Wednesday, September 11, 2013


Over the Labor Day weekend, Bobby Jindal's coastal czar Garret Graves contributed some quotes to this New York Times feature on the SLFPA-E lawsuit. Graves claims the suit messes up the state's grand strategy to fight coastal loss over the long run. 
Mr. Graves does not dispute that damage was caused by industry, but does deny that opposition to the suit is about politics. He said the state had worked for years to build a broad coalition, including environmentalists and representatives from oil companies, to finance and implement a $50 billion coastal master plan. 

There’s a bigger strategy that they’ve come in and really screwed up,” he said. 

Mr. Graves said the state was focused on three areas: attaining penalties and legal remedies from the BP spill, pushing legislation that would bring Louisiana a substantial share of offshore drilling royalties currently going into the federal treasury and battling with the Army Corps of Engineers over its management of the Mississippi River. 
I'm not sure what "battling with the Corps of Engineers" means in any practical sense at this point. We'll leave that aside for now.

The argument over offshore drilling royalties is ongoing and complicated.   Under the terms of the Gulf Of Mexico Energy Security Act of 2006  energy producing states like Louisiana are scheduled to begin receiving a more substantial share of drilling royalties..... in 2017.   At that time Louisiana's take is estimated to start at $385 million and reach as much as $630 million per year.... eventually.

Besides, as Mark Moseley pointed out yesterday afternoon, offshore royalty payments are taxpayer funds to begin with.
Royalties, or more accurately, severance taxes, are compensation for the right to extract non-renewable mineral wealth like oil. It’s for removing mineral wealth, like oil, that can only be exploited once. Royalties are not a repair cost for extraction, or compensation for environmental impact.

Everyone who touts increased royalties as the smart play toward funding the coastal reconstruction Master Plan is misleading you. They are trying to link royalties and coastal restoration in the public’s mind, as a solution to the problem.

So Graves's strategy for doing anything like asking oil and gas to "put the coast back like they found it", as Russel Honore says, is wait for the BP litigation to play out and then hope that's enough.  But even then the best outcome provides remuneration for only the very latest oil and gas atrocity committed against Louisiana.

It won't be nearly enough anyway. Louisiana's coastal restoration master plan (the one Graves constantly trumpets) requires $50 billion to fully implement.   Even in the best case scenario, the BP trial won't result in anything close to that kind of payout.  Last week Bob Marshall laid out the complex series of conditions by which a judgement against BP could eventually filter down to the Louisiana coastal project.  There's less there to rely on than you might think.
The Clean Water Act sets fines at up to $1,100 per barrel if there is no finding of “gross negligence” and $4,300 a barrel is there is such a finding. The government has claimed 4.9 million barrels were spilled, but U.S. District Judge Carl Barbier has ruled BP can subtract 800,000 barrels that it collected.

Assuming maximum fines depending on Barbier’s ruling on gross negligence, the total awarded for 4.1 million barrels spilled would be between $4.5 billion and $17.1 billion.

BP is fighting the negligence charge and likely will appeal the ruling on the volume of oil spilled. Some legal experts say proving “gross negligence” is going to be legally challenging.

In an article entitled “Innumerable Shadings of Grey“ in the Columbia Business Law Review, Laura Umbrecht reports that one of the few cases to define the term under the Clean Water Act held that “gross negligence requires the intentional failure to perform a manifest duty in reckless disregard of the consequences as affecting the life or property of another; such a gross want of care and regard for the rights of others as to justify the presumption of willfulness and wantonness.”

But the article goes on to point out numerous other cases in which the bar was lower, or even higher.

What it means for Louisiana: Under funding splits prescribed in the law and explained below, the only guarantee Louisiana has is one-fifth of Pot 1, a sum that will fall somewhere between $300 million and $1.8 billion.

How much the state gets from the other pots will be determined largely by the Council. But if it were to draw a one-fifth share from each of the pots, Louisiana’s total take would be between $900 million and $3.42 billion.
The "pots" Marshall is referring to are divisions of the total eventual BP penalty defined under the terms of the RESTORE Act which come with different rules as to how the five Gulf states can distribute it among themselves and then spend their portion. I'd encourage you to read the rest of Marshall's article for a fuller explanation of the pots.

The upshot is, in the best possible case, Louisiana's share of the BP "winnings" pays for less than 10 percent of the cost of saving its sinking coastline.  And this is the full fruit of the delicate strategy, Garrett Graves and Bobby Jindal believe the SLFPA-E's lawsuit puts in jeopardy. 

Over the same Labor Day/Katrinaversary weekend that Graves made his complaint to the Times, John Barry published an op-ed in National Geographic explaining once again the dire circumstances South Louisiana faces and the reasons for the lawsuit. 
To put it simply, we want the industry to