By Victor Chan Wai-To
The 2010 Mexican oil spill is one of the largest offshore spills in history. Just a month after it occured, billions of dollars are lost and lives of millions of people are destroyed. Below is a summary on the incident, expressed in a Q&A format, which gives an up-to-date estimation of the economic destruction brought by the incident at the time of writing (early July 2010).
I. On the Oil Spill Itself
Q: How much oil is lost?
A: The estimated leakage is getting bigger and bigger. It is estimated that, each day, the leakage is about 100k barrels, which is roughly USD 8m. In a month that would be 240m.
Q: If we do nothing about it, when would it end?
A: If the leakage continues at the present rate of 3m a month, it will still take 120 years for the oil well to dry up!
Q: What are the possible solutions?
A: Actually, none of the solutions are satisfactory. One suggestion is to send robots down to the bottom of the sea to work on it. But the technical details are difficult, the robots are hard to control under the sea, and they become trouble themselves if they got out of control. The present idea is to is to plunge more holes on the oil well to reduce pressure, so that the leakage would proceed at a slower rate. However, nothing can stop the whole spillage completely by the end of August.
II. On British Petroleum (BP)
Q: How has the BP chief executive, Tony Hayward, done so far in this incident?
A: He did quite poorly in front of the media. He was caught sailing in a yachting competition off the coast of England, sending the wrong message that he did not care about the dirty water in the Mexican gulf. It made the PR work of BP much more difficult.
Q: Has he actually done anything for the company?
A: Yes. Apart from attending the hearing in the US, Hayward did not just run away and enjoy himself. He had visited the Russian government and tried to install confidence for his company, because a quarter of their oil comes from Russia.
Q: What has the company itself done in its PR work?
A: BP had to put up expensive ads in the US media everyday to protect their image, which increased their expense.
Q: How about the expenses on compensation and reimbursement?
A: It was estimated that everyday there is about USD 250m deposited into the reimbursement fund by BP. In a month, that would add up to 7.5b. Yet, the book value of BP is only 100b, so they are now planning to sell some of their assets to pay the debt.
Q: How many reimbursement applications have they received?
A: BP announced, on 19th June, that they have received 64k applications for compensation and processed 31k of those in the previous two months.
Q: Why do they have to pay such a lot of money?
A: Because the total loss in GDP around the area, including energy, fishing, tourism, transport, etc., adds up to about USD 200b, which equals the GDP of a developing country.
Q: Is there any chance for BP to get a more comfortable outcome?
A: There is actually some hope. BP remains one of the biggest contributors to the US presidential elections for 20 years. And Obama himself was one of the biggest beneficiaries of BP!
III. On American Politics
Q: What is the opinion of the majority Americans?
A: Most of the Americans are angry at BP. The notable exception was the Republican Barton who stood on BP's side and spoke for them in the hearing. It is believed that he was backed by the oil companies. However it backfired and he was forced to apologize. Overall, the Americans are hostile.Q: How about the British?
A: They were angry too, because about 1/6 of the income of the UK penion fund comes from BP's dividend. When BP does not pay dividend, their pension fund loses money and it increases the economic burden of the UK.
Q: What is the policy of the Obama government?
A: They were torn between fighting for the US people and avoiding being too harsh on BP, which will degenerate the Anglo-American relation. However, the good news for Obama is that it may help his energy reform, because it was the Republicans who endorsed oil exploration in near sea on the argument that it will increase employment as well as domestic production.
Q: What are the most immediate consequence of this incident, except the economic loss?
A: The regulations of the drilling practice will be tightened, since it was suspected that the whole incident was the result of imperfect regulation. Also, the US-UK relation will become a focus. If people of both sides remain tough, it will damage the relation of the two nations.
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