Saturday, July 3, 2010

BP Dummies and Federal Officials Acting Like Bungling Fools

[From Billlifka, posted by Ira with his permission. Image added by Ira.] Federal officials continue to act like bungling fools so much they overshadow the BP dummies. The good news about the bad guys at BP is that many will lose their jobs and their company will lose much money on spilled oil and cleanup. Let’s hope it doesn’t take so much money that the company declares bankruptcy. If that were to happen, the company could not be forced to pay claimants what they deserve. Congress and President Obama might want to keep that in mind.

It’s useful to remember how badly BP screwed up. They used the “long string” design, one of two drilling options. That option is cheaper and faster but is inherently riskier because it allows a dangerous pathway for gas to rise outside the pipe. The alternative has more places that prevent gas flowing uncontrolled. BP maintains there is nothing inherently unsafe in long string design. However, most oil exploration companies avoid using the technique except in wells that have been proven to be low pressure. The Deepwater Horizon well was exploratory and (obviously) high pressure. BP used long string design on 35% of its Gulf wells since 2003; Chevron has 15%; Shell has 8%; BHP Billiton has 4%. BP has been fined for safety violations hundreds of times more than its competitors in the Gulf, another sign of poor operating practices. As bad as that may be, BP’s continuing operations were approved by the federal government.

It’s clear that the overwhelming majority of drilling operations in the Gulf are safe and those that require rechecking are of the long string variety and especially if they’re BP’s. Obama’s action was to close down all of them for some undefined period subject to some undefined re-approval process. This exacerbates economic impact on Gulf States at a particularly bad time for America. At this writing, a federal judge has ruled against the legality of Obama’s moratorium. The Justice Department is scrambling to appeal the ruling and rephrase moratorium language that might pass legal scrutiny. Sea bottom for the Deepwater Horizon well was 5000+ feet. The moratorium was for all drilling over 500 feet.

BP and other oil drillers have been bashed for having near identical and inadequate cleanup plans in event of spillage. It has been revealed, reluctantly, that all companies were required to submit a plan that addressed, precisely, the federal model for oil leakage. It has turned out that the model is grossly in error. Each of the oil companies’ cleanup plan was approved by the feds. When all is considered, it’s hard to blame the oil companies for more than 50% of this deficiency. This is not to give the oil companies a free pass, but to criticize the popular view that federal regulatory action is the solution to problems. The most regulated industries in America are the banking and petroleum industries. We’ve had the banking failure and now this. We need more regulation?

As a typical political response, Obama has appointed a committee to investigate the disaster and recommend action. All members are academics without appropriate technical knowledge.

Information keeps leaking, along with the crude oil. At least thirteen countries offered the use of their specialized cleanup capabilities immediately after the explosion. The feds refused. A 1920 bill called the Jones Act prohibits the use of foreign vessels and crews laboring in U.S. waters. It was designed to please American Unions. Although Bush II exempted Katrina cleanup efforts from this outdated legislation, Obama’s people chose to favor the unions over the environment.

[From Billlifka, posted by Ira with his permission. Image added by Ira.]


Ira Glickstein said...

Thanks, Billlifka, for this Topic. I asked for your permission to post it because I respect your experience in the corporate world and think your analysis is brilliant.

It is clear to me that BP corporate management and some operating personnel have blackened their name and endangered their economic future by cutting corners and ignoring basic safety standards. BP corporate culture drove the manager of the Deepwater Horizon drilling platform so hard that he chose to override the safety concerns of his own engineering employees and those of its Transocean and Halliburton and other subcontractors. The risky drilling design mentioned by Billlifka seems to fit a pattern of overly agressive cost control by BP.

When my wife and I worked at IBM and Lockheed Martin, we could not deliver any software without approval by an Independent Validation and Verification group nor any hardware without sign off by the Quality Control department. Our corporate culture was such that project managers would not even think of violating that process. Clearly, BP corporate culture is very deficient in this area!

But this does not excuse the actions of the rig manager. The immediate causal factor for the ultimate disaster seems to be his decision to go ahead despite the known faults in at least half of the blowout preventer. They apparently removed the heavy drilling "mud" prior to full assurance the cement plugs would hold. These actions may rise to criminal recklessness.

As for the failures of the Federal Regulators, under both the former and current administrations, I did not have any great expectations from them, and they did not disappoint in that regard! The whole civil service system is nearly totally disfunctional. That is the nature when government is disassociated from reality as it always is when government grows too large. (I worked on federal military contracts my whole professional career and found most of the engineeering personnel well qualified and hard-working, but the overall bureaucracy stifled their best intentions.)

Once the spill happened, the government should have divided the issue into two parts: 1) Stop the spill - BP's responsibility and 2) Reduce the impact of the spreading oil - Federal, State and Local Government responsibility with the bills to be sent to BP.

The administration was too slow off the mark and they initially assigned both parts to BP. Then, when it became clear BP did not tell the truth about the amount of oil being spilled or their preparation to contain it or the likely duration of the spill, the Feds interferred in the first part where they added absolutely no technological value, and bungled the second by preventing foreign skimmers from helping the cleanup on the basis of the ancient Jones Act, and by preventing State and Local governments from building berms to protect their shores, using ridiculous environmental regulations.

