Showing posts with label apple. Show all posts
Showing posts with label apple. Show all posts

When oil prices rise, Russia has freedom over a barrel

The judge had already postponed the verdict without explanation ("The court does not explain itself," said a spokesman). Before reading it, he barred journalists and the defendant's family from the courtroom. No one should have been surprised, therefore, when Mikhail Khodorkovsky - the Russian oil baron who once defied the Kremlin - received a further six years in prison last week, on top of the eight he's served. This time, he was sentenced for "stealing" an impossible quantity of oil, the same oil he has already been accused of selling without paying taxes.

In fact, nobody pretended that the Khodorkovsky verdict was anything but a political statement, one of a series of gestures the Russian government has made to its own public and to the rest of the world in recent weeks. The blocking of corruption investigations; the expressions of support for the brutal and violent "elections" in neighboring Belarus; the deaths of journalists; all of these seem designed to contradict the distinctly friendlier, reformist language that the Russian president, Dmitry Medvedev, was using until recently. A mere two years ago, Medvedev had even denounced Russia's culture of "legal nihilism" - a phrase some construed as a reference to the Khodorkovsky case.

Why the change of tone? Why now? Many complex theories have been hatched to explain it. This being Russia, none can be proved. But perhaps the explanation is very simple: Oil is once again above $90 a barrel - and the price is rising. And if that's the reason, it's nothing new. In fact, if one were to plot the rise and fall of Soviet and Russian foreign and domestic reforms over the past 40 years on a graph, it would match the fall and rise of the international oil price (for which domestic crude oil prices are a reasonable proxy) with astonishing precision.

To see what I mean, begin at the beginning: In the 1970s, oil prices began to rise significantly, along with the then-Soviet Union's resistance to change. The previous decade (with oil prices at $2 or $3 a barrel, not adjusted for inflation) had been one of flux and experimentation. But after OPEC pushed prices up in the 1970s, oil revenue poured in - and the Soviet Union entered a period of internal "stagnation" and external aggression. Soviet leader Leonid Brezhnev invested heavily in the military, halted internal reforms and in 1979 (when oil was at $25 a barrel) - invaded Afghanistan.

Brezhnev was eventually followed by Yuri Andropov, who had the good fortune to run the Soviet Union when oil prices were still high (at his death, in 1984, they averaged $28 a barrel). Andropov could thus afford both an internal crackdown on dissidents and a continued tense relationship with the West. But Andropov was followed by Mikhail Gorbachev, who took over just as prices plunged. In 1986 (with oil down to $14 a barrel), he launched his reform programs, perestroika and glasnost. By 1989 (when oil was still only at $18) he allowed the Berlin Wall to fall, freed Central Europe and ended the Cold War.

Prices fluctuated, but they did not really rise again in the 1990s (plunging as low as $11 in 1998), the years when Boris Yeltsin was still trying to be best friends with Bill Clinton, the Russian media were relatively free and there was still talk, at least, of major economic reforms. But in 1999 (when oil prices rose to $16 a barrel), Yeltsin's prime minister, Vladimir Putin, launched the second Chechen war, the West bombed Belgrade, and the mood in Russia turned distinctly anti-Western once again.

The fortunate Putin took over as president in 2000, at the start of a long and seemingly inexorable rise in oil prices. Indeed, Gorbachev's calls for internal reform were long forgotten by 2003 (when oil prices were creeping up to $27 a barrel). The days when Yeltsin pushed for Russia to join Western institutions were a distant memory by 2008, when Russia invaded Georgia (and oil was at $91 a barrel).

The new Russian president, Dmitry Medvedev, did try to sound nicer in 2009 (when oil prices averaged about $53 a barrel), leaving Putin, now the prime minister again, grumbling in the background. Medvedev locked a draconian treason law, invited democracy activists to the Kremlin, denounced the Belarusan dictator and even seemed to some to have liberalized Russian television just a bit.

But now it is 2011, Putin is very much in the foreground, and Khodorkovsky has just been sentenced by a kangaroo court. As I write these words, oil is at $92.25 a barrel.

