spilling out across the snow. The oil has been cleaned up, leaving behind a bare two-acre patch of ground, but the leak -- and the subsequent discovery that six miles of BP (Charts) pipeline was badly corroded -- led not only to the shutdown of much of Prudhoe Bay and the loss of hundreds of millions of dollars but also to a PR disaster that, in a single blow, undid the green reputation CEO John Browne had meticulously crafted for BP over the past decade.
Fortune Magazine article by Nelson SchwartzThe two high profile accidents eventually led to the ouster of Browne. Tony Hayward, a geologist that ran the extraction side of the company, took charge. His decisions were described as turning BP "back to petroleum" as he began shedding renewable energy assets and announcing plans to reinvest in the Alberta tar sands.
A year into the Hayward regime, more controversy and bad press erupted. This time the focus was on the shores of Lake Michigan. BP announced plans to expand its refinery operations in northern Indiana on the lake. As part of the expansion plans, the company petitioned the Indiana Department of Environmental Management to grant water pollution permits to increase the discharge of toxic liquid wastes, including mercury, into Lake Michigan. Republican governor Mitch Daniels was happy to oblige until the media and public officials in Chicago noticed the discharge permits. Why was BP expanding the refinery and asking for pollution discharge variances?
BP contends that it needs the permit (the first it has received since 1990) for a $3.8 billion expansion that will enable the refinery, already the largest in the Midwest, to process more heavy Canadian crude oil.Hayward faced a small stockholder revolt over BP's operations in the Alberta tar sands. In advance of the meeting in April, BP produced a greenwashed presentation for stockholders on the tar sands operations. It is filled with granola goodness, sustainability, efficiency, recycling, tiny footprints, and caribou clusters. Stockholders voted overwhelmingly to move ahead with tar sands oil project. In case you harbor doubts that any cap-and-trade will price carbon high enough to discourage greenhouse gas emissions, I give you Exhibits A and B:
However, the resolution questioned the business on economic terms, saying Sunrise could become unprofitable if governments impose new charges for emitting carbon dioxide.
BP directors opposed the resolution, saying the company had already factored in higher CO2 charges.Exhibit B:
Few analysts believe CO2 emission charges will be high enough to threaten the profitability of the business in the future.
The BP board of directors and financial analysts seem to think the fix is in when it comes to carbon pricing. When you do not have to worry about emissions from one of most significant sources of greenhouse gases on the planet, carbon pricing is a joke."We doubt that either the Canadian or U.S. governments will use this mechanism to attack an industry delivering an otherwise low risk oil supply," analysts at Citigroup said in a report published on Wednesday.
Finally, Hayward appears to have as much contempt for worker safety as his predecessor. In addition to safety violations associated with the Deepwater Horizon well disaster, the Department of Labor found many of the same violations at the Texas City Refinery responsible for the explosion in 2005.
More than four years after an explosion at its Texas City refinery killed 15 workers, BP still hasn't made required safety upgrades, has committed new safety violations and should pay a record $87 million in fines, federal regulators said Friday.
The London-based oil giant said it will contest the allegations and the fine, and that it has met the terms of a previous settlement agreement involving the 2005 blast. In unveiling the proposed fines, the U.S. Occupational Safety and Health Administration said the company had not completed all the safety upgrades required under the agreement. OSHA also alleged 439 new “willful” safety violations, chiefly related to pressure release devices at the plant.
“We don't need to see the loss of another life there,” Labor Secretary Labor Hilda Solis said in a news conference. “Our motto is we would like to see people go into work and be able to come home to their families.”
Houston Chronicle article, October 31, 2009 by Tom FowlerWhere BP is headed?
Tony Hayward lays out his preferences for energy policies and legislation in this 3 minute video (recorded March 23, 2010). These preferences mirror the strategic plan of BP as laid out in previous speeches such as this one in October of 2009.
First on Hayward's list is a cap-and-trade system (0:40 mark in the video). For those concerned about environmental policy and reducing carbon emissions to limit climate change, it sounds like Hayward is on the right side. However, it is an illusion. Not all cap-and-trade schemes are created equal.
In discussing the potential benefits of cap-and-trade, Brad Johnson describes what a smart cap-and-trade scheme should look like in this Wonk Room post. The benefits include cutting carbon emissions, promoting clean energy, job creation, and economic growth. In other words, if done correctly, cap-and-trade can be a win for the environment and a win for the economy. Note what a good system includes:
The cap-and-trade system modeled uses full auction of permits and 75% of proceeds going directly back to consumers and 25% going to technology investments.Contrast this with the reality of the proposed cap-and-trade under consideration in the Senate:
A flexible market-based approach with plenty of offsets to help keep carbon prices low, 85% of carbon allowances are given away rather than auctioned to industry in the early phase, and there are plenty of subsidies to sweeten the medicine.At the 1:04 mark, Hayward whines about a level playing field. What he means is that too many pollution allowances were given to utilities instead of the transportation sector (Big Oil). Here is what he wants and likely to get as part of the weak cap-and-trade system.
