MarEx Mailbag August 26, 2010

A reader makes their point about Tony Munoz’s OPED “A Stacked Deck: The Presidential Commission on the Gulf of Mexico Oil Spill” If you did not read the OPED, it is available here: A Stacked Deck: The Presidential Commission on the Gulf of Mexico Oil Spill Dear Mr. Munoz, Thank you for your enlightening comments on the members of the Salazar Committee. I am still struggling with your metaphor of the lynch mob waiting for the sheriff to arrive to save the day. The bottom line is that it is perhaps slightly naïve to believe by shaking up the BOEM, all has been fixed. It will take a bit more than that, starting with the cooperation of the exploration and drilling operators, and I find it somewhat difficult to believe that the object of the investigation is to bring offshore drilling to a permanent halt. Having said this, your elaboration appears to be very much in the footsteps of Dr. Michael J. Economides (see his contribution on 10-June-2010), when he sought to demonstrate that any reduction in offshore drilling invariably resulted in extensive job losses – jobs which would never be recovered. For starters, we have to thank BP for an increase in new jobs, given the brigades of individuals that are currently involved in cleaning up the coastline of the Gulf States. Many of these job will only be temporary – but equally, drilling job losses may also only be temporary. Second – and I accept that I am repeating myself on this issue – I fail to be impressed by lamenting about the need to import more oil as a result of the moratorium. If we all decided to be less wasteful when it comes to consuming oil, that would be a start – apart from making inroads on the path to boosting alternative energy supplies. Perhaps this would be a good time for our industry to stop paying lip service to providing more fuel efficient vehicles (which many of us don’t even bother to buy as long as a gallon of gas is below $3.00). If you spend a bit of time on analyzing the actual costs of buying and running a hybrid vehicle, you will find that the bolstered acquisition costs (usually a minimum of $3,000 to $4,000 over the price of a “standard” model) require either an unlimited lifespan of the vehicle or driving several hundred thousand miles before you even break even. Third – and staying with the automobile industry – it has taken many years (and much litigation) to bring vehicles to a standard that safety features at long last outweigh flashy bumpers or fancy design. I cannot (and will not) claim to be an avid environmentalist, but am I really asking for too much when feeling encouraged by a government that is at least seen to take steps to avoid an imminent repetition of the Deepwater Horizon disaster? What, may I ask, is wrong with taking a pedantic approach to protecting the continuing existence of the offshore fishing industries (and the jobs that go along with it), the tourist industries (that just cannot sell hotel rooms overlooking oily beaches), not to mention trying to avoid the plight and misery that the inhabitants of the affection regions experience? Fourth, if – to follow your use of metaphors – “the rats are leaving the sinking ship”, then let them. Whilst I deplore every job loss (whatever the reasons may be), the time to say that we need to create and maintain jobs at any price, is long gone. Just ask the residents in areas where “fracking” occurs what they think about their ground water contamination as a result of gas explorations. There is a need to use exploration methods that do not violate our environment and jeopardize our health or economy, and if the respective industries cannot achieve such standards, then it is clearly a matter for the government to step in. There is no reason why – to use the beaten up phrase – we “all cannot get along”. We will continue to need oil for a long time to come, even if we could cut back drastically from this onwards. But let’s also keep a sense of proportion. Best regards, Jurgen W Schulze Dear Jurgen, As an avid reader of the MarEx Newsletter, we always appreciate your input. Now, as far as the metaphor is concerned about the sheriff arriving on the scene to save the scoundrel from the lynch mob; in this commentary there is “No Sheriff” coming. The oil industry and the offshore support industry are being taken to task by Ken Salazar and the Presidential Committee. For the most part the industry has worked very hard to maintain safe and productive operations in offshore drilling. Whether this nation likes it or not, we are the major consumer of oil; the US produces 10 percent of the world’s oil while consuming over 25 percent of all production. China and India are racing around the planet forming relationships with oil producing nations; many of these countries like Venezuela and Iran are adversaries of the US. OPEC cuts back production whenever they want and fill their coffers with Western dollars and Euros. The problem with alternative energy is its distribution and mass production. I am not saying the US should back off of a full and complete agenda for investment and cultivation of alternatives. And, let me say this, the Maritime Executive Magazine and the MarEx Newsletter are huge supporters of alternative energy and investment. Please read my OPED Beyond Petroleum…The Impetus for Clean Energy But, let’s deal with the 1,000 pound gorilla in the room, the US needs lots of oil to run it global economy of $14.6 trillion. Remember, there has been a drilling moratorium imposed in the US since the Clinton administration shut down offshore drilling in 1996. And, by law, not even the pro-drilling Bush administration could lift it. President Obama was willing to review drilling and allow for exploration, the BP Deepwater Horizon put an end to all of that. But, now the administration has taken away what little drilling had been allowed for all those years. In fact, the ability to get a drilling permit in Gulf of Mexico shallow water has moved from a week to now over a month. So, forget about deepwater permits even being considered. So, your metaphor of “the rats are leaving the sinking ship” is not only profound but also depressing because once the oil industry picks up their collective tents and moves on to greener pastures, asking them to return and produce domestic energy and US Strategic stockpiles will be a tough pill to take considering they’ll be returning to the most onerous regulatory environment in the world. As I said in my final statement; the oil executives made it clear to Congress the BP operation was an aberration of industry standards and practices. But, now the industry is left to deal with Salazar and the presidential committee of environmentalists, which is really nothing more than a political lynch mob. And, there is no sheriff to save the day. Regards, Tony Munoz