Is this analysis too simplistic? Sure it is. But I haven't yet heard a better explanation.

applebaumletters@washpost.com


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Oil spill report lays much blame on BP, who knew of Halliburton weaknesses

The chief counsel of the presidential oil spill commission has issued a final report laying considerable blame on BP for last year's disaster in the Gulf of Mexico. But he also points to flaws in Halliburton's work and errors by rig owner Transocean.

Fred H. Bartlit Jr., a prominent trial lawyer, said that for three years BP had been aware of problems with lab tests of Halliburton cement; that a reorganization of BP's engineering department resulted in delays; and that BP decided not to set a lockdown sleeve, an installation deep in the well, during its preparations for temporary abandonment in order to save 51/2 days and $2 million in costs.

He also said BP's well-site leader was not present, as he should have been, during a critical test known as a negative pressure test that indicated something was wrong.

Bartlit's report is the latest of a series from the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, which has already faulted a variety of factors, including decisions made by the well operator BP, rig owner Transocean, oil service provider Halliburton and federal regulators.

In a statement Thursday, BP did not dispute the report's specifics. The London-based oil giant said that it "has made every effort to understand the causes of the Deepwater Horizon accident to help prevent similar events from occurring in the future." BP said the presidential commission's findings - "particularly that the accident was the result of multiple causes, involving multiple parties - are largely consistent with those contained in the BP internal investigation report." It added that it is reorganizing its safety operations and reviewing its supervision of contractors.

Halliburton and Transocean did not issue comments.

Bartlit noted that in 2007, a consulting firm issued a quality-control report warning BP that Halliburton's lab technicians "do not have a lot of experience evaluating data" and that BP needed to improve communication with Halliburton "to avoid unnecessary delays or errors in the slurry design testing."

A cementing expert at BP described the "typical Halliburton profile" as "operationally competent and just good enough technically to get by." And BP's engineers said that the Halliburton engineer assigned to the doomed Macondo well was "not cutting it" and that he often waited too long to conduct critical tests. But, Bartlit added, the BP engineers neither reviewed his work at Macondo carefully nor checked to see that he conducted testing in a timely manner - even though they knew that their last-minute changes to the cement design test could cause problems and that using nitrogen-foamed cement could pose "significant stability challenges."

Bartlit also said the blowout preventer was not to blame for the explosion on the drilling rig, the Deepwater Horizon, that killed 11 workers April 20. The report says that by the time the rig crew tried to close the blowout preventer on the sea floor, deadly gas had already slipped into the riser pipe leading to the rig.

Although the route that gas took through the well when it blew out has been a matter of uncertainty, Bartlit's report says physical evidence taken from the well shows that oil and natural gas "almost certainly" came to the surface through a piece of equipment called the "shoe track" and up the production pipe. The report says cement in the shoe track should have blocked that flow, which it says further calls into question the quality of the cement job done by Halliburton.

Bartlit also faults Transocean, whose rig workers missed several signs of trouble in the well. Earlier alarm might have prompted them to close the blowout preventer earlier, avoiding catastrophe.


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As gulf cleanup continues, BP will also struggle to clean up its brand

HOUSTON -- The protesters have stopped coming here to wave angry signs in front of BP's large office campus. The boycotts of BP gas stations are tapering off, too -- both signs that the energy company's plug of the spewing Gulf of Mexico oil well is quieting its loudest critics.

The shouting may be over, but rebuilding the company's badly tarnished brand will prove a much harder task -- one that advertising and oil industry experts say could be nearly as daunting as stopping the oil that gushed into the gulf for more than three months.

"It's probably the most notorious branding crisis in memory," said Tom Zara, director of corporate branding at Interbrand.

After the Deepwater Horizon rig exploded in April, BP went on the air with television ads and bought a series of full-page ads in The Washington Post, Wall Street Journal and other papers to position itself as an imperfect but responsible corporation committed to the cleanup of the gulf. The company has spent $55.8 million on television and print advertising so far this year, according to the Nielsen Co., which tracks ad spending. (The total for all of last year was $80 million.)