Early and agressive containment of the spilled oil as close to the drill rig as possible would have kept most of it from reaching shore. Those foreign ships could have skimmed it up within a week or two of the spill when the footprint was much smaller.

What has been learned? 1) BP, and by example other drillers, and their insurance companies, need to learn that all the costs of a spill will be taken out of their hides. That should lead the insurers and corporate management to take safety seriously and establish a (non-government) independent validation and verification and quality control entity, like Underwriters Labs, to review and approve drilling plans and monitor drilling processes. 2) We should learn that government regulators will always fail to properly review safety and recovery plans because there is no financial incentive for the individual reviewers to be effective. Regulated industries always co-opt the regulators, using political influence and contributions and payoffs. Also, when the feds approve a faulty plan, that takes the companies off the hook if they follow that plan.

Ira Glickstein

joel said...

What do you think of the comments by Simmons that the leak is only part of a bigger tragedy? The leak is part of a fissure that has even more leaks that can only be sealed with a nuclear bomb glass-over. A hole can be managed, but a long fissure is quite another story. At the moment the administration and BP deny the possibility, but that doesn't mean much.

Ira Glickstein said...

Until Joel brought them up, I had not heard of Matt Simmon's so far unsubstantiated doom and gloom claims about the explosion at the Macondo well (the well Deepwater Horizon was drilling). According to the Washington Post "since the April 20 blowout, [Simmons has been] the unflagging source of end-of-the-world predictions."

Here is a link that includes a video interview of Simmons (from MSNBC) about a month ago. In short, Simmons claims the oil and gas leaking from atop the damaged blowout preventer is NOT the main source of the oil fouling the Gulf. He believes the well bore was blown out and that there is a larger hole some distance away and the only solution is to use a nuclear explosion to collapse the entire sea floor in the general vicinity and seal the whole area.

Unless we get more hard evidence, I do not believe his extreme claims. Simmons reportedly has shorted some 8000 shares of BP and has major investments in wind-power and other alternate energy. On 17 June, he abruptly announced his resignation from the board of the Simmons & Co. which he founded in 1974.

Ira Glickstein

joel said...

I thought from the beginning that we should be looking at the nuclear option. We know from underground tests and the Plowshares project that nuclear blasts can cause vitrification. We don't know enough at the moment, but we'd better learn. There are emergencies that require the huge power available to us from nuclear fusion. Paralyzing fear is not an option for mankind. That kind of fear prevented us from building nuclear reactors and look at the consequences.

Ira Glickstein said...

Joel, ever hear the expression "killing a cockroach with a cannon"?

While the current oil spill in the Gulf is quite a bit larger than a cockroach, use of a nuclear explosion underwater, only 50 miles from the US coastline, is, IMHO, proportionately much bigger than a cannon.

The solution needs to be in proportion to the problem.

The relief wells should be completed in a few weeks and that is likely to stop the flow of oil. Even if the relief wells don't completely control the spill, and even if they do not work at all and the spill continues full force with only some percentage of the oil being recovered or burned off, I can't see any possibility of use of a nuke there.

Even if a small nuke could be deployed and could safely (whatever that means in this context) vitrify the leak area, I do not see how this type of solution could be studied, planned and executed in less than a year. Nor do I see any possibility the US government, even if it was dominated by conservatives, could possibly approve such a plan.

Other than Matt Simmons, who appears to be a crazy old coot with ulterior motives, have you found anyone else with valid credentials who supports the use of a nuke to seal this well?

Ira Glickstein

joel said...

Other than Matt Simmons, who appears to be a crazy old coot with ulterior motives, have you found anyone else with valid credentials who supports the use of a nuke to seal this well?

As a crazy old coot myself, I take umbrage at your remark about Simmons. Many a coot has turned out to be right. The question is whether or not there is a fissure problem in the Gulf. Fissures exist off the coast of Santa Barbara for certain. There are oil and gas leaks all over the world. The Russians have done much more research than we have and have concluded that nuclear is a useful tool despite the test ban making further research impossible. As for cockroaches, being a long term resident of Hawaii I'm in favor of the nuclear option to get rid of them. Bashing them with rubber zories just doesn't do the job.

Ira Glickstein said...

Well Joel, you may be a "crazy old coot", but, unlike Simmons, I am pretty sure you do not have ulterior motives. Have you sold BP short or invested in alternative energy or do you have some extra tactical nukes stored in your backyard :^)?

Yes, I agree a tactical nuke, of appropriately small kilotons equivalent, could be buried and set off and that would seal the Deepwater Horizon well area. Nukes could also be used on natural fissures to seal them. Researchers could probably calculate that the blast and radiation, 50 miles or more from shore areas, would be safe.

On the other hand, the nuclear test ban treaty and associated public opinion would make it impossible to get approvals.

Has anyone suggested using lots of conventional high explosives to do the job? That would be more palatable but I am not sure it would work since there would be no vitrification.

Ira Glickstein

joel said...