The US oil industry, however, sees itself carrying an unfair burden. According to ConocoPhillips, the oil industry would receive just 2% of free allowances, while the electric power sector would receive 35%.Second on Hayward's list is "drill baby drill" (1:38 mark in the video). As we know, President Obama opened up offshore drilling leases on March 31, 2010. The decision was unpopular among environmentalists but Hayward was no doubt thrilled. Now that the White House has referred to the Deepwater Horizon well spill as the "BP oil spill," his thrill may have diminished.
Third on Hayward's list is shale gas (1:50 mark in the video). Shale gas is the next fossil fuels gold rush in the United States. While natural gas has advantages over coal as a power source in terms of emissions, there are two major problems - water consumption and the use of hydraulic fracturing (hydrofracking). Because of threats to groundwater contamination from the use of toxic agents in the soup injected into a well, the Environmental Protection Agency has been studying "hydrofacking" and may regulate the procedure. At the 2:40 mark in the video, the interviewer related Hayward's opposition to federal regulation in favor of state regulations where monitoring and enforcement resources are low and public officials are easy to influence.
Efficiency for Hayward means weak regulation, preferably by underfunded state agencies.
Fourth on Hayward's list is tar sands oil which he euphemistically calls "Canadian heavy oil" (3:10 mark in the video). The tar sands exploitation in Alberta is one of the most environmentally destructive processes in existence. It is destroying a boreal forest, generating massive greenhouse gas emissions, consuming enormous amounts of water, creating toxic waste pools that now stretch over 100 square miles, and trampling the rights and welfare of First Nations populations living nearby.
Hayward has even devised a clever scheme to dodge greenhouse gas emissions caps in the US and having to expend pollution allowances on tar sands oil.
In the company's sustainability review, released today, Tony Hayward, the company's chief executive, gives a two-page interview setting out BP's reasons and defending its environmental impact.
He points out that greenhouse gas emissions from oil sands extraction are not always higher than from other forms of production, saying there is "a wide range of emissions in both oil sands and conventional crudes."
Mr Hayward also says the Sunrise project would have lower emissions than many, because the oil does not need to be processed in an upgrader before being pumped to the US.
Financial Times article, April 15, 2010 by Ed Crooks and Fiona HarveyAt the refinery, there will be probably be a flat emissions charge which will not distinguish between light crude and dirty heavy oil. All you need is a pipeline to get the tar sands oil to the refineries in the US.
On August 20, 2009, the State Department approved permits for the Keystone Pipeline system to bring tar sands oil to the US based on national security and economic grounds while sweeping the environmental devastation associated with tar sands exploitation under the proverbial rug.
The Department found that the addition of crude oil pipeline capacity between Canada and the United States will advance a number of strategic interests of the United States. These included increasing the diversity of available supplies among the United States’ worldwide crude oil sources in a time of considerable political tension in other major oil producing countries and regions; shortening the transportation pathway for crude oil supplies; and increasing crude oil supplies from a major non-Organization of Petroleum Exporting Countries producer. Canada is a stable and reliable ally and trading partner of the United States, with which we have free trade agreements which augment the security of this energy supply.The whitewashing of U.S. reliance on tar sands oil continued as the State Department released a draft environmental impact statement for the Keystone Pipeline a few weeks ago. As noted in this summary by Bruce Niles, the impact statement narrowly focused on the effects of building the pipeline and ignores the effects of extraction, refinement, and burning of the heavy oil.
So what is missing from Hayward's strategic plans? Clean, renewable forms of energy that do not require extraction, refining, emissions caps or trades, pipelines, or shipping lines.
What can we learn from BP?
Lesson 1: Over the past five years, BP has had catastrophic accidents on a offshore drilling platform (Deepwater Horizon), pipeline (Prudhoe Bay), and refinery (Texas City) in the United States. Without accountability, nothing will ever change. The good news is that the Obama administration announced that BP would be responsible for clean-up costs. The bad news is that the penalties for the negligence and criminal violations for previous BP accidents were trivial.
Lesson 2: The cap-and-trade scheme under consideration as part of the Senate climate and clean energy bill will likely be of little value. The high rate of free emission allowances and lack of consumer dividend will limit potential positive environmental and economic impacts. Thank BP. Its demands will be met.
Lesson 3: There is nothing special about BP. They are more politically adept in greenwashing, but show just as much disregard for worker safety and environmental regulations as Massey Energy and ExxonMobil.
Lesson 4. Expect more toxic discharges and refinery accidents as U.S. refineries shift to tar sand oil. BP seeking variances for mercury as part of its refinery expansion in northern Indiana to handle tar sands oil is a bad sign. BP wants Bathroom Privileges to go with their Big Profits - they eat caviar, you catch their crap.
Lesson 5. BP is betting on shale gas and tar sands oil as the core of its business for the future. U.S. energy policies currently too closely mirror those of BP. Our economic, energy, and environmental security will be better served by a more aggressive transition to clean energy.
Lesson 6. If BP is pushing for weak state regulation of hydraulic fracturing for shale gas wells, we need strong federal regulation.