There is an excellent guest post on the Oil Drum with an easily accessible (to the layman) explanation of what went on and what is going on.

It’s good on the nature of the ‘leak’ and presents this pretty graphic image of the ferocity of the escape:

Factoid: If you assume that there is over 5,000 psi of downhole pressure at the BOP–and everything I have heard indicates it is probably substantially higher than that–then a 1/4 inch diameter hole is large enough to “leak” 5,000 barrels a day. That “leak” would probably cut off your arm if you passed it in front of itB

He adds that the fact that there is almost certainly significant sand mixed in with the oil means that there is a ’sand-blast’ effect going on, too, constantly gouging away at the escape site and enlarging it. Not good.

Under the heading “The Politics” (though really it should be “Who’s going to be liable”), he considers who might be in the firing line:

Does BP have culpability because of trying to move too fast? At over $500 a minute, they certainly have the incentive to move fast. We don’t know – yet.

Is Transocean to blame for some sort of negligence in not properly monitoring the mud return or some other aspect of cementing process? We don’t know – yet.

Was Halliburton’s cement job faulty? We don’t know – yet.

Did Cameron International’s BOP fail due to manufacturing or design fault? We don’t know – yet.

Is a combination of one or more of the above? Quite possibly, but we don’t know – yet.

There are unsubstantiated reports that the kick registered over 30,000 psi. If the BOP stack saw that kind of pressure, it could be a important factor, both in determining what happened and how to prevent it from happening again.

I guess these are some of the issues that are going to play out over the coming months and years as people struggle to get to the bottom of the incident and what — and who — caused it.

Not a mention of insurance, though. But then it’s not top of people’s minds. Oh, and there is some perhaps surprising defence of lawyers in the comments to the article. Now that is unusual.

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There’s a great, detailed piece about how the Deepwater Horizon incident unfolded and some pretty precise technical reportage on what has broken and how (though it’s a shame the diagrams aren’t there).

As the author says:

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.

As part of the wider picture of BP, you might want to look at this piece in the WSJ about the history of cost-cutting under previous CEO, John Browne:

BP has acknowledged criticisms of “systemic lapses” leveled by a Chemical Safety Board report for its past sins. In 2006, the Chemical Safety Board’s report about Texas City warned that BP’s managers, scarred by “a cultural issue,” posed “an imminent hazard” to safety. Then, after the Alaskan oil spills, Congressional investigators heard testimony by a former BP engineer in Alaska complaining, “There is no doubt that cost-cutting and profits have taken precedence over safety and the environment.” He asked rhetorically whether, rather than “Beyond Petroleum,” BP actually stood for “Beyond the Pale.” Mr. Wine says that since Mr. Hayward became CEO, BP has been rolling out a new system for developing and maintaining operating standards across the company, including safety standards, as a response.

But as the article points out, we all need BP to get this one right, not just be proved wrong in the past.

At the time of writing there seems no sign any time soon of the well being capped. Let’s all hope it is, and quickly.

Finally, here’s a roundup from Business Insurance on which carriers look to be affected by the incident. I brief, those with big exposures include ACE, Axis and Lancashire. Others include Hiscox, Partner Re, Validus, Montpelier Re, Transatlantic Re and Hannover Re.

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Water—or the scarcity of it—is not something people give a lot of thought to. But consider these facts:

1. Demand for clean water will rise by 100% between 2007 and 2040.
2. Irrigation for farming uses 60% of all water taken from rivers and aquifers globally.
3. While the world produces twice as much food as it did 25 years ago, it takes three times as much water to do so.
4. To produce 1kg of rice takes 2,000-3,000 litres of water.
5. 1kg of instant coffee takes 20,000 litres (yes, that’s twenty thousand).
6. 1 litre of milk takes 4,000 litres of water.
7. 1 hamburger takes 11,000 litres of water.
8. 1 cotton T-shirt takes 7,000 litres of water.
9. Already, 400 out of China’s 600 biggest cities are short of water.

So we can expect to see taxation on water, increased use of desalination, corresponding developments in agricultural technology, crops designed to rely on smaller amounts of water and an increased political focus on water extraction and use.

Water could be the new oil.

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Building Blog has a good piece on the recent mudslides in LA, which in turn followed the denuding of the hills by raging bush-fires.

