BEIJING - It sounds like a mantra to avoid being jinxed, a way to save face against domestic and international public anger, a pre-emptive defense before years of drawn-out litigation, or a rumination on personal angst. Carl-Henric Svanberg, the chairman of BP, told an audience of European business executives, "It will be, in many ways, a game-changer in the way that Three Mile Island was."
It was what many others were thinking: that the devastating and still unchecked oil spill in the Gulf of Mexico will be a world-shattering event for the oil industry, just as the reactor meltdown 31 years ago in the middle of Pennsylvania toppled American plans for nuclear power.
Pundits from all walks of the oil industry have taken up their notebooks, scribbled their most pessimistic calculations and argued that this will not be true after all. They argue that serious estimates reckon economic losses and cleanup costs in the range of US$20 billion to $30 billion - an amount that BP, cashing in $16.8 billion in profits last year, could just about afford. Still, even if the costs were $100 billion and BP were to go bust because of the spill, this money, spread across the industry, would hardly dent the economics of the oil barrel. And if BP fails, many others will gladly rush to fill its shoes. Deep-water drilling will be hardly affected in the long term by the BP catastrophe, they conclude.
Yet, industry's economics are not made by absolute, static numbers but by marginal advantages of one technology over another in an ever-changing environment. The problem then - or the better method for assessing the impact - is to consider, after the leak is closed sometime in August, the damages of deep-water drilling compared to other industries and seen against the backdrop of the international environment, as oil is also a highly political commodity.
The calculations then will be: is deep-water oil drilling worth it? Or would the billions spent on cleanup and lawsuits be better spent on subsidies for, say, wind farms or solar panels? With an injection of a few billion, one may find that a new generation of solar cells or wind turbines could be more profitable than drilling for oil.
This computation will certainly not only be numerical (adding or subtracting an oil dollar for a solar dollar), but also political, as the fish and birds washed ashore tarred black, like in the humiliation ceremonies of the Wild West, will remind voters for years of the unpalatable danger of drilling. This is what happened with Three Mile Island. Nuclear energy made as much sense after as before the accident, and its safety was arguably much better after the accident. Yet the increased economic burden of the extra security measures plus the scare it set off prompted America to partially move out of nuclear energy for decades.
Moreover, as last year's Copenhagen conference on the environment reminded us, energy is not simply a domestic issue, but a global one, touching on possible changes encompassing all industries. The oil spill then poses different international questions: how much danger is America willing to inflict on the world in its quest for energy? How can America demand developing nations like India and China, with hundreds of millions of poor, to cut their carbon emissions while rich US tycoons - catering to rich owners of oil-guzzling cars - tar the ocean and thousands of kilometers of coast? Things are surely not that straightforward, but the questions are legitimate, and they undermine the American position in environmental discussions.
Moreover, how much will increased security and better technology for existing and new deep-water drilling plus higher insurance premiums impact global oil prices at a time of great economic volatility?
The euro, burdened by doubts about the solvency of many member states, is spiraling down versus the dollar (the currency fixing the price of a barrel of oil). The Japanese yen is not faring better in the wake of Japan's new political crisis and before the July 11 Upper House elections. And China, so far the engine of global growth, is putting the brakes on its crucial yet overheated real estate development. That is, the dollar-denominated oil barrel could appreciate in real terms for most global economies, and adding the extra costs of the spill, this could slow down the pace of the already anemic global recovery.
In this situation, it is hardly the time to introduce a new element of instability by letting the Chinese yuan appreciate against the greenback. Then ironically, the US dollar may once again become a very strong currency, hurting American industries vis-a-vis imports from all over the world, not only from China but even more so from Europe and Japan, propped up by weaker currencies.
The oil spill could be much worse than the Three Mile Island incident. In 1979, the world was cut in two, the Soviet Union economically did not count, and the Western world was very much dependent on the US's wishes or whims. Now the world is very different, and American wishes only go so far. America is in a recession, and it depends on many other countries for its recovery. Plus, it has two open war fronts, one in Afghanistan and the one in Iraq that also involves oil. And it has bitter relations with Iran, one of the world's top oil producers.
In sum, the equation is so complicated and it has so many variables concerning oil and energy that the Gulf of Mexico spill could trigger all kinds of ghastly scenarios.
All of this already looks bad enough when one assumes that the spill will be stopped in August. But, as has happened with previous failed forecasts, the spill could continue after August, and then the prospects will get much worse. While the world experiences mounting fear of a double-dip recession, the slippery Gulf of Mexico oil spill could be just what makes us fall.
Rather than just concentrating on solving the immediate problems created by the spill, we should perhaps prepare for alternative scenarios and diversify long-term plans for oil and drilling. In this solar, wind or other energy-saving technologies will not simply make environmental sense, they could make better economic sense, as they could dent our present dependence on oil and thus make up for the increased costs and risks of deep-water drilling.
Still, this strategy can't be put to work by America itself. It will have to take onboard countries with greater increases in consumption - China and India for instance - and address the crucial issue of the transfer of related technologies, something that in turn could help the US get out of its doldrums (See US's road to recovery runs through Beijing (http://www.atimes.com/atimes/China/JK15Ad01.html) Asia Times Online, November 15, 2008.)
In sum, the spill has set in motion and made hard to avoid a global political discussion on energy. This is one more headache for US President Barack Obama. It could be good or bad luck, and if he doesn't slip on this oil spill, he could well not slip on anything. (2010-06-17 Asia Times)
