walkitout (walkitout) wrote,

worst case

I shall contemplate the word "worst": most severe, most inferior, unfavorable.

There are people out there trying to get a handle on the "worst case" scenario for BP. Which is interesting, because the worst thing that can happen to a corporate entity would appear to be the end of its existence -- and that's not nearly as bad as what has already happened to a lot of other people. But as long as there's so much focus on money, what _might_ BP wind up forking out?

Clearly, back in April was not a good time to go on record with an estimate:


$8 billion seems way cheap now, doesn't it?

Here are a few assumptions I am not seeing anyone making. For spill rate:


100K barrels (not gallons) sounds pretty good).

When will it be capped? Not before August, and lucky if we get it soon anyway; let's go with the Ixtoc 10 months and round up to a year.

Cost? Let's just use the max fine through the Clean Water act which has been batted around: $4300/barrel of oil.

100000 * 365 * 4300 = 156,950,000,000

Call it $160 billion. For the fine.

[ETA: This analysis is pretty flawed. To get to $4300, you have to have "gross negligence". I suspect that might involve a judge. $1100 without gross negligence, bringing us back down to just over $40 billion.]

I think that hundreds of billions of dollars is approximately the right order of magnitude for the dollar cost of the impact of the oil spill. In the first year. If there is a substantial and ongoing impact on wetlands, fishing and tourism in the gulf for over a decade (tourism never recovers, hurricanes are much more damaging because of the loss of salt marsh, the fish and shellfish have so many tumors or missing pincers or whatever that you can't sell them to anyone), a trillion dollars seems inevitable.

I know oil companies make a lot of money, but just the EPA fine could be 3 years worth of _operating_ profit for BP. This is why Obama is incensed about BP paying dividends -- BP is trying to support its stock price, the exact same way GM and a host of other poorly run, bloated, evil companies have in their last days, with money that will be needed to pay the externalized costs of something they haven't even stopped doing.

I've been amazed a the reluctance of media to accept this reality; no wonder BP is still in denial. Here's Sorkin's take on it (reminding me once again why I am so utterly underwhelmed by Sorkin):


And he assumes that to get to hundreds of billions you'd need a jury verdict, something that would be years in the future, highly negotiable and potentially knock-downable for a decade or more to come. I don't think it would. I think you could get to the second hundred billion with a fine.

Here's what everyone _ought_ to be thinking about. If we get through the end of this, fine BP out of existence (or forced into a merger with some other big oil company, or into some BK restructuring to make all their other creditors wait until they make enough payments on the fine or whatever), and create some insurance scheme to make sure this gets paid for if/when it happens again (to go with the regulatory apparatus, of course) -- you know, like making banks pay into FDIC in case they go under. How much will every oil company be paying to come up with enough money to make that viable? That's going to get passed along (_as it should_), and hopefully one of the effects of that would be to encourage a lot of conservation on the part of end users and foster a market for entrepreneurs to come up with new ways to conserve that maintain our current quality of life.

We have a lot of paths going forward. We could just never do any more drilling anywhere near our shores again (altho today's second spill may have happened in the context of capping a well that would no longer be producing -- so just halting all activity is not totally risk free, either), exporting the problem to some other part of the world. We like that whole export the nasty stuff. Sort of like a North American NIMBY. There are some risks -- those other people might be reluctant to sell us stuff, or they might jack the price or whatever. We could continue to drill, and raise the price by insisting it be done safely (or more safely, in any event), and look over the private companies shoulders and try to convince them through safety inspections and rules to actually behave -- increasing our cost to govern and their cost to deal with governance, but always at risk that one day the regulators will be told to ignore problems (we saw how that went under That Asshole), or just won't anticipate something, leaving who knows to pay for goddess help us all. We could do as I suggest above: require industry to participate in funding pre-emptively cleanup (including research in how to do cleanup better).

Everything raises our costs. Everything. The whole point of this increase production thing is in obedience to supply and demand: if there is more demand, increase the supply to keep prices stable. But as long as oil and gas are predictably available and stably priced in the right zone, it's hard to do the difficult work of switching over to a different energy regime.

So what _is_ the worst case? I think the worst outcome here would be if BP figures out a way to get this thing capped quickly, and the little microbes out there ramp up beautifully and eat up all the oil, and the dispersant doesn't do too much damage, and the bird and fish and whatever populations start to look more normal and recover numbers, say, 2-4 years out. If all that happens, and we pass a bunch of laws about how to prevent future accidents, and we figure out a funding mechanism, and the oil companies all cooperate and stay profitable enough to stay in business and the oil keeps flowing and we keep doing what we do. And we all pat ourselves on the back and say, wow, that turned out okay.

That'd be pretty bad. Because if any of those prevention strategies failed, we might be back doing this all over again. Without an idiot like Tony Hayward to abuse as an easy target. We'd only have ourselves to blame.
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