Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
The Three Stocketeers: One for All and... - 2nd Aug 14
Significant Day in the Bitcoin Market - 2nd Aug 14
Gold Prices 1971 - 2014 in 3 Waves - 2nd Aug 14
Gold’s Seasonal Sweet Spot - Strongest Months Are August, September, November And January - 1st Aug 14 - GoldCore
Flagrant Rush To War In The Ukraine Crisis - 1st Aug 14
What Russian Sanctions Mean for Your Money - 1st Aug 14
The West's Reckless Rush Towards War with Russia - 1st Aug 14
Gold Price Advance Capped by the Dead Cat Dollar’s Recovery - 1st Aug 14
Big Banks Shift to Lower Gear Banking Operations - 1st Aug 14
Africa: New Land of Investor Opportunity? Pointing to the Positives - 1st Aug 14
Turning a Clinical Eye on Biotech Stocks with High Potential Investor Reward - 1st Aug 14
Gaza Death Cloud Hangs Over Sheffield Eid Festival 2014 at Millhouses Park - 1st Aug 14
Israels Final Solution of Turning Gaza Concentration Camp into a Grave Yard - 31st July 14
US Failure: Unintended Consequence - 31st July 14
Stock Market Breakdown! - 31st July 14
Echoes Of The Great War – Only An Echo In The Elite Mind - 31st July 14
This is Bad News for U.S. Economy and Stock Markets - 31st July 14
The Important Impact of This “Secret” Gold Agreement - 31st July 14
The Something For Nothing Society Death Spiral - 31st July 14
The Social Memory Dump, Shredding Society - 31st July 14
How Safe Are Unallocated Gold Bullion Accounts? - 31st July 14
USDJPY Big Bear Market - 31st July 14
No More School in Gaza Because All the Children are Dead Chant Israel's Jewish Fundementalists - 31st July 14
The Iron Dome Inside The Heads of Israel’s Leaders - 31st July 14
You Know a Politician or Talking Head is Clueless When….. - 31st July 14
Don't Get Married to Your Gold Stocks—It's a Performance-Based Relationship - 31st July 14
Stock Market Parabolic Collapse - Sowing the Seeds of the Next Depression - 30th July 14
How to Profit from the Russia Ukraine Conflict - 30th July 14
Greenspan: U.S. Economy Running Out of Buffer; Stock Market to See Significant Correction - 30th July 14
Rogue States And Loony Tunes - 30th July 14
Anne Elk’s Theory On Brontosauruses - 30th July 14
Our Totalitarian Future - Totalitarianism NOW! - 30th July 14
Stocks Bear Market Formation Revealed - 30th July 14
We Just Found “The Future” - 30th July 14
What the “Steak Bandit” Says About Asset Values - 30th July 14
Designer War By Default - Seven Types of Elite Madness - 30th July 14
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

BP Gulf Relief Oil Wells Nightmare Scenario

Companies / Oil Companies Jul 14, 2010 - 08:08 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleKent Moors, Ph.D. writes: Although the global energy sector is entering its most-promising stretch in decades - with more new technologies and more investment opportunities than ever before - I just can't seem to get away from BP PLC (NYSE ADR: BP) and its problems.


Take last Thursday, for instance. I began the day at FOX Business News, where the interviewer wanted me to explain what will happen if the BP relief wells fail. Then I spent an hour as the guest on a radio talk show from Johannesburg, South Africa, detailing what options are available to BP. Later still, I served as a consultant to a Wall Street investment crew - via conference call - once again on the status of the BP relief wells.

The BP relief wells are right now the dominant topic on everyone's mind. But there are two potential scenarios - of "nightmare proportions" - that investors need to know about.

Let me explain...

Problem No. 1: The Armageddon Scenario
Although news on BP's early success with a new oil-well cap really helped fuel investor optimism yesterday (Tuesday), the reality is that two other potential problems are unfolding.

And both will certainly affect how you invest in the oil sector.

In the days and weeks to come, the question that will dominate headlines is a simple one: Will the BP relief wells succeed?

I'm still giving the company no better than a 50-50 chance.

Surprised? Don't be. Take a step back and really think about what BP needs to do.

The bottom of the production casing (what's left of it) for the blown Macondo-1 Well is 18,360 feet down - about 5,000 feet of water followed by 13,000 feet of seabed below. The relief wells are going to intersect the current pipe at about 17,500 feet down. The idea is to interrupt the oil flow and then stop the leak by pushing down a considerable amount of drilling mud and fluid. This is called a "dynamic kill." It is not intended to stabilize the well for later production - it's intended to end it for good.

But this outcome is hardly a certainty. To put it in perspective, BP needs to drill down three miles - having to do so blind for the more than 70% of the operation that is below the seafloor - while hitting, at the correct angle, a target no bigger than a salad plate .

What if the leak cannot be plugged?

