Gulf effects

[bargainman]

The terrible tragedy in the gulf seems to have gotten a lot of press local to the gulf and aimed at BP and the Government.  My question is, with the loss of oil revenues, fish, tourism etc, seemingly in massive scale, will this be enough to tip the US into double dip recession?  Also note that the stimulus money is going to be running its course, as is the cash for clunkers and other government give aways.  Just wondering what the sharp minds on this board think...

[uncommonprofits]

The terrible tragedy in the gulf seems to have gotten a lot of press local to the gulf and aimed at BP and the Government.  My question is, with the loss of oil revenues, fish, tourism etc, seemingly in massive scale, will this be enough to tip the US into double dip recession?  Also note that the stimulus money is going to be running its course, as is the cash for clunkers and other government give aways.  Just wondering what the sharp minds on this board think...

 

Even before this tragic spill in the gulf - I have been of the belief that many would be surprised at the pace in which innovation occurs in alternative energy over the next several years.  Let's hope this is not the case -- but there is a strong possibility that the environmental destruction trends toward the worst end of current predictions (and it might be worse).  The only thing I can say about short term macro-economics and the possibility of a double dip is that about 90% (or more) recessions of the past have had a similar catalyst of high energy prices tipping the balance.  The last recession is perhaps the most understated obvious example -- the economy was in such denial year after year fueled by cheap credit to keep it going.  In classic fashion it took a tremendous run-up of oil prices to choke out the fire. 

 

Oil prices might be high right now - but are down over the last few months.  The problem with predicting a recession is that often it is over before it is even realized.  If there is a silver lining in this tragic oil spill - there is real potential of speeding up the political will of reducing significantly the reliance on fossil fuel.  Economically it could also surprise many in being a boost to the American economy both over the short and long term.  Hopefully the environmental destruction can be corrected -- unfortunately the loss of life is gone forever.

[beerbaron]

I think it's the opposite, the amount of work and $ being focused toward the oil spill will be incredibly high which could boost's Florida's economy in the short term. Cleaning up the shores will be labor intensive in a state that has an oversupply of it. Tourists will go elsewhere, so the money will likely be spent anyway.

 

Uncommonprofit, I do agree that in the long term we will see amazing new technologies. But until gas gets to the point where other technologies become attractive we will not switch. Until then I believe we will see efficiency improvements in existing technologies (insulations, heat pumps, lighting, etc...) but these will be somewhat minor compared with say controlled nuclear fusion.

 

I'm also one of the believers that oil prices precipitated the crisis and if it would not have been for a financial failure it would have been something else. Too many resources were allocated to a single sector of the economy.

 

BeerBaron

[Myth465]

I dont think the spill will have long term impacts on anyone except for those living in the gulf area. It will be similar to Katrina. Its tough because it really is a way of life out there that could be destroyed. Fishing and Tourism they say employs twice as many people as oil and gas, and it will be hit pretty hard if the oil seeps into the marshes and infects the coastlines.

 

BP will be paying for years but will survive and may thrive for shareholders getting in over the next few months. They will be hated though, similar to Haliburton was / is.

The US will pay more for seafood as a whole and will strengthen drilling requirements. I doubt we get a serious energy policy though.

Drillers  could get hurt or may win drastically cause of this (what if they mandate the drilling of a relief well each time a deepwater well is drilled).

Smaller oil and gas companies will get hurt by the tougher regulations because they dont have the deep pockets to deal with them.

The Gulf will see a boast due to fighting the spill, but will get hosed when everyone forgets about it and the tourism and fishing stay offline.

[Uccmal]

I find the public and political reaction to this whole spill rather baffling.  The whole focus has been on all the horror that BP is causing.  It seems to be forgotten that deep water drilling has been allowed and demanded by the governments and the public.  It was only a matter of time before a confluence of events caused this sort of thing to happen.  That it happened to BP is only relevant in the sense that it was a non-US domiciled company and thus makes a better target.

 

It would seem the perfect time and opportunity to shift vast amounts of spending to energy efficiency in all its forms, and focussing on realistic large scale homegrown alternatives such as concentrated solar, natural gas etc.  I would think Obama and Co. should be able to rebrand this as a potent political weapon of some sort but they seem to be caught in a reactionary cycle right now. 

 

We have reached the point where drilling for oil has become a truly absurd proposition.

[ERICOPOLY]

It seems to be forgotten that deep water drilling has been allowed and demanded by the governments and the public.  It was only a matter of time before a confluence of events caused this sort of thing to happen. 

 

Everybody seemed fine that the banks were giving out easy credit until they collapsed.  Then it was the banks' fault!

[Myth465]

I find the public and political reaction to this whole spill rather baffling.  The whole focus has been on all the horror that BP is causing.  It seems to be forgotten that deep water drilling has been allowed and demanded by the governments and the public.  It was only a matter of time before a confluence of events caused this sort of thing to happen.  That it happened to BP is only relevant in the sense that it was a non-US domiciled company and thus makes a better target.