As one commenter notes, how anybody could think that a few concrete barricades would hold back a 50mph mudslide, embedded with boulders and other large debris, is hard to fathom.

(pics by Irfan Khan for the LA Times).

What is also hard to fathom is why people persist in building in obvious places of danger. And why they are allowed to. It’s a little like the people who move to the coastal regions of the SE US — it’s only a question of time before Bad Things happen to your house, but people lack the imaginative capacity to see that, or believe that it will happen to them.

For the title of this piece, I refer you to the first comment on the Building Blog entry which quotes this extract from the LA Times:

P. Michael Freeman, chief of the L.A. County Fire Department, acknowledged that crews were operating on weather forecasts that turned out to be incorrect. “I think it’s imperative that everybody understand the unpredictability of predictions,” Freeman said.

There’s a Video Guide to How Mudslides Work if you find it difficult to imagine how (basically, Slope + Loose Mud + Water = Disagreebleness x Lots).

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The FT had an interesting piece about flooding on 16 December. The surprising thing to me was that about 40-60 per cent of flood-related claims are from damage to properties in areas away from main rivers and involve surface flooding and questions of drainage.

Insurers are hampered in analysing this area as closely as they might like because of a lack of reliable data going back much beyond about 40 years.

The FT piece also comments on the flip side:

>While most of the emphasis when it comes to insurance has been on flooding, severe water shortages also present challenges for insurers. Droughts and heat waves, for example, can lead to an increase in fire-related claims for general insurers.

>Mr Wallace [of RSA] says that while water scarcity is not yet a major issue for insurers, it is beginning to create challenges for other sectors, such as the drinks industry. There could be some implications for insurers if they write policies that protect against companies being unable to trade.

Not sure why the drinks industry is singled out — most likely because they need large quantities of water to make their products, but I guess you could see a rise in claims if people had to turn to beer instead of water. Perhaps.

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AON are warning that fraud is on the rise and that insurance is going to face increasing claims from environmental threats, terrorism and product recalls.

They also think nano-tech is going to bite insurers.

I’d agree with fraud.

Longer term, I think the environment is going to be an issue — it already is, obviously — but I think the market will find ways to deal with that.

NOTE: Munich Re say that they expect that insurance products for “new” liability risks will emerge in the future, possibly covering risks such as failure to warn/report/inform, conspiracy, wrong reaction to emergency situations and even improper claims handling. They also comment that the question of whether claims emerge through general liability or product liability insurance may continue to evolve and may become more frequent. “Such covers are intended to extend only to emissions caused by fortuitous events and not to emissions caused in the normal course of operations or due to wilful action.” They also say note that what is considered “normal” may call for redefinition by the courts and in corporations’ code of conduct regarding energy and environmental practices.

Terrorism? Hmm, not sure about that since it’s pretty easy and standard to exclude it.

What about product recalls? Again, I’m not sure that I see why there should be an increase there all of a sudden, unless they are linking it to nano-tech, but even then I’m sceptical about whether nano really is going to be the horror that many are talking it up to be at present. I’m writing a paper on the issue at present, and the gossipy press is full of half-truths and junk science, which makes for a less than convincing case.

I’ll put the ‘nano-review’ up when done.

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Just when the financial world is giving us severe grief, it looks like we are going to get bitten by Peak Oil, after all.

The International Energy Agency is shortly to publish its annual World Energy Outlook (12 Nov) but the FT has a sneak preview.

Basically:

1. without investment, the natural annual rate of output decline is 9.1%

2. even with investment, natural annual rate of output decline is 6.4%

3. the level of requisite investment is $360bn each year until 2030.

Great. Just when the money’s run out, though

The decline will not necessarily be felt in the next few years because demand is slowing down, but with the expected slowdown in investment the eventual effect will be magnified, oil executives say.

As a further indicator of how the world is changing, consider, too, that the share of rich countries in global demand will drop from last year’s 59% to less than half of the total in 2030. Whatever world is around in 2030 – 2050 it does not seem that the rich West will be the ones to inherit it.

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Looking down from my hotel on the rooftops of Houston, I can still make out the debris that must have been left behind by Ike.

