The Tale Of Two Americas

There is a tale of two Americans playing out right before our eyes. In the state of Pennsylvania, there is an job-creation surge being fueled by the shale gas industry. In the state of California, there is a campaign to drive hundreds of thousands of Californians out of work by mandating the creation of "green jobs" at the expense of other sectors of the economy. The shale gas industry has sent up a flare of hope during dark economic times while environmentalists are doing everything they can do to prolong this recession.

According to Penn State University, "the shale gas industry's boom is creating 100,000 jobs in Pennsylvania during 2010..." In contrast, "California's unemployment has soared from less than 5 percent to more than 12 percent since Gov. Arnold Schwarzenegger signed the California Global Warming Solutions Act three years ago." See the difference? Embracing traditional energy sources like shale gas can turn back the tide of rising unemployment while government-mandated "green jobs" will exacerbate America's current economic plight.

In reality, the problem is much more complicated than this which is why CARE is pleased to bring you insights from Dennis T. Avery, an environmental economist and senior fellow with the Hudson Institute. We invite you to read his latest analysis so you have the knowledge needed to set the record straight and tell the tale of two Americas; one that embraces traditional energy sources and economic prosperity while the other embraces government-mandated "green jobs" and the economic misery that comes with it.

Green Jobs or Shale Gas? The Numbers Talk
The shale gas industry’s boom is creating 100,000 jobs in Pennsylvania during 2010, according to Penn State University. Only a few of these new jobs are on drill rigs; many of those jobs go to highly-skilled oil patch veterans from out of state. But the gas industry’s expansion has created jobs by the tens of thousands in steel production, construction, and services.

More important, the clean, low-cost energy from the shale gas will go on creating additional jobs in every Northeast regional industry that needs energy—meaning all of them. The shale gas boom is creating similar huge job gains throughout Appalachia, Texas, and Louisiana, with the new shale drilling system also about to expand in the huge Bakken oil shale deposits under the Dakotas and Montana.

Meanwhile, the giant state of California has created only 48,000 "green jobs" over the 13 years from 1995 to 2008. Green jobs still make up only 1 percent of California’s economy. Worse, says State Senator Bob Dutton, the high energy taxes needed to create those few green jobs are at the same time killing millions of jobs in all sorts of industries across the state. California’s unemployment has soared from less than 5 percent to more than 12 percent since Gov. Arnold Schwarzenegger signed the California Global Warming Solutions Act three years ago.

The governor promised that the global warming tax would "create a whole new industry to pump up our economy, a clean-tech industry that creates jobs, sparks new cutting-edge technology and will be a model for the rest of the nation and the rest of the world." Instead, the global warming taxes will drive up the prices of all non-renewable energy—as they were intended to do.

California taxpayers will now pay for wind turbines and solar panels made in China, while California has lost more than 600,000 manufacturing jobs. Business relocation specialist Joseph Vranich says he’s working full time to help companies flee California’s rising costs and restrictions. He warns that no one is calling about moving into the Golden State.

Senator Dutton points to CalPortland Cement, which has cancelled its California expansion plans and is considering a Nevada location instead. It recently closed a cement operation in Colton, laying off 100 workers.

That’s a preview of the "green jobs" impact. The manufacturing—and farming—will be done in places that don’t impose energy taxes. If the Congress imposes import tariffs, that still won’t provide cost-effective energy for American farming, manufacturing, or transport. With far less energy available, our standards of living must drop dramatically.

The Wall Street Journal reports the Southern California Public Power Authority is warning of a 30 percent hike in electric rates. The Los Angeles Department of Water and Power has told business to expect a 21 percent hike this year. LA Mayor Antonio Villaraigosa says the city must raise rates because "the State is breathing down our necks . . . where we could be looking at fines of $300 million [in 2012] and $600 million on top of that."

All of this in spite of the low correlation between CO2 and our thermometer records—22 percent. The correlation with sunspots is 79 percent. Does Washington care? Or does President Obama want $6 gasoline, tripled electric bills—and $800 billion per year in energy taxes to "spread the wealth" among his allies?

