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More unintended consequences ahead
Jul. 1st, 2010 08:14 amThe US Senate environmental and public works committee voted yesterday to remove the $75m cap on oil companies' potential losses for clean-up of spills and reimbursements. Never mind the fact that it's been applied retroactively to the Deepwater Horizon disaster, what's interesting about this is that, paradoxically, if this cap were to be removed in law, it's relatively good for BP.
Why? Well, perhaps the US Senate might like to wonder why the cap was introduced in the first place. Put simply, if you have unlimited potential risk, the reward has to be correspondingly higher. And if you have too small a bankroll, that increase in volatility makes oil production unviable. Of the seven or eight oil drilling and production companies in the Gulf of Mexico, all bar two or three are basically fucked if this cap removal becomes law. They simply wouldn't be big enough to take on that kind of risk, and the insurance premiums required to hedge that risk would make their entire GoM operations unviable.
And, no matter what the politicians might say at the moment, the US still needs its domestic oil. In fact, it needs it even more today than it did a couple of years ago. Now, you can say that the US shouldn't need so much oil, and if the net result of all this is to increase oil prices for the consumer, thus reducing oil consumption, then that is all to the good.
(As an aside, I hope you have all noticed how good last year's recession was when it came to reducing global emissions. If we want to make this planet a better place for the future, we need an absolutely massive economic depression. All those in favour say 'aye'.)
But the Senate environmental works committee isn't thinking along those lines. It just imagines that companies will carry on as before, the oil will come out of the ground as before, but that the liability will have shifted from the taxpayer to the private sector. When the politicians realize that this is not the case, they will change tack fairly smartish.
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Why? Well, perhaps the US Senate might like to wonder why the cap was introduced in the first place. Put simply, if you have unlimited potential risk, the reward has to be correspondingly higher. And if you have too small a bankroll, that increase in volatility makes oil production unviable. Of the seven or eight oil drilling and production companies in the Gulf of Mexico, all bar two or three are basically fucked if this cap removal becomes law. They simply wouldn't be big enough to take on that kind of risk, and the insurance premiums required to hedge that risk would make their entire GoM operations unviable.
And, no matter what the politicians might say at the moment, the US still needs its domestic oil. In fact, it needs it even more today than it did a couple of years ago. Now, you can say that the US shouldn't need so much oil, and if the net result of all this is to increase oil prices for the consumer, thus reducing oil consumption, then that is all to the good.
(As an aside, I hope you have all noticed how good last year's recession was when it came to reducing global emissions. If we want to make this planet a better place for the future, we need an absolutely massive economic depression. All those in favour say 'aye'.)
But the Senate environmental works committee isn't thinking along those lines. It just imagines that companies will carry on as before, the oil will come out of the ground as before, but that the liability will have shifted from the taxpayer to the private sector. When the politicians realize that this is not the case, they will change tack fairly smartish.
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