Sharing the burden

Insurance groups are fighting BP’s attempts to claim under a policy held by rig-owner Transocean. In the long term, insurance costs will rise for the entire sector.

The impact from BP’s spill has spread into the financial sector, with a group of insurance companies, including 38 separate syndicates from the Lloyd’s of London insurance market, launching legal action against the oil firm. BP is attempting to claim up to US$700m under a policy held by Transocean, which owned the Deepwater Horizon rig.

However, the group has argued that while they insured against damage to the rig, they did not cover any consequent environmental damage or clean up costs. Even if BP succeeds in its claim, a US$700m payout would only make a dent in total insured cost, which some analysts have predicted could reach as much US$12bn.

Meanwhile, BP has lost around US$50bn in market capitalisation since the leak began just over a month ago, with around 30% wiped off its share price. Its decline has not been as steep as Transocean’s, but it has lost far more in total. BP’s peers (and the broader market) have also declined in the same period, but only by around 14%; so just over half of BP’s share price losses, around US$25bn, can be attributed directly to the spill.

In the long-term, insurers are rethinking the costs of covering the risks of offshore drilling. Before Deepwater Horizon sank, the cost of insuring a rig was $3m-$9m a year. Rates for shallow water drilling have risen by 15-25% since then, with coverage for deepwater drilling now an estimated 50% more expensive.

BP’s ever-spiralling costs may be enough to persuade other oil companies that even more expensive insurance is worth the money. Alternatively, the reluctance of insurers to pay out may leave them convinced that the greatest costs will be shouldered by companies no matter what they do.


With PR like this…

Another blow has been dealt to BP’s public image. Even as the oil company steps up its PR campaign on several social networking websites, one such site, Twitter, now features an account under the name of BPGlobalPR , which posts satirical messages “from” BP which echo criticisms, most notably from Greenpeace, that the company’s caring brand-image has not been reflected in their actions before or after the spill.

With messages such as “The ocean looks just a bit slimmer today. Dressing it in black really did the trick!”, the account is obviously a not-so-subtle prod at BP’s actions. And, worryingly for BP, it has taken off. BPGlobalPR boasts over 39,000 followers, rather more than BP_America, which has around 5,500 (although the company may be relieved that a more pointed account, BoycottBP, only has 1,000 followers).

It may also worry BP posts like “I’m sorry, are people mad at us for drilling in the ocean?!? Maybe God shouldn’t have put oil there in the first place. DUH.” have been accepted at face value by some Twitter users, who have directed angry comments at the account, assuming it to be a genuine PR exercise.

BP’s response to the prank has been fairly muted. Even if most people realise that the company has nothing to do with the comments, however, BPGlobalPR represents one more step in which British Petroleum is losing its ongoing public relations battle.

Bacterial biofuels

The creation of “synthetic life” by American biologists has excited the world. But can it be used to revolutionise the biofuels industry?

The claim by American geneticists to have created synthetic life has, understandably, been picked up across the globe, with the main focus being on the ethical implications (although some scientists have argued that the “life” tag is an exaggeration). But the new technology is not merely a victory over nature. Claims have been made for its revolutionary implications in other areas, not least in the possibility of next-generation biofuels.

Craig Venter, who along with Hamilton Smith was responsible for the technique which placed entirely synthetic DNA inside a pre-existing bacterial cell, is clearly among the most optimistic about the prospects of his breakthrough. In an interview with the American Association for the Advancement of Science, Venter cited a deal signed with Exxon Mobil to investigate the possibility of creating algae that could manufacture hydrocarbons.

An important aspect of this aspiration is the fact that algae, unlike traditional sources of biofuel, would not be in direct competition with agriculture , and therefore not a drain on increasingly-stretched food production. Exxon has faith in the concept; the company’s research and development deal with Venter’s Synthetic Genomics Inc is worth a potential $600 million.

Venter has admitted that the technique represents only “the final proof of concept”, rather than a substantive step towards designing life, but apparently believesthe potential commercial biofuel applications of creating algae that create biofuel from atmospheric carbon dioxide could be worth over a trillion dollars.

However, disagreement over the breakthrough is not confined to ethical debate. Some in the scientific community have questioned the real value of the technology compared to current biofuel applications that can be realised using pre-existing organisms with just a few genes knocked out rather than the painstaking process of Venter’s technique. Sir Paul Nurse, President-to-be of the Royal Society, has said he does not see the discovery transforming “the way we do biotech”, adding that pre-existing technology has much greater potential to transform the lives of individuals.

Others have pointed out that the new “life” is merely copy of an already existent organism, the Mycoplasma bacterium. This was chosen because it is one of the simplest forms of life on the planet, and is not suitable for biofuel production. Before the technology can be harnessed for human benefit, scientists would need to devise a specific genetic code which caused an organism to, for instance, produce biofuel.

The danger, then, is that the headline-grabbing nature of “synthetic life” may divert attention, and money, away from potentially more efficient means of producing biofuels. If Venter is right, however, the new technology will presumably allow far more subtle manipulation of organisms, giving humanity greater control than ever in the production of biofuels.

Deepwater Horizon: Live

After challenges that the estimates BP has given of the amount of oil currently being poured into the ocean are severely on the low side, the company has now provided a realtime video link to the leak so that people can see for themselves what is happening underwater. Whether the public will applaud the company’s openness, rather than reacting badly to firsthand footage of the disaster, remains to be seen.

BP’s reputation sinks

An interview with a rig worker who was aboard Deepwater Horizon at the time of the accident has done nothing for BP’s public image.

BP’s reputation suffered another blow yesterday as it was claimed that the sinking of the Deepwater Horizon rig came after the company ordered drilling to go faster due to attempts to control spiralling costs. Rig worker Mike Williams told the show that the workers had been under increased pressure to complete the project quickly.