But as one of Washington's top corporate lobbying forces, BP took flak for paying lobbyists, so the company cut back that spending to only $3.3 million so far this year, compared with $8.2 million in the first six months of 2009.

BP has been bouncing back already in the place where its brand meets consumers -- at its gas stations. After the spill, sales dropped off 40 to 50 percent at some stations on the Gulf Coast, but in most cases business declines have leveled off to about 10 percent on the gulf and less than 5 percent in other parts of the country, said John Kleine, executive director of the BP Amoco Marketers Association, which represents the station owners.

Kleine, who calls the station owners "investors" in BP's brand (their only link with the company is contracts to buy gasoline), said they began facing angry protests after the spill and turned to BP for help. The company gave them signs and took out print and radio advertisements emphasizing that the stations were locally owned and operated. At some stations BP helped the owners do customer appreciation campaigns with free car washes and cups of coffee. Corporate staffers flew in to stand in driveways and listen to customers' concerns, Kleine said.

"Where the owner is known in the community, there is a less significant impact," Kleine said. "I think BP has to recognize that the local face is really a value to their brand even more so than anybody thought."

Company's evolution

BP, which began selling gasoline in Britain in the 1920s, has long been a company that cared a lot about its name -- and changed it several times. After it bought Amoco in 1998, the company British Petroleum to become BP Amoco, then two years later shortened it to BP, to signify that it was more than a petroleum company and emphasize its investments in alternative energy.

The company dropped the shield and torch that had represented British Petroleum and Amoco and adopted a logo called the Helios, which looks like a sunflower bursting with petals. BP says the design is named after the Greek sun god and represents "dynamic energy in all its forms."

The company's Web site declares that its brand can be summed up in two words: "beyond petroleum." Its executives have preached the importance of "social responsibility on a global scale" at major business conferences.

As British Petroleum, it won the support of some environmental groups in 1997 when it announced that it agreed with scientists that global warming stems from an excess of carbon dioxide and other greenhouse gases released through the burning of fossil fuels. It pledged to greatly increase its investment in solar power. Still, other environmentalists, including Greenpeace, called such investments a relatively insignificant part of the company's portfolio. In 2000, more than 10,000 students from seven Ivy League schools signed a pledge refusing to accept jobs at BP Amoco because the company had pursued permission to drill in the Arctic National Wildlife Refuge.


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BP, 8 other firms sued by Justice Dept. over gulf oil spill

The Justice Department sued BP and eight other companies Wednesday over the Gulf of Mexico oil disaster, the federal government's first legal filing in its broad investigation of the worst oil spill in U.S. history.

The lawsuit accuses BP and other firms of violating federal regulations and failing to prevent the April 20 explosion and fire, which destroyed the Deepwater Horizon offshore drilling rig. It seeks civil penalties under the Clean Water Act and a second federal statute for cleanup costs and widespread damage to the environment.

Although the Justice Department did not spell out an amount, legal experts said the case could expose the companies to tens of billions of dollars in fines, under civil environmental laws. Justice officials emphasized that the filing - on the day of a deadline for civil filings - is a first step and that aggressive civil and criminal probes into the disaster are continuing.

"Even though the spill has been contained, even though it is no longer the focus of round-the-clock news coverage and the subject of front-page headlines," said Attorney General Eric H. Holder Jr. at a news conference Wednesday, "the department's focus on investigating this disaster, and preventing future devastation, has not wavered."

Scott Dean, a spokesman for London-based BP, said the government's filing in federal court in New Orleans was expected and "does not in any manner constitute any finding of liability or any judicial finding that the allegations have merit." He said the company - whose stock price dropped sharply during Holder's announcement, then partially recovered by day's end - is cooperating with all government inquiries.

Other companies involved in the spill and named in the lawsuit affixed much of the blame on BP. Brian Kennedy, a spokesman for Transocean, which leased the Deepwater Horizon rig to BP, said: "Responsibility for oil and natural gas discharged from a well lies solely with the well's owner and operator. . . . Transocean is indemnified in this matter."