DENNIS T. AVERY is an environmental economist, and a senior fellow for the Hudson Institute in Washington, DC. He was formerly a senior analyst for the Department of State. He is co-author, with S. Fred Singer, of Unstoppable Global Warming Every 1500 Hundred Years, Readers may write him at PO Box 202, Churchville, VA 24421 or email to cgfi@hughes.net.

Transocean Rig Disaster: The Well From Hell

It has been a tough month for energy on the disaster front. The news media seems infatuated with the off-shore oil spill and rig blow out. For all the focus, they do not really offer a comprehensive overview of what happened—though truly it will be weeks, if not months before the truth is really known. We cast the net to our experts and found the following technical, thoughtful and understandable review from one of our favorite energy experts: Byron King.

As you know by now, the drilling vessel Deepwater Horizon exploded, burned and sank last week, with the loss of 11 workers and injuries to many more. What happened? What's happening now? What's going to happen? He’s been working to piece things together.

What do you think? Does this help you understand? Does it change you thoughts on off-shore drilling?

An Ill-fated Discovery
According to news accounts, at about 10 p.m. CDT last Tuesday, Deepwater Horizon was stable, holding an exact position in calm, dark seas about 45 miles south of the Louisiana coastline. Water depth in the area is 5,000 feet. The vessel manifest listed 126 souls on board.

Deepwater Horizon was finishing work on an exploration well named Macondo, in an area called Mississippi Canyon Block 252. After weeks of drilling, the rig had pushed a bit down over 18,000 feet, into an oil-bearing zone. The Transocean and BP personnel were installing casing in the well. BP was going to seal things up, and then go off and figure out how to produce the oil -- another step entirely in the oil biz.

The Macondo Block 252 reservoir may hold as much as 100 million barrels. That's not as large as other recent oil strikes in the Gulf, but BP management was still pleased. Success is success -- certainly in the risky, deep-water oil environment. The front office of BP Exploration was preparing a press release to announce a "commercial" oil discovery.

This kind of exploration success was par for the course for Deepwater Horizon. A year ago, the vessel set a record at another site in the Gulf, drilling a well just over 35,000 feet and discovering the 3 billion barrel Tiber deposit for BP. So Deepwater Horizon was a great rig, with a great crew and a superb record. You might even say that is was lucky.

But perhaps some things tempt the gods. Some actions may invite ill fate. Because suddenly, the wild and wasteful ocean struck with a bolt from the deep.

The Lights Went out; and Then...
Witnesses state that the lights flickered on the Deepwater Horizon. Then a massive thud shook the vessel, followed by another strong vibration.

Transocean employee Jim Ingram, a seasoned offshore worker, told the U.K. Times that he was preparing for bed after working a 12-hour shift. "On the second [thud]," said Mr. Ingram, "we knew something was wrong."
Indeed, something was very wrong. Within a moment, a gigantic blast of gas, oil and drilling mud roared up through three miles of down-hole pipe and subsea risers. The fluids burst through the rig floor and ripped up into the gigantic draw-works. Something sparked. The hydrocarbons ignited.

In a fraction of a second, the drilling deck of the Deepwater Horizon exploded into a fireball. The scene was an utter conflagration.

Evacuate and Abandon Ship
There was almost no time to react. Emergency beacons blared. Battery-powered lighting switched on throughout the vessel. Crew members ran to evacuation stations. The order came to abandon ship.

Then from the worst of circumstances came the finest, noblest elements of human behavior. Everyone on the vessel has been through extensive safety training. They knew what to do. Most crew members climbed into covered lifeboats. Other crew members quickly winched the boats, with their shipmates, down to the water. Then those who stayed behind rapidly evacuated in other designated emergency craft.