It reminds me of the time that I was in New York about 7-8 weeks after 9/11. We were staying in the Waldorf-Astoria and when I crawled under the table of my rather pokey room and pushed back the curtain to get at the socket I found about an inch and a half of dust and rubble that must have landed there in the duststorm that followed the collapse of the towers.

This reminder of Ike is infinitely less jarring, though the hurricane season seems to be causing more than anticipated troubles in the markets. Hannover Re has issued a profits warning as a result of the double impact of financial markets turmoil and heavy catastrophe losses and its share price is on the slide.

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A lecture given by Dr Lawson Brigham

*At the Institute of Marine Engineering Science & Technology (IMarEST)*

*8 September 2008*

—

*Please note that these are not authorised notes, but simply the result of my jottings at great speed during this fascinating talk. I may not have taken certain things down entirely accurately, though I think the broad thrust is right. Any mistakes and/or idiocies in this piece are entirely down to your reporter and not to Dr Brigham.*

—

The Arctic Ocean is about five times the size of the Mediterranean. It has a large continental shelf, possibly the largest in the world, yet is approximately 2 miles deep at the North Pole.

16 September 2007 marked the minimum extent of polar ice in recorded history. The North West Passage was open for 16 days in 2007. The North East Passage (also known the Northern Sea Route (‘NSR’)) was open but even then needed strengthened, ice-capable ships to navigate the ice that remained.

The last fifty years have seen a steady decrease of ice in all seasons both in extent and also in the thickness. The average depth of the pack ice from the Barents Sea to the Baring Sea is approximately 1.8 metres to 2 metres in mid-winter.

Paradoxically, there is actually more ice this year than there was in 2007 although Dr Brigham was at pains to stress that the overall trend is for less ice, both in extent and in thickness.

He also said that, for reasons that are not yet readily explained, the age of the ice is changing too. The older ice, which has had most of the salt leached out of it and is much harder to break up by ships, is disappearing and being replaced by much younger ice. This leads to an increase in the ability of ships to use the circumpolar waters.

#Uses of the Arctic Region
Dr Brigham then went through the five main uses of the Arctic as follows:

###Hard minerals
Zinc and coal in Alaska – The largest zinc mine in the world is in Alaska and in the ice-free periods of the year some of the largest ships in the world dock there to load zinc. In eastern Canada, in Baffin Bay, one of the largest warehouses in the world holds iron ore deposits from the very large fields in the hinterland. Again, when the ice clears, some of the largest ships in the world sail there in order to load the iron ore and there is a regular trade route between Eastern Canada and the North West region of Russia (Murmansk and Norilsk).

Nickel and Copper in North West Russia – The largest nickel mine in the world is just near Norilsk.

###Marine Tourism
There is an increasing amount of tourist activity in the polar regions. There have been 77 trips by ice-breaking ships to the North Pole itself although tickets are steep at somewhere in the region of US$30,000-$40,000 for each passenger (although there seems to be no shortage of applicants).

There is a certain amount of activity in the North West Passage, too, but this is of the lighter impact variety, mainly eco-tourism.

The more worrying type of activity is the non-ice capable ships that are now beginning to cruise in Greenland waters, these being mainly vessels that can and do normally potter around the Mediterranean and the Caribbean and are simply not capable of withstanding the heavy weather and extreme conditions that can prevail in Arctic waters even in summer.

###Fisheries
Especially in the Barents Sea and the Baring Sea – as stocks get over-fished in the other main fisheries of the world there are increasing signs that the large fleets are moving ever northwards.

###Oil and gas
This is the big driver, especially in the Chukchi Sea and the Beaufort Sea, and there has also been a massive increase in developments in North West Russia. Dr Brigham said that the relationship between Russia and Norway over the area disputed between those two countries is going to be critical in the coming decades.

###Offshore exploration by scientists
Again, although this is relatively minor compared to the oil and gas expansion, there has been a significant increase in the amount of work carried out by scientists in the Polar Region and this is only likely to expand.

#Arctic activity
A major problem for the region is that most of those interested in the Arctic are non-Arctic nations.

Although some countries appear not to know how many ships they have in the Arctic at any one time, the general consensus is there are probably about 5,000 ships active in the area each year.