John Christiansen, a spokesman for Anadarko Petroleum Corp., a minority owner of the well, said the company was "not involved in the operations or decisions that occurred on the drilling rig." MOEX Offshore, another minority owner, said in a statement that it had "no authority or responsibility to direct activities on the Deepwater Horizon."

The Justice Department civil probe is on a parallel track with a criminal investigation that Holder said is "very serious." Law enforcement officials and other sources have said the criminal investigation is focusing on BP, Transocean and engineering giant Halliburton, which was in charge of cementing the well.

Sources said the FBI and other investigators are examining whether, in addition to violating environmental laws, company officials made false statements to regulators, obstructed justice or falsified test results for devices such as the rig's failed blowout preventer. Another line of inquiry, sources said, is whether the companies' cozy relationship with federal regulators contributed to the disaster.

Halliburton, which has declined to comment on the investigation, was not named in the civil lawsuit. The suit is expected to become part of broad civil litigation pending in U.S. District Court in New Orleans. Nearly 400 lawsuits against BP and other companies - filed on behalf of fishermen, environmental groups and others in the Gulf of Mexico region - have been consolidated before the same judge.

Justice Department officials said their participation will give them access to documents and other materials handed over in pretrial discovery, which will aid the government's broader civil and criminal probes. Officials said the timing of their filing was related to Wednesday's deadline set by the judge.

The 27-page document says the companies failed to use the safest drilling technology and to maintain equipment "necessary to ensure the safety and protection of personnel, equipment, natural resources, and the environment." It offers little evidence for those assertions, but officials said additional grounds - and defendants - could be named later.

Roger Marzulla, an environmental lawyer who headed the Justice Department's environment division in the Reagan administration, said it appeared that "the government got rushed by the court's deadline. They filed as generic a complaint as possible and figured 'we'll sort it all out later.' "

Experts said the legal standard to prove liability under the Clean Water Act and the Oil Pollution Act - the other law under which the government sued - is low. "You just have to show that an event occurred and that a particular entity or person is responsible," said William Carter, a former federal environmental prosecutor. "Anything short of an act of God - a lightning bolt hitting something - and that person is going to be responsible for the cleanup."

Under the Clean Water Act, if the government can prove that BP or other companies engaged in "gross negligence," each firm could be fined up to $4,300 per barrel of oil spilled. Nearly 5 million barrels were spilled into the gulf, according to federal estimates.

"Tens of billions of dollars is certainly a legitimate prospect here," Marzulla said.


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Lawyers taking center stage in oil-spill investigation

HOUSTON - The Macondo well gushes no more, but the lawyers are just getting started.

They go wall to wall in a Hilton hotel conference room, sitting at long tables that face the outnumbered investigators assigned to find the cause of the April 20 Deepwater Horizon disaster. The thermometer may be hitting 100 outside, but the room is kept perfect for the men and women in power suits, many from Washington, Chicago, New Orleans and Dallas.

The investigation, a joint operation by the Coast Guard and the Bureau of Ocean Energy Management, is supposed to help the government determine what went wrong and recommend reforms. But the hearings have largely been taken over by lawyers for the major players in the disaster - including BP, rig owner Transocean and the contractor for the cement job, Halliburton - who are trying to prepare for what are sure to be many civil trials to come.

They are generally civil to one another, but their clients have conflicting interests, with billions of dollars at stake and a Justice Department probe shadowing everything.

"The 900-pound gorilla in the room is the criminal investigation," said Pat Fanning, the attorney for one of the top Transocean managers on the rig.

Testimony this week has focused on usual suspects: the construction of the well and maintenance of the blowout preventer. But who's to blame, what piece of equipment or procedure proved fatally deficient, or to what degree the calamity could have been foreseen are issues the lawyers will likely tangle over for years to come.

In a new twist, BP has declared that a Halliburton employee, Jesse Gagliano, who warned that the cement job on the Macondo well might not function properly, should have stopped the operation outright if he had real doubts about safety.