Some of the crew, however, were trapped in odd parts of the massive vessel, which measures 396 feet by 256 feet -- a bit less than the size of two football fields laid side by side. They couldn't get to the boats. So they did what they had to do, which for some meant jumping -- and those jumpers did not fare so well. Several men broke bones due to the impact of their 80-foot drop to the sea. Still, it beat burning.

With searchlights providing illumination, as well as the eerie light from the flames of the raging fire, boat handlers pulled colleagues out of the water beneath the burning rig. In some instances, the plastic fittings on the lifeboats melted from the heat.

The flames intensified. Soon it was impossible for the lifeboats to function near the massive vessel. The small boats moved away from the raging fountain of fire fed by ancient oil and gas from far below.

The lifeboat skippers saved as many as they could find -- 115 -- but couldn't account for 11 workers who were, apparently, on or around the drill deck at the time of the first explosion. Nine of the missing are Transocean employees. Two others work for subcontractors.

Damon Bankston to the Rescue
Fate was not entirely cruel that night. Indeed, a supply boat was already en route to the Deepwater Horizon. It was the Tidewater Damon Bankston, a 260-foot long flat-deck supply vessel.

Damon Bankston heard the distress signal. Her captain did what great captains do. He aimed the bow toward the position of Deepwater Horizon. Then he tore through the water, moved along by four mighty Caterpillar engines rated at 10,200 horsepower. Soon, the Damon Bankston arrived on scene, sailed straight into the flames and joined the rescue.

Meanwhile, Coast Guard helicopters lifted off from pads in southern Louisiana, and Coast Guard rescue vessels left their moorings. "You have to go out," is the old Coast Guard saying. "You don't have to come back."

The helicopters flew in the black of night toward a vista of utter disaster. Arriving on scene, the pilots watched in awe as columns of flame shot as high as a 50-story building. The helicopters were buffeted by blasts of super-heated wind coming from the flames, while chunks of soot the size of your hand blew by.

The pilots hovered in the glow of the blazing rig, while Coast Guard medics fast-roped down to the deck of Damon Bankston . The medics quickly assessed the casualties, strapped critically injured crewmen to backboards and hoisted them up to the helicopters. Then the pilots turned north and sped ashore to hospitals.

Uninjured survivors returned to land on the Damon Bankston. And others came out to fight the blistering flames.

But the Deepwater Horizon wasn't going to make it. The situation deteriorated, to the point of complete catastrophe. The ship was lost.

At about 10 a.m. CDT on Thursday morning, 36 hours after the first explosion, the Deepwater Horizon capsized and sank in 5,000 feet of water. According to BP, the hulk is located on the seafloor, upside-down, about 1,500 feet away from the Macondo well it drilled.

Still Spilling Oil
We were told that the oil well drilled by the Deepwater Horizon was sealed in. The "official" word was that the well wasn't gushing oil into the sea. My sources were no less than U.S. Coast Guard Rear Adm. Mary Landry, of the New Orleans district, as quoted in The New York Times.

But over the weekend, Rear Adm. Landry and The New York Times reported that the well IS leaking oil, at a rate of about 1,000 barrels per day.

The on-scene information comes from remotely operated underwater robots that BP and Transocean are using to monitor the well and survey all the other wreckage of the Deepwater Horizon. There's now a large amount of equipment and pipe and a myriad of marine debris on the seafloor near the well. It's a mess.

Apparently, the blowout preventer is not controlling the flow of oil. According to Transocean, the blowout preventer on Deepwater Horizon was manufactured by Cameron Intl. (CAM: NYSE).

What happened? We don't know that just yet. Earlier reports that underwater robots sealed the blowout preventer were wrong. It's possible that the blowout preventer is only partially closed. We'll find out, eventually. Meanwhile, BP and Transocean have announced that they will make another effort to activate the blowout preventer. They need to stop that oil.

BP is also preparing to drill one or more relief wells to secure the site permanently. BP has mobilized the drilling rig Development Driller III, which is moving into position to drill a second well to intercept the leaking well. With the new well, the drillers will inject a specialized heavy fluid into the original well. This fluid will secure and block the flow of oil or gas and allow BP to permanently seal the first well.