To get some idea of the increase in activity by non-Arctic entities, consider that in 2005 there were 53 cruises in Greenland waters, in 2006 150 and in 2007 there are estimated to be over 200. Almost all of these come from non-Arctic countries and many fly under flags of convenience.

Most traffic in the Russian area is confined to the North West of the country, between and around Norilsk, Dudinka and Murmansk. It is odd but probably not that surprising to note that traffic on the North Sea route (NSR) is down from three hundred and thirty-one thousand trips in 1984 (when Soviet power was at its height) to around about fifty-four thousand now.

In terms of trade consider that from Hamburg to Yokohama can be done in one of the following ways:

* Northern Sea Route — 7,000 miles
* Suez – 11,000 miles
* Panama – 12,500 miles
* Cape of Good Hope – 14,500 miles

The potential for significant cost and time benefits in opening up the NSR is plain. However, the corollary of that is that vessels would be much more expensive, being ice-strengthened and their speed would be generally lower than coventional ships on conventional routes as they have to go more slowly through pack ice.

#Risk scenarios
Dr Brigham said that the Arctic Marine Shipping Assessment (AMSA) of which he is one of the Chairs, had engaged in some scenario planning and had come up with the following not entirely unlikely events that might happen:

1. a collision between a tanker and a trawler in the Norway/Russia disputed region;
2. a fire on an oil rig in the Canada/US region;
3. a barge laden with explosives running aground near an indigenous settlement in the Canadian North;
4. a giant ore carrier sinking at the North Pole, flying under a flag of convenience and uninsured; and
5. a large cruise ship grounding off Greenland carrying 2,000 passengers and 900 crew.

This last one Dr Brigham said he thought particularly realistic and worrying, and he referred to the sinking of the Antarctic cruise ship Explorer on 23 November 2007. That incident had involved no loss of life but it should be remembered that that was a smaller and more weatherly vessel than many of the ships cruising in Greenland waters, that the weather was unusually good at the time of the incident and that they had had great good luck in that a Danish vessel happened to have been nearby.

He said that the probable scenario with the passengers on such a vessel was that there would be sufficient life boats to get them off but that the 900 or so crew would be left to their fate aboard life rafts of which there might not even be enough. In those waters even without submersion hypothermia begins to set in after about six to eight hours even in high Summer and so one could be looking at potentially a very large casualty rate.

He also pointed to the fact that in these waters, which are well off the normal beaten track for these sorts of cruise ships, there is no infrastructure, no support, no nearby hospitals, no easily available search and rescue facilities, the nearest salvage being five to six days away. All you needed was to have a fire, such as could break out anywhere on a cruise ship, involving say twenty to fifty people being badly burned and you might find that they would all die and more that the ship might be left stranded there subject to even worse events.

#Drivers of activity
**Commodities** and their prices will drive the future of the Arctic at least in the short term. A USGS survey report was published in July 2008 which gives figures about the amount of oil, natural gas and minerals that are expected to be found in the Arctic as percentages of the world’s known deposits. Some of these really are rather speculative (how can one have a “100% probability” of oil being discovered in a certain place?).

There are also ecological issues and recently the power of ethnic groups and ecologically interested parties to stop and slow down the exploration/exploitation of the Arctic has been seen in Alaska where exploration has been brought to a halt by a series of law suits. A choke-point in the Baring Straits in particular could be susceptible to direct action in certain circumstances.

Another issue is that of **pollution and emissions**. There is some evidence, apparently, that normal emissions by ships have a much more deleterious effect in the Arctic, i.e. the very fact of operating in that particular climate makes the effect of the pollution much worse than it would do at, say, the Equator.

There are also legal wrangles over the rival claims to **Exclusive Economic Zones**. UNCLOS Article 76 provides that 200 miles from each country into the sea is effectively a private zone for that country. However, the US did not sign UNCLOS and the later Ilulissat Declaration – which was agreed by Canada, Denmark/Greenland, Norway, Russia and the USA – held that there was “no need for any further specific Arctic Treaty”. This, said Dr Brigham, struck him as odd and not altogether desirable.

Another factor is the **new ship technology** and in particular a new breed of Finnish built ships which operate without rudders but with propulsion systems at each end, the idea being that they proceed ahead in open water but stern ahead in ice. One such vessel is already being run by the Russians in their Arctic waters and is both very fast and very efficient.