 

It would seem the perfect time and opportunity to shift vast amounts of spending to energy efficiency in all its forms, and focussing on realistic large scale homegrown alternatives such as concentrated solar, natural gas etc.  I would think Obama and Co. should be able to rebrand this as a potent political weapon of some sort but they seem to be caught in a reactionary cycle right now.  

 

We have reached the point where drilling for oil has become a truly absurd proposition.

 

Obama is trying to rebrand it towards his energy bill, but I think he will fail.

Someone posted a quote from a President who said the hardest job is dealing with the bloodlust of the citizens when things go wrong. There will be blood, the American people demand it. Obama tried the cool calm and rational, but was attacked by both parties and the public because of it.

 

The political outrage from both sides is annoying but I truly understand people who live in the gulf being extremely pissed off. The oil companies for years have been saying they have extreme safety requirements and better technology than NASA. Then we here about throwing gulf balls and trash into the hole, and realize that they dont have anything. Its easy to say this was bound to happen, but if you live off that water this doesnt go away next week or month, and may not go away over a lifetime. So I get people like Carville being extremely POed. Plus this was literally a man made failure, and the corruption of Government officials and lack of regulation has added fuel to the fire.  

 

Churchill was right, Americans are good at doing the right thing when they have no other options. We simply havent hit that point. Peak oil / Peak cheap oil is the only thing that will bring us into action. Similar to our debt situation, the shit needs to literally hit the fan before we change courses.

 

This guy basically says the same thing you just said. http://www.c-spanvideo.org/program/293792-1 - He feels that the industry could do a bit more to get the word out on the coming situation. BP's record though doesnt help the situation.

 

 

[Myth465]

It seems to be forgotten that deep water drilling has been allowed and demanded by the governments and the public.  It was only a matter of time before a confluence of events caused this sort of thing to happen.  

 

Everybody seemed fine that the banks were giving out easy credit until they collapsed.  Then it was the banks' fault!

 

It was the banks (plus fed, regulators, Congress, Presidents, and ......) fault. There will always be idiots lining up for loans they cant afford. The duty of care is with the Lender. There is and always be will an unending appetite for free cash. Are we really to blame the idiots, for bringing down the house?

 

Here is a quote from Buffett to a Minority bank director - You will notice that the President of the bank said, "When we started business, it was our plan to aid minority investors and the so called little guy.l This we did, but some of them didn't treat us very well in paying their debts, and that was our downfall." The President is making a mistake in blaming the borrower. Every bank gets offered lots of bad loans, and its the banker's fault if he accepts them.

 

I am all for personal responsibility but do you really want to trust the economies health to hoping that people will properly self qualify themselves for loans?

[Packer16]

Alternative energy is the long-term answer but the only way it becomes viable (today) is with much higher energy prices which I think will destroy the world economy.  Paying subsidies for alternative energy in my book is pouring money down a pit, however, the money to advance technology until it becomes viable is good investment.  I know this spill is a tragedy but what is the true probability of an event like this happening again if more redundancy is put on the rigs. I hope this doesn't become like Three Mile Island where offshore drilling is banned as it will hurt many.

 

Packer

 

 

[ERICOPOLY]

It seems to be forgotten that deep water drilling has been allowed and demanded by the governments and the public.  It was only a matter of time before a confluence of events caused this sort of thing to happen.  

 

Everybody seemed fine that the banks were giving out easy credit until they collapsed.  Then it was the banks' fault!

 

It was the banks (plus fed, regulators, Congress, Presidents, and ......) fault. There will always be idiots lining up for loans they cant afford. The duty of care is with the Lender. There is and always be will an unending appetite for free cash. Are we really to blame the idiots, for bringing down the house?

 

Here is a quote from Buffett to a Minority bank director - You will notice that the President of the bank said, "When we started business, it was our plan to aid minority investors and the so called little guy.l This we did, but some of them didn't treat us very well in paying their debts, and that was our downfall." The President is making a mistake in blaming the borrower. Every bank gets offered lots of bad loans, and its the banker's fault if he accepts them.

 

I am all for personal responsibility but do you really want to trust the economies health to hoping that people will properly self qualify themselves for loans?

 

Did Congress act before the crisis broke, or after?  Where was Barney Franks' pitchfork mob in 2006?  Munger was right... the tiger got loose but nooooo.... it couldn't have been the zookepers fault!

 

I think the people and the politicians were happy that the credit was flowing.  Only after the problem happened did it seem obvious to them the risks.

 

[Myth465]

I think there is enough blame to go around, at least I have enough.  I listed alot of the parties. I would say the bankers were most culpable and surely shouldnt escape any blame, just as surely BP shouldnt escape blame.

 

I would put down the tiger and fire the zoo keeper. Instead of making excuses for one or the other.

[Aberhound]

If the early reports were accurate that the spill is mostly methane and they now capture 10,000 bbl/day of oil (supposedly half the oil) at the surface and the methane at depth is under high pressure, I wonder how much methane is venting at the surface?

