John’s Blog/Newsletter: SEA LEVEL RISE NOW

With the BP gusher more or less contained, it is timely to reflect on the lessons learned and to be aware of some possible unintended consequences of the response to the disaster. Echoing many of the headlines, my top line bullets are:

• BP, and probably some of its contractors, were negligent and should be held accountable.
• The structure and attitude of the oversight agencies badly needed a review, which is now happening.
• The “silver lining” is that the world focused on the importance and vulnerability of the ocean for a few months. The US Congress is already responding with greater priorities for marine science and monitoring. The President recently signed a new National Ocean Policy (see recent blog post).
• The ocean’s ability to recuperate will surprise us, as I predicted in my post in June about the spill.

On the cautionary side however, we need to be concerned about over-reacting to offshore drilling, or at least to some unintended consequences of the immediate calls to ban various types of drilling underwater. We have to recognize that there is a growing demand for energy, with the expanding economies of China, India, and Brazil being the primary segments of increase.

Oil is similar to other commodities (e.g. cement, sugar, timber) in that:

1. Shortages drive prices up, according to basic laws of supply and demand, and
2. In today’s world market, countries will source materials pretty much wherever they are available.

Looking beyond this crisis to the future, we must be aware that:

• Efforts to replace oil production with low-carbon energy such as solar, wind, geothermal, and nuclear each have obstacles in terms of technologic issues, capacity, or years of lag-time before they could come online.
• The energy demands of populations clawing their way back to economic health, or rising up out of poverty, will not wait decades for new forms of power.
• Just as in financial markets there is a critical need for good regulation, independent monitoring and enforcement, and transparency.
• When problems are discovered, markets can react much faster than legislation. While Congress is still running multiple investigations, BP’s was punished brutally months ago in share price, retail sales, and trashing of its green image. That lesson will not be forgotten by any company bringing us oil in the years ahead.

We need to realize that broad bans on drilling in US waters will NOT decrease oil consumption and will likely put upward pressure on the price of oil and its products. ;In the short term, the decision to suspend most of the drilling in the Gulf of Mexico will have some unintended consequences:

• Those drill rigs, that can rent for a half million dollars a day, were quickly moved out of US waters. Many headed to Africa and South America where governmental regulation may be far more lax than in the US.
• Once those rigs are working they will typically be on station for several years, and will not be available to come back as soon as new regulations are in place
• Perhaps the spills that will happen in the next few years will be far from our shores, but oil moves with ocean currents, and ultimately it’s one ocean.
• A reduction in oil supply, or a rise in price, will drive the development and use of less environmentally friendly sources, such as coal or oil shale.

The Bottom Line: This was a tragedy of negligence, with many lessons to be learned. There are no simple answers.