#Q&A session

Dr Brigham then answered a series of questions put by the audience.

###UNCLOS – Will the US ratify it?
Dr Brigham said that he thought generally speaking America was entirely behind it but that there was a small group of very conservative Senators who were blocking it on the basis that they “did not want to give the sea to the UN”.

Dr Brigham said he thought this was patently absurd and did not agree with it but nevertheless that was his private view as to the true situation. He said that, probably, it did not matter much in any event because the US was already adhering to the principles of UNCLOS even though it had not signed it. He sounded a cautionary note and said that while it was necessary that this should all be resolved getting involved in the intricacies of geo politics should not be allowed to get in the way of practical agreements over, for example, co-operation over mining and exploration, search and rescue and so forth.

###Pollution clean-up
It is very easy to envisage that exploration companies might lose their licence to operate if they were the cause of or embroiled in a major environmental incident. The question that was asked of Dr Brigham was if there had really been much advance in clean up technologies and just how difficult it would be to clean a major spill in the Arctic region.

Dr Brigham said that it was likely to be very difficult to clean up oil from ice. The technology has not, he said, developed much in the last ten or even twenty years and he foresaw that there could be a big backlash against companies exploring in the Arctic in the event of such an incident. Oddly, it seems that in the US and Canada most of the campaigning against such exploration has been on the basis that it will disturb or impact on indigenous peoples, principally by way of noise and increased disturbance. There does not seem to have been much focus on the potential for a major environmental catastrophe.

###What size ships will use the Arctic?
Dr Brigham said that presently they were quite small but that they could and probably would be huge especially for those operating up to Baffin Island for the iron ore trade.

He said that this was going to present a big challenge to the industry generally not only in terms of what was technologically possible but also for the classification societies. For example, the Finnish built ships which are capable of operating both bow forward and stern forward raise questions as to what is the “bow” and what is the “stern”.

There are also difficulties inherent in turning huge ships around in ice-packed waters, even if they have been strengthened. A ship of 1,600 feet length is simply going to be very difficult to pivot against a wall of ice that is going to be crushed up and moving against it.

In addition, Dr Brigham highlighted once again the problem of very large cruise ships which are already in the Arctic. They are probably not safe enough and he can considers that that whole area was simply an accident waiting to happen.

###Change in trade patterns
Q. The questioner said that the whole of the EU was geared to a transatlantic or at least oceanic/southwards trade. Did Dr Brigham think that it would re-orientate its ports to take more advantage of the transpolar routes?

A. Probably not. For the time being the question of trade going via the polar routes was not really going to present a major threat to the existing shipping routes. It was very extensive and although the Russians had shown that it could be done, it was really the cost of having an infrastructure in place that was going to be prohibitive. Russian infrastructure has, as already noted, gone backwards since Soviet days and given its seasonal nature to the prospect of a large scale trade going via transpolar routes is simply not economic and probably will not be for some considerable time to come.

###Methane deposits
Q. There are supposed to be vast stores of methane which come up from the sea bed and are usually trapped under the ice – if the ice melts then more methane will be released into the atmosphere and it is a particularly harmful greenhouse gas. [There was not really a question here and all Dr Brigham said was yes it was possible although others might think that it was possible to collect the methane so it was rather swings and roundabouts].

###Cruise ships
Q. (from someone from the London Hull Committee, i.e. for insurers). He asked whether the cruise ships are welcome and how safe they were.

A. Dr Brigham replied that they are already there and pointed to the lack of a normal maritime infrastructure (including for search and rescue) in the Arctic which makes it much more dangerous for such ships if things – anything – go wrong. These ships are simply not designed for operating in such hostile environments and they do pose an extreme risk and, he had already said, an accident waiting to happen.

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Amazing shots of hurricanes, taken from up in space.

This is Ivan, one of the strongest hurricanes on record, taken on Saturday, Sept 11th, 2004 from an altitude of about 230 miles by Astronaut Edward M. Fincke, NASA ISS science officer and flight engineer, looking out the window of the International Space Station. At the time, Ivan was in the western Caribbean Sea and reported to have winds of 160 mph.

See more courtesy of The Boston Globe. Fantastic.

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