Responses to oil leak ignore consequences
BY TERRY SAVAGE Jun 14, 2010
A worker continues to clean up oil from the Deepwater Horizon spill along the beach, Sunday.
Updated: May 3, 2013 12:14PM
I'm as outraged as you are about the oil disaster in the Gulf. The videos of oil-slicked birds and families facing bankruptcy are devastating. We're all feeling the frustration that comes from our seeming impotence to either cap the well or trap the moving oil slick.
In spite of all those emotions, I recognize some astounding ironies in all the comments, exhortations and threats being made by politicians, the media and the administration. It's as if frustration has led to total abandon of reason. Many of the proposed actions have consequences nearly as frightening as the problem itself.Drilling restrictions
Take, for example, the decision to create a six-month deep-water drilling and exploration moratorium, subsequently extended to include almost all offshore drilling activity in the Gulf area. It was an emotional response that created huge economic issues.
Offshore drilling is responsible for more than 200,000 jobs in the affected area -- and the last thing the coastal economy needs is more job losses. And the moratorium was based on sensation, not statistics. The offshore gulf area has been under exploration since the late 1940s, and more than 42,000 wells have been drilled there. Surely, that reaction was excessive.
There's an even larger case to be made for continued drilling -- safely -- in the Gulf. We need that oil. Or we need a substitute source of energy to keep our nation running.
As I pointed out in a recent column explaining Boone Pickens' energy independence campaign, we are becoming more and more reliant on imported oil.
In 1970, just before the first OPEC oil embargo, the United States imported 24 percent of our oil. Today, the United States imports 65 percent of our oil!
Every day, 85 million barrels of oil is produced around the world. And 21 million of that is used in the United States. That's 25 percent of the world's oil demand -- used by just 4 percent of the world's population.
Remember, most of our imported oil comes from countries that are not our "friends."
When you look at the facts, it's hard to make a case that suspending drilling for new offshore supplies is a sensible response to the BP spill.Punishing BP
There's another irrational response coming out of Washington these days -- the desire to not only punish BP, but to actually destroy it -- or take it over! It's another case of appealing to emotions, not reason.
The illogic of that strategy is immediately apparent: We need BP to survive, even thrive, for the company to be able to pay all the claims against it.
It's one thing to suggest that BP -- an independent, global, foreign company -- use its cash to pay reparations instead of dividends to British pensioners. But it's quite another to start talking about taking over the company using bankruptcy laws.
But perhaps emboldened by its takeover of General Motors (which thrashed the rights of creditors and franchisees), the administration seems determined to force BP out of business -- thereby leaving U.S. taxpayers to foot the cleanup bill.
There's another huge risk in this strategy. The stock of BP is down about 50 percent from pre-explosion days, from a high of $62 to the low 30s. A large part of that loss has come from sellers who aren't sticking around for the dividend to be cut or eliminated.
Long before the administration can get its hands around the company to squeeze the remaining value, BP is likely to become a takeover target at these low share prices.
You might ask what company has enough cash, and enough desire for BP's global oil assets, to take on the risks of all those future claims.
Well, how about PetroChina -- a company with a market cap more than twice that of BP at current prices? It is the publicly traded unit of the state-owned China National Petroleum Corp. Not only does it have $6 billion in cash on their balance sheet, it also has access to the nearly $1 trillion in U.S. dollars now held by the central bank of China (mostly in the form of U.S. Treasury bills and other government securities, currently yielding less than 0.25 percent).
If you were PetroChina and saw a tempting half-price sale on BP's $236 billion in assets, wouldn't you be asking your parent company, the Central Bank of China, to ante up some cash?
And wouldn't it be a better deal for China to buy proven reserves and refineries at a discount, than to hold on to U.S. IOUs while the Fed prints more money and promises to keep rates low?
If BP is taken over by a Chinese state-run company, our president will find out just how little leverage he has in getting those damage claims paid. He won't be able to bully the Chinese owners around at the same time he is depending on China to finance our growing budget deficits and national debt!
So now the trap tightens. America is dependent on imported oil because we have never had a sensible energy policy. America is dependent on imported capital because we continue to spend our way into debt.
Now we have to start thinking about what happens when the country that has most of the money also has most of the oil. And that's The Savage Truth.