Gagliano testified Tuesday that he told BP engineers on April 15 that if BP proceeded with the cement job as designed, it would have a gas-flow problem. Three days later, he wrote that, with only seven centralizers to center the casing, "this well is considered to have a SEVERE gas flow problem."

Gagliano said he and the BP engineers worked together, late into the night of April 15, trying to resolve the problem. He recommended that BP use 21 centralizers to keep the casing properly positioned. But even though an additional 15 were flown to the rig, BP chose not to use them. The cementing job proceeded with six.

Under cross-examination by BP lawyer Rick Godfrey, Gagliano acknowledged that in some documents, as well as during several conference calls with BP and Transocean managers, he did not cite the gas-flow potential or raise other alarms.

"BP had made their decision," Gagliano said. "They had decided not to follow my recommendation."

After he testified, BP released a pointed statement: "If Halliburton had significant concerns about its ability to provide a safe and high-quality cement job in the Macondo well, then it had the responsibility and obligation to refuse to perform the job. To do otherwise would have been morally repugnant."


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Reminder from Egypt: The age of oil isn't going away

The Age of Oil continues; we need to deal with it. The upheaval in Egypt reminds us of lessons that, despite decades of warnings, Americans have consistently sidestepped: The United States and the rest of the world will depend on oil for the indefinite future; global oil markets remain hostage to political crises that cannot be predicted or controlled; and we have not taken the prudent steps that would reduce - though not eliminate - our vulnerability to catastrophic oil interruptions.

Just what Egypt's crisis will do to oil markets is, as yet, unclear. Driven by cold weather and strong demand from developing countries, oil prices were already increasing before Egyptians took to the streets. After averaging about $2.80 a gallon for most of last year, U.S. gasoline prices pierced the $3 barrier in December. Prices rose further on the turmoil, but the gains could be short-lived. Egypt produces only about 700,000 barrels a day. That's not much compared with global demand of nearly 90 million barrels daily (mbd). If all of Egypt's production halted, it could be replaced because the world now has about 4 mbd of surplus capacity elsewhere.

A greater risk involves oil shipments. The Suez Canal and the SuMed pipeline (Suez-Mediterranean) together now move about 3 mbd between Asia and Europe. If these supplies were blocked, prices would almost certainly rise. But, again, accommodations would be made. Tankers would be rerouted; shipments via other pipelines would increase.

The real flash point would occur if a cascade of political turmoil cut production from major suppliers: Saudi Arabia (present output: 8.5 mbd), Kuwait (2.3 mbd), Iran (3.7 mbd), Iraq (2.4 mbd) or Algeria (1.3 mbd). This danger will remain no matter how the present crisis ends.

What can we do? Well, two things: decrease oil consumption, preferably by a stiffer gasoline tax; and increase production, preferably by less-hostile regulation. The Obama administration isn't doing either. Instead, it's touting a goal of 1 million electric hybrid vehicles by 2015. This is more public relations than policy. The goal is probably unrealistic; first-year sales of the Chevy Volt may reach 25,000. Even if the 1 million is attained, the oil savings would be tiny - perhaps 40,000 barrels a day, about two-tenths of 1 percent of U.S. consumption of 19 million barrels a day. There are already 240 million cars and light trucks using gasoline.

By contrast, lost production from restrictions on drilling in the Gulf of Mexico could total 200,000 barrels a day in 2012, by one government estimate. The administration overreacted to the Deepwater Horizon blowout. There hasn't been much encouragement of on-shore drilling, either, despite better prospects. In 2009, domestic oil production rose for the first time since 1991, in part because higher prices and new drilling techniques (hydraulic fracturing, horizontal drilling) made it profitable to extract once-inaccessible oil. Production in North Dakota's Bakken field has surged; there are guarded hopes for gains in Texas's Permian Basin.

A higher gasoline tax - gradually introduced to avoid wrecking the economic recovery - would dampen wild swings in fuel prices and push consumers to buy the more-fuel-efficient vehicles that the government is ordering auto companies to make. Americans have traditionally preferred bigger vehicles and, without the prod, might cling to old habits. There is a convergence here between energy and budget policy. An energy tax would help both. It would improve oil security and, with spending cuts, curb budget deficits. Neither the Obama administration nor congressional Republicans seem willing to grasp the possibilities.