BP has seemed to try to shift blame for the accident onto Transocean, the company which owns the rig and its safety equipment. The new information appears to at least partially contradict that idea, with BP reportedly trying to pulling rank on the other company as it became increasingly concerned about the amount of money being spent.

However, Williams also suggested the Blowout Preventer, for which Transocean was responsible, had been damaged prior to the accident, adding that there was a failure in communication over “who was ultimately in charge”, with conflicting orders coming from both companies.

But it will undoubtedly be BP which takes most of the heat. The theme of corporate profit taking precendence over responsibility is a common gripe at the moment, echoing with the American public, and an easy axe to grind for politicians looking to boost their approval.

See part one of the report here and part two here.

Underpowered Power Act

The American Power Act, unveiled before the Senate yesterday, attracts criticism from both sides of the energy debate.

The American Power Act was unveiled yesterday to lukewarm reception. The bill, crafted by Sen. John Kerry (Dem.) and Sen. Joseph Lieberman (Ind.), suffered setbacks recently when disagreement over offshore oil drilling seemed likely to kill it before completion. The bill does include provisions for expanding offshore drilling , albeit with a veto for any state against drilling within 75 miles of their coastlines, and a promise to give states which allow drilling 37% of federal royalties.

Sen. Kerry made an appeal to environmentalists to support the bill, calling himself a “true believer” but adding that “our planet can’t wait for the perfect bill”. Nevertheless, a number of environmental groups came out in opposition almost immediately.

The bill has been criticised for its inclusion of a $2bn a year incentive for controversial carbon capture and sequestration (CCS), on top of the $2.4bn already allocated. Greenpeace denounced a “dirty energy bailout”, with director Phil Radford claiming that it catered almost exclusively to the fossil fuels industries.

If so, then those industries haven’t realised it yet. Shell, BP and ConocoPhillips, all of which Kerry and Lieberman have claimed as supporters of the bill, were notable by their absence at the unveiling. Shell put out a statement praising the legislation, but others were more guarded in their responses.

The White House made its expected endorsement , although it managed to reference the bill by the wrong name, calling it the American Clean Energy and Security Act, the title of last year’s House cap and trade bill.

Joining the ranks of the unenthused was Sen. Lindsey Graham (Rep.), who was co-sponsor of the bill before pulling out recently. Although he restated his support for the broad concepts of the bill, he doubted its ability to garner bipartisan support. Despite Sen. Graham not offering his support, Sen. Lieberman said that he expected the Republican to vote for the bill if it came down to a close vote.

Hopes are hinging on the support of moderate Republicans who accept the need for a reduction in greenhouse gas emissions. But Senate Republican Leader Mitch McConnell hinted at the extent of potential Republican enthusiasm when he called the bill “little more than a job-killing national energy tax”. And with Republicans who previously have been sympathetic to climate action, such Sen. John McCain and Sen. Olympia Snow, rejecting the American Power Act almost immediately, chances look slim for the necessary bipartisan support.

US climate bill shrinkage

The Kerry-Lieberman climate and energy bill is likely to face difficulty.

Hopes are low for the climate and energy bill due before the US Senate tomorrow. The bill has already been delayed once by sponsors Sen. John Kerry (Dem.) and Sen. Joe Lieberman (Ind.) after their Republican co-sponsor Sen. Lindsey Graham withdrew amid rows over immigration reform .

It was hoped that provisions allowing for expanded oil drilling would garner the minimal Republican support needed to avoid a filibuster. But these are now believed to be politically untenable for many Senate Democrats due to the ongoing BP spill in the Gulf of Mexico. Still, both Sen. Kerry and Sen. Lieberman have argued that Deepwater Horizon will actually help their bill , a view apparently endorsed by the White House .

There may be something to this idea. A number of recent polls show that public opinion, at least, has turned in favour of the bill. One survey, conducted by Obama pollster Joel Benenson, suggested that a majority of Americans would be more likely to vote for a Senator who supported the bill, and a slim majority (51%) would be less likely to re-elect a Senator who opposed it.

Of course, this is all based on a bill that has not been seen by the public yet. Myron Ebell of the Competitive Enterprise Institute has argued that, whatever the impact of the spill on public opinion, one incident will not affect the fact that most Republicans aren’t going near the legislation. Expanded drilling will still be the only chance to attract some Republican support, but it will remain a bill-killer for too many Democrats. In other words, there will be deadlock.

This seemed to be the tacit admission by Obama’s climate envoy, Todd Stern, when he conceded that US representatives to next December’s global warming summit in Cancun, Mexico, — which is aimed at finiding a successor to the UN’s Kyoto Protocol — might well attend without any domestic legislation to back them up. Stern maintained that that while legislation would be “useful, yes, but a good outcome is obtainable one way or another.” Given the disaster of last December’s Copenhagen effort, it is a weak claim.

Meanwhile, Senate Majority Leader Harry Reid (Dem.) floated the possibility of a “smaller” energy bill, should the Kerry-Lieberman bill fail. Sen. Reid said that he had potential support from a “couple of Republicans” for a bill that would promote renewable energy, but avoid putting a cap on greenhouse gases.

A spokesman for Sen. Reid said that a smaller bill would be based on the American Clean Energy Leadership Act, which was approved by the Senate energy committee with Republican support last June. But since that legislation allowed for wider oil-and-gas drilling in the eastern Gulf of Mexico it would still face the same potential stalemate as the bill which is due to be unveiled tomorrow.

So despite optimistic language from its sponsors the Kerry-Lieberman bill is likely to struggle, whatever stance it takes on expanded drilling.