Riser Problems?
According to the Coast Guard and BP, oil is leaking from two spots along what is left of the riser system. Here's a schematic view:



Originally, the risers (represented by the blue line in the graphic above) were affixed to the blowout preventer on the seafloor, and extended 5,000 feet straight up to the "moon pool" of the Deepwater Horizon. When the drilling vessel sank, it took the riser piping and bent it around like a pretzel.

The remnants of the riser system now follow a circuitous underwater route. According to BP, the risers extend from the wellhead up through the water column to about 1,500 feet above the seabed. Then the riser system buckles back down toward the seafloor. (Frankly, I'm astonished that it all held together as well as it has. It's a credit to the manufacturer, which I'll discuss below.)

According to the Transocean website, the riser devices on the Deepwater Horizon were manufactured by VetcoGray, a division of General Electric Oil & Gas. The specific designation is a "HMF-Class H, 21-inch outside diameter riser; 90 foot long joints with Choke & Kill, and booster and hydraulic supply lines."

Here's a photo of something similar. These are Vetco risers sections that I saw on another vessel, the Transocean Discoverer Inspiration, when I visited that ship last month:

The different color stripes on the risers indicate differing amounts of buoyancy. The idea is to put heavy riser pipe down at the bottom, connected to more buoyant risers above. The buoyancy keeps the entire riser system in more or less neutral buoyancy, so that the drill ship doesn't have to somehow hoist up the huge weight of all that pipe.

As you can see, there's a large-diameter pipe in the middle of each riser. That pipe is then encased in a buoyant foam substance. The risers are bolted together at the flange sections. The bolts are about as big as the arm of a very strong man. The nuts, which tighten things down, are the size of paint cans.

After the risers are assembled and hanging down from the drilling vessel, the drilling personnel lower and raise drilling pipe through the large-diameter center riser pipe. All the drilling mud stays inside the drill pipe on the way down hole, and inside the riser pipe on the return.

On the side of the riser sections, you can see smaller-diameter pipes. These are choke & kill, booster and hydraulic pipe components. The pipes run parallel to the large-diameter inner pipe. These pipe systems run down to the blowout preventer on the seafloor.

The idea is to keep the drilling process an enclosed system. All the "drilling stuff" -- the drill-pipe, drilling-mud and drill-cutting returns -- stays inside the large-diameter pipe. The smaller pipes hold fluid to transmit hydraulic power and help control drilling. In particular, the pipes on the side aid in communicating with and controlling the blowout preventer.

Technical Specs
Ideally, when the risers are working as intended, nothing leaks out into the sea. Then again, you're not supposed to twist and bend the riser sections like a pretzel. So how strong is a riser system? Extremely strong, actually.

According to technical literature from GE Oil & Gas, the riser equipment is "designed for use in high-pressure, critical service and deep-water drilling and production applications." The pressure-containing components are rated for working pressures of 15,000 psi. That's the same as the Cameron blowout preventer on the Deepwater Horizon. The materials used in risers have exceptional tensile and bending load characteristics.

According to Vetco paperwork that I've seen, the Class H riser sections have a 3.5 million pound load-carrying capacity. That's the equivalent weight of about four fully fueled Boeing 747s. These risers are super strong.

Still, it's not just any one single piece of riser section that does it all. These sections all get bolted together, for 5,000 feet in this case. The riser sections all have to work together as a system. The whole string is only as strong as the weakest spot. And yes, even the strongest steel will break if you apply enough stress.

It all has to work together. You've got the riser sections, along with things called HMF flanged riser connectors. Then there are HMF riser joints; flex joints; telescopic joints; and, near the top, things called "fluid-bearing, nonintegral tensioner rings." Together, these all comprise the marine riser system.