None of this will achieve "energy independence," which has been a mirage since it was proposed in the 1970s. Our need for imported oil - now about half our consumption - is simply too great to be overcome by production increases or efficiencies. But we could temper that dependence and the cost of imports, which routinely exceeds $250 billion annually.

Barring unforeseen technological breakthroughs, oil isn't going gently into the night. That's confirmed by recent projections of future energy markets: from the International Energy Agency in Paris; from the U.S. Energy Information Administration; and from ExxonMobil. All make generous assumptions about gains from energy efficiencies, including vehicles, and expanded renewable supplies. All still conclude that oil will meet a quarter or more of global energy demand for decades. ExxonMobil projects that the number of light-duty vehicles worldwide will grow 50 percent, to 1.2 billion, by 2030. Most will use gasoline. Two-fifths of the increase will occur in China. Competition for global oil supplies will intensify. We cannot escape that reality, even if we ignore it.


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BP announces changes aimed at helping cover costs from gulf oil spill

BP said Tuesday that it will restart its suspended dividend payments, put its troubled Texas City refinery up for sale and sell another $13 billion in assets, a move aimed at covering costs flowing from last year's the massive oil spill in the Gulf of Mexico.

The British oil giant also said that it has sent a bill for $6 billion to its partners in the ill-fated Macondo oil well, Anadarko Petroleum and Mitsui, who it believes share liability for the disaster that killed 11 people and leaked nearly 5 million barrels of oil.

BP added $1 billion to its estimate of oil spill costs, bringing pre-tax charges related to the incident to a total of $40.9 billion. That figure does not include any payments by the partners, who say BP bears sole responsibility.

The announcements, including fourth-quarter operating earnings that were about 30 percent higher than a year earlier, closed out a catastrophic year for BP. Yet they painted a picture of a business on course to emerge largely intact, albeit about 15 percent smaller than it was before the spill.

BP chief executive Robert Dudley said that the company was pruning its least essential operations but would increase capital spending to $20 billion this year to explore and develop its most promising oil and gas prospects worldwide, including new frontiers in the Russian Arctic, Australia, the South China Sea and off Brazil's coast.

"We will be a different kind of company in the upstream going forward," said Dudley, who became chief executive after Tony Hayward resigned in the wake of the oil spill disaster. "We are taking this moment to make a broad strategic change," Dudley said, adding that BP would seek "different ways of unlocking value in the portfolio."

But BP executives in a Web cast said that the company's total production of oil and gas was equal to 3.67 million barrels a day, down 9 percent from a year earlier because of divestments, lower output in Organization of Petroleum Exporting Countries, and development delays in the Gulf of Mexico.

Moreover, Dudley said that output would slide to 3.4 million barrels a day this year after further asset sales.

The projections left investors cautious about BP stock on a day when the market rose broadly. Shares of BP closed Tuesday at $47.98, down 51 cents or 1.1 percent. BP stock closed at $60.48 a share on April 20, hours before the Macondo blowout, and fell as low at $27.02 a share in late June.

The restoration of dividend payments was widely anticipated. BP set the new dividend at 7 cents a share, half the previous level. That will cost the company about $5 billion a year, leaving a substantial amount of cash to fund an escrow account for spill damages. Dudley said that BP would be careful to avoid setting the divided so high that it would have to rely on very high commodity prices to meet its payments without borrowing.

BP executives also said that the Texas City refinery, where a 2005 explosion killed 15 people, no longer fit into the company's strategic plans. BP has poured money into upgrading the facility and settling victims' claims since the accident. But it said it now hoped to sell the refinery, the third largest in the United States, by the end of 2012.

BP said it would also sell its Carson refinery near Los Angeles, reducing BP's total U.S. refining capacity by half.

Dudley said he remained committed to deepwater projects, despite last year's spill. He said BP had 19 deepwater wells planned for the Gulf of Mexico and off Angola's shore.


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