 

Further, the Valdez spill was cleaned up mostly with fertilizer. Presumably lots of fertilizer run-off reaches the gulf and I suspect BP will be adding more to help clean the spill. I wonder if the increased nitrogen will generate additional nitrogen based greenhouse gases and how much. Both are far stronger greenhouse gases:

 

[pre]"For example, the GWP for methane over 100 years is 25 and for nitrous oxide 298. This means that emissions of 1 million metric tonnes of methane and nitrous oxide respectively is equivalent to emissions of 25 and 298 million metric tonnes of carbon dioxide." (Wikipedia)[/pre]

 

The atmosphere is huge so even a large spill will likely have a small global effect but if it gets warmer despite the recent cooling effect of the sun then we will know the extent of the spill has been understated. Too bad there wasn't a methane emission tax that BP had to pay for the spill. I bet if one was imposed especially for spills that BP would have been more careful and if one were imposed today they would step up their efforts to contain the spill. Turning down the thermostat or driving less are useless if the big greenhouse gas emitters like BP aren't taxed for their emissions.

[RRJ]

I agree with what you say, Myth. 

 

I'm not a fan of government in general, but am also not of the view that NO regulation is a good thing.  Frankly, I know a lot of fiscal conservatives, and none of them think that either.

 

I would point out that the problem here is not lack of regulation.  The financial industry is probably the highest regulated industry there is, with no fewer than 3 of the biggest regulators in existence focused solely on that industry.  As Buffett has repeatedly pointed out, Fannie Mae and Freddie Mac had a huge regulating entity OFHEO, all to themselves.  170 people plus whose only job was to regulate those two behemoths.  And 3 months before they went Tango Uniform, OFHEO's report came out touting them as solid as all hell. 

 

Similarly the oil industry, and especially deepwater drilling is already super well regulated.  My dad's a lawyer down in New Orleans, and he attended some initial hearings on all this.  I haven't independently confirmed it, but this is from pretty darn good sources.  Evidently the MMS, the regulator that was in charge of overseeing this, waived a pretty relevant requirement with respect to the Deepwater Horizon rig:  the requirement that they have a working blowout preventer in place.  This happened --- wait for it, in June 2009.  For those who like to blame everything on George Bush, that was 6 months after he left office. 

 

Moreover, all it would have taken is one phone call from President Obama to the Army Corps of Engineers (which of course is part of the Army), saying "Go ahead and build the safety sand berms to protect the marshes down there.  Don't study it any more, just do it."  This phone call never occurred.  And still hasn't. 

 

Why? 

 

I have no idea.  My opinion is that this is corporate incompetence, combined with lazy incompetent government, combined with (lately) a real "use this "opportunity" to kill the oil industry to help us get cap and trade passed" agenda.  Yes, it's that bad up in DC these days.  That's what we have running our government, while thousands of acres are killed and potentially devastating economic and environmental damage.  I'm open to hearing other theories on this. 

 

 

 

[The political outrage from both sides is annoying but I truly understand people who live in the gulf being extremely pissed off. The oil companies for years have been saying they have extreme safety requirements and better technology than NASA. Then we here about throwing gulf balls and trash into the hole, and realize that they dont have anything. Its easy to say this was bound to happen, but if you live off that water this doesnt go away next week or month, and may not go away over a lifetime. So I get people like Carville being extremely POed. Plus this was literally a man made failure, and the corruption of Government officials and lack of regulation has added fuel to the fire.]  

 

 

 

 

[Myth465]

As many people know I am fairly left of center on most things. With regard to fiscal issues, I would probably be a closer to the conservatives (but they really dont have a leg to stand on with regard to fiscal sanity). My motto is do whatever you want but pay for it and be honest with the public about the costs. A rule like that would keep everyone honest.

 

---

 

The conversation always gets taken off course in my opinion. You have the far left which isnt serious (they want the world to run on hugs and love, and really dont understand that Energy has no good answers (nuclear, onshore, offshore, or coal - you can research but alternatives are far away even with a tax on oil) about the issue and the far right wants no regulation and total free market (basically Corporate control). You also have an industry which doesnt say much or work to educate the public. The moderates (such as Obama) get lost in the shouting match. When one side doesn't want drilling and the other side wants government to be eliminated its hard to compromise. Obama is pro offshore drilling, as long as its safe, but political its fairly hard to make the claim that its safe at this moment. The feds have also botched the response, there is no excuse for keeping Jindal waiting on those islands especially if you can make BP pay.

 

I believe the US has too much regulation, but not enough good regulation with regard to most things. Having a million and one rules to do anything, but waiving basic safety plans and key equipment is stupid. Finance is similar the fed had all the power they needed, but the guy in charge of regulating doesn't believe bubbles exist or that fraud should be prosecuted (Alan Greenspan). The company I work for actually sold the BOP and its pretty stupid to waive the requirement to have a working BOP on site. I listened to the hearings and apparently the battery in the Control panel was out. The BOP is fairly old, and it will be interesting to get the full story when they get it on land. The oil industry lobbying against a requirement to have a relief well drilled at the same time is retarded as well, sure its costly but when the stakes are this high you spare no expense. Especially when you really cant do much to clean it up. How would people feel if the nuclear industry did the same to "maximize shareholder wealth".

 

The officials also have a major cross to bear. Basically everyone is corrupt and campaign finance reform and term limits is the only real solution to many of the problems.