In general, the riser components compensate for heave, surge, sway, offset and torque of the drilling vessel as the ship bounces around on the sea surface. The bottom line is to maintain a tight seal -- what's called "integrity" -- between the subsea blowout preventer stack and the surface during drilling operations.

Down at the bottom, at the seafloor, the risers are connected to the blowout preventer by a connector device. The GE-Vetco spec is for a device that accommodates 7 million foot-pounds of bending load capacity. That's about eight fully fueled Boeing 747s.

What's the idea? You want a secure connection between the high-pressure wellhead system and the subsea blowout preventer stack. That's where mankind's best steel meets Mother Nature's high pressures.

High pressures? You had better believe it. And in this case, Mother Nature won. So looking forward, there's going to be a lot of forensic engineering on the well design and how things got monitored during drilling. Transocean drilled the well, but BP designed it. So the key question is how did the down-hole pressures get away like they did?

What Happens Now?
It's a good thing that the Deepwater Horizon didn't settle right on top of the well. At least there's room for the remotely operated vehicles to maneuver. Also, there's still a lot of riser still floating in the water column. So there's some element of integrity going down to the blowout preventer.

It's absolutely imperative to shut off that oil flow. We just have to hope and pray that the BP and Transocean people can get the blowout preventer shut off. Or that there's enough integrity to the risers somehow to get in there and control the leaks, perhaps with some sort of plug. One other idea is to lower a large "hood" over the leak and capture the oil so it can be pumped up to a storage tanker ship.

Meanwhile, the relief well has to go down -- carefully and safely. This Macondo well is history. Seal it. Mark it. Give it back to the sea. Move on. Don't tempt fate on this one.

And wow... for a relatively modest-sized deep-water discovery, this thing sure has turned into the well from hell.

Welcome to the World of Deep-water Risk
As I've said before, this accident is Mother Nature's wake-up call to everyone. Deep-water drilling is a high-stakes game. It's not exactly a "casino," in that there's a heck of a lot of settled science, engineering and technology involved.

But we're sure finding out the hard way what all the risks are. And it's becoming more and more clear how the totality of risk is a moving target. There's geologic risk, technical risk, engineering risk, environmental risk, capital risk and market risk.

With each deep well, these risks all come together over one very tiny spot at the bottom of the ocean. So for all the oil that's out there under deep water -- and it's a lot -- the long-term calculus of risk and return is difficult to quantify.


Byron King earned his Juris Doctor from the University of Pittsburgh School of Law, graduated cum laude from Harvard University, served on the staff of the Chief of Naval Operations, and is a regulator contributor to the Whiskey and Gunpowder investment newsletter.

Obama's Offshore Drilling Gamble

One has to wonder what President Obama thought he was gaining with his announcement about offshore drilling. It was gamble that can't pay off. Team Gore immediately sent out a notice that started with these words:

"President Obama disappointed millions of Americans by announcing his plan to open vast coastal areas to offshore oil drilling. At a time when we need clean energy and climate solutions, this plan is a giant step backward--allowing oil companies to reap billions, while feeding America's addiction to dirty fossil fuels."

At CARE, we sent out our own announcement that was published in newspapers throughout the country. With a tongue-in-cheek tone, we pointed out that Obama's confidence in Alternatives must be fading.

Regular contributor to the CARE Blog, Michael Econmides, Editor-in-Cheif of the Energy Tribune, sent us this fact-filled commentary that predicts that by the magic date of 2050, fossil fuels will still provide are 85 percent of the US energy mix--no matter what US political rhetoric may ascribe on alternative energy sources. Who wins with the offshore announcement? Or, is it just off-base?

Drilling Down in Obama’s Oil Play

Barack Obama – a president as hostage to liberal rhetoric as one could ever envision, and who ran a presidential campaign on the most virulent of anti-oil, pro renewables tickets – has unexpectedly reversed the long-standing US ban on offshore oil drilling.