The relief wells may still siphon off some of the oil flow, but the leak will continue for quite some time.

The legendary oil firefighter Red Adair gave a series of lectures in Scotland, just as deepwater drilling was beginning in the North Sea some 30 years ago. Somebody asked him then the same question people ask me today: What happens if a relief well cannot stop a blowout?

His answer was direct: Nature will ultimately decline the pressure of the leak to a point at which the well can be capped. However, he added, that would take about three years.

Now here's my answer. Based on flow rate and initial BP production estimates, my current projection holds that, should the relief wells fail, a 1,015-day continuous flow awaits before the blowout suffers a natural death. That's about two years and nine months of spilling oil.

Additional relief wells would certainly be attempted in the interim. But each attempt would take two months or more.

Keep in mind, this is all dependent on whether the structure remains intact. And this introduces what is beginning to worry me more and more with each passing day.

I call it the "Armageddon Scenario."

We can see in the video feeds that the blowout preventer (BOP) is intact. It sits on top of the wellhead. The leak comes from the place where the connection between the BOP and the riser pipeline used to be.

What we cannot see is the stability of the production casing below the wellhead. We don't even know how much of that casing remains intact. The increasing oil flow over the past few weeks may provide some concerns about the continuing integrity of the well structure below the surface. If it begins to concave, the pressure will cause it to rupture, with debris and an accelerating oil flow moving into what is already a compromised annulus (the space between pipe and borehole surface) filled with cement. We already know the cement has fissures - that seems to be how the gas bubble reached the surface to cause the initial explosion back on April 20th.

Ruptured casing would cause the collapse of the surrounding ground, producing an implosion, a widening sinkhole, and a rapid rush of oil up to the surface.

Estimates now put the oil flow at as much as 80,000 barrels a day - including the volume being captured by BP. In my "Armageddon Scenario," that figure would immediately double or even triple. And any attempt to combat that kind of spill, either on the surface or at the shoreline, would be futile and pointless.

Let's hope that doesn't happen.

Problem No. 2: A Severe Global Oil Shortage
Even if the production casing remains intact, and Armageddon is avoided, there is another major difficulty coming into focus.

All indications point toward deepwater drilling as the source for a rising amount of crude oil needed internationally. This is the reason companies are assuming the great risk and expense of drilling considerably offshore - because that's where you find most of the major fields left undiscovered. The only net additions to U.S. production through 2015 were to come from deepwater drilling (800 to 1,200 feet) in the Gulf of Mexico. Worldwide, it was expected to accelerate - off of Brazil, Vietnam, Nigeria, Ghana, Russia, and a number of other locations. In five years, deepwater drilling was to have made up 10% to 12% of all global production.

And now, this is where the oil market impact of the Macondo blowout could have its most serious effect.

We are slowly moving out of a financial crisis that significantly cut oil demand. As the economic situation stabilizes, that demand will begin to return. It has already begun in a number of regions.

Total present worldwide crude supply tops out at about 91 million barrels a day (mbd), counting all of the Saudi spare capacity. Current demand is about 86.5 mbd - and rising.

Increased volume from deepwater drilling is an essential part of bringing additional supply online to meet that increasing demand. (Remember, the decline in demand resulted only from an international financial crisis. Not a sudden change in the oil market itself.) The collapse in oil prices in the fourth quarter of 2008, and their leveling off in the first quarter of 2009 - a period of less than six months - actually resulted in delaying new drilling by as much as two years.

Now, as demand levels surge, supply is questionable. That magnifies the problem from the BP spill. It is not the volume lost from that well alone. Rather, as the Macondo experience causes a rethinking of deepwater-drilling-production plans, the tragedy may result in the loss of a far greater volume of supply from elsewhere around the world.

With the demand-supply balance becoming a concern, another BP failure - this time at capping the well - would have widespread impact. And none of it will either lower prices or increase the available oil.

Against my better judgment ... all this leaves me with no choice but to root for BP.

[Editor's Note: Dr. Kent Moors, a regular contributor to Money Morning , is the editor of "The Oil & Energy Investor," a newsletter for individual investors. In a career that spans 31 years, Dr. Moors has been consulting the energy industry's biggest players, including six of the world's Top 10 oil companies and the leading natural gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa. His experiences - as well as his unrivaled industry access, contacts and insights - will serve as the foundation for the Energy Advantage, an advisory service that debuts this week. For more information on that service, please click here.]

Source : http://moneymorning.com/2010/07/14/bp-relief-wells/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

justmeint
17 Jul 10, 01:40
Judas Money now?

And if the caps holds and the cleanup can really get underway ... what then?

It is reported that scientists are being offered $250.00 per hour by BP, if they will simply sign on the dotted line, and keep silent about their work and findings for at least the next three years. Traitor? such a strong word "Judas" .... you choose....

http://just-me-in-t.blogspot.com/2010/07/judas-money-sign-on-dotted-line.html


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014