Ira said:
On the other hand, the nuclear test ban treaty and associated public opinion would make it impossible to get approvals.

Joel remarks: I think that a joint program with the Russians for peaceful use of nuclear energy might make sense. They would bring a lot of experience to the table. That would take care of the nuclear test ban. If fissures become a serious threat, that might change public opinion (although I don't believe such a thing exists). There is only media induced public albedo. (What was the name of that film in which the heroes blow up an asteroid threatening to destroy Earth using nuclear explosives?)

joel said...

I finally got around to doing my homework. I don't see that BP should be condemned as strongly as it has been. Based upon the reference that Bill provided "BP dummies" seems like Monday morning quarterbacking. The link says in part: Drilling experts say the long-string design can be riskier than liner-tieback, particularly for high-pressure wells. "It was a safe and accepted method, but it is not the most conservative method. The most conservative would be to make sure there is not a straight shot [for gas] up to the surface, that you cement everything in place," says Greg McCormack, director of the University of Texas at Austin Petroleum Extension Service.

Ira Glickstein said...

Joel, I think Bill used "BP dummies" in the sense that their actions showed they were ignorant of the dangers and their aggressive cost-cutting measures turned out, in the end, to be economically stupid.

In hindsight, whatever BP saved by using less expensive and more risky methods on this well, and other recent wells, has been lost (and a lot more) in the current disaster.

Large bureaucracies, like BP -and government regulators- become complacent when their recent experience shows they can get away with risky stategies such as outlined by Bill and me. Perhaps too much control by business school graduates who know the cost of everything but the value of nothing.

There were warnings by their own engineers and those of their subcontractors that the "long string" design, while less expensive, was subject to catastrophic failure, which is what happened. They were also warned the design should have used more stabilisers between the well bore and the casing for a well that deep.

Given the risky design, the operational management of the rig should have been all the more careful, but they were not. The knew at least half of the blowout preventer was damaged yet they went ahead with closing off the well despite the danger. Then, they did not fully test the cement to determine if it had set correctly. Then, they removed the heavy drilling mud. All those shortcuts reveal ignorance (or simply ignoring) of the risks and dangers and a stupid, narrow-minded focus on the bottom line.

BP's well design and operational philosophy undoubtedly saved them a lot of money. Federal regulators cited BP with far more safety violations but, in the end, they approved the risky design, either out of incompetence or political pressure or being co-opted by BP, or all three.

As a result, the fishing and tourism industries in the Gulf region have suffered irreplaceable losses. New drilling has been restricted which will cost many oil industry workers their jobs. People who bought beach-front property have lost much of its value. BP may pay some of these losses, but they can never make these people whole.

On top of all this, BP and its shareholders have lost billions of dollars of value which may never be recovered.

BP management was the opposite of smart, don't you agree?

Ira Glickstein

joel said...

Ira said: Joel, I think Bill used "BP dummies" in the sense that their actions showed they were ignorant of the dangers and their aggressive cost-cutting measures turned out, in the end, to be economically stupid.

Joel responds: BP aside, I don't think we can logically say that in hindsight or in the end, something was stupid. We have to look at what was known at the time a decision was made. If we are at a roulette table and win a fortune or lose a fortune, the decision to play cannot be judged based upon the outcome. The decision has to be judged based upon the odds, possible negative consequences and ability to sustain a loss as known at the time of the decision to play or not. (That's what I find so interesting about "Deal or No Deal.")

Ira Glickstein said...

Joel wrote, in part: "I don't think we can logically say that in hindsight or in the end, something was stupid. We have to look at what was known at the time a decision was made."


Engineers at BP and their subcontractors knew they were playing with fire with the risky design and the even more dangerous operating procedures. At a meeting on the rig within a day or so of the explosion, the BP "company man" overruled a subcontractor engineer who wanted more testing of the setting of the cement and the blowout preventer.

The hapless Federal regulators issued way more safety violations to BP than other oil companies. That is an indication that BP was much more risk-prone.

That the Federales did not persist in correcting unsafe procedures, and even approved the risky design, does not take BP management and operators off the hook. I do not expect the Feds to be competent or immune to political pressures.

I do expect major corporations to be competent in the domain in which they operate. The have an absolute duty to watch over the assets of their stockholders and employees. Engineers, IMHO, have a duty to refuse to follow the orders of their business school educated managers to protect the public safety. (At least that is what it says on the test I passed to get my Professional Engineering license.)

Ira Glickstein

joel said...

IRA SAID: Engineers, IMHO, have a duty to refuse to follow the orders of their business school educated managers to protect the public safety. (At least that is what it says on the test I passed to get my Professional Engineering license.)

Joel responds: This is a good example of how codes of ethics often fail. If a manager tells you to break the law, the situation is clear. If the manager asks you to violate the professional code of ethics, the situation is also clear. For instance, if he or she asks you to betray a confidential bid to a competitor. However, if your judgment concerning the risks of one method versus another differ from the manager, neither the law nor ethics is violated. If you go outside the chain of command to get your way, are you simply not a team player? When we get into public safety probability and "decision frontiers" there is a problem.