Speaking in Maryland on Wednesday, the president announced he was giving the go ahead to allow oil and gas exploration and, presumably, drilling along the Atlantic coastline, the eastern Gulf of Mexico, the north coast of Alaska, Alaska’s Cook Inlet and other sites. Pending applications to drill will remain in place and the ongoing ban on offshore drilling on the West Coast will continue.

While green and conservation groups are aghast at their Green-caped Super-Hero, and villainous Big Bad Oil may be rubbing its hands in glee, the rest of us might take time out to ask: What is really going on here? Why now, just when Interior Secretary Ken Salazar had been set to drop a G (Green) bomb on oil leases elsewhere?

Well in the wake of the Democrat’s recent victory on healthcare and the Obama’s falling approval rating in the polls, someone appears to have come up with a play designed to cause confusion. But by tossing a bone on domestic drilling to the Republicans, Obama’s team may believe it can buy him some Republican (and dissident Democrat) votes – along with some credibility on bipartisanship – before his upcoming next big move: the push for cap and trade.

At the very least, the partial lifting of the offshore drilling ban is a move designed to cause confusion, including, no doubt, among Obama’s supporters – a calculated gamble he believes he can pull off -- while stealing some populist Republican thunder. And who can deny that offshore drilling licences will create real jobs; not the pale green, transitory stimulus variety? It may even give him a bump in the approval polls.

But we could spend all day surmising as to the Obama administrations oil play. Could we not just accept it at face value? There is always a potential quid pro quo on offer somewhere – especially from a guy bent on instigating national cold turkey in pursuit of weaning America off what George Dubya termed its “addiction” to oil. While the polls might buy it, it’s doubtful that Republicans will.

But we needn’t worry about delving too deep beneath the surface of the drilling decision. A simple look at the math tells us all we need to know. That is, that the decision is a disingenuous one. It must be, given the government’s twin-track policies on energy and climate.

First: the energy facts. Currently, 85 percent of the US energy mix is provided by oil, gas and coal. And the US is using around 100 quads (quadrillion Btu) of energy, and so these numbers reflect both percent and actual energy use. If we take the Energy Information Administration’s figures of 0.5% increase per year and extrapolate total energy use to 2050, this would translate to about 125 quads. (Incidentally this is a surprisingly small figure considering the recent past, which was as high as 2% annual increase and China’s forecast of over 3.2% annual growth. Is the EIA trying to please the Obama White House?)

Second: the Obama administration has made several statements regarding its intent to cut CO2 emissions by 83% of the 2005 figures by 2050. This would mean that the current 85 quads that come from fossil fuels must be reduced to less than 14.5 quads, which would imply that, by 2050, the contribution from fossil fuels to the US energy mix should be reduced to about 11.5% (some even mentioned less than 10 percent) of total energy consumption. But that in turn would mean that wind and solar, the darlings of this administration would provide essentially all the rest – a patent impossibility.

More drilling for more oil just exacerbates Obama’s insoluble conundrum.

The announcement is designed to hoodwink would-be opponents, and there are many, of cap-and-trade or a carbon tax. If Obama was sincere about energy and energy “independence” he would immediately rescind the EPA’s finding of CO2 as a pollutant, which by coincidence came into force on April Fool’s Day. Further, it would actively encourage drilling rather than starting environmental studies that would drag on for years with excruciating permits, followed by certain environmentalist challenges that would just about take this offshore oil non-production to 2050.

The interesting thing is that almost every key energy assessment from knowledgeable energy insiders, including the DOE’s own EIA, suggest that by 2050, fossil fuels will still provide around 85 percent of the US energy mix, no matter what US political rhetoric may ascribe on alternative energy sources.

The fact is the Obama Administration already has an impossible circle to square on its current energy pronouncements. Whatever political calculations may be in play, the President’s offshore oil card play may trump his carbon-reducing climate play – but it makes “nonsense on stilts” in harmonizing both.

Michael J. Economides and Peter Glover are authors of “Energy and Climate Wars: How naive politicians, green ideologues and media elites are undermining the truth about energy and climate” to be published by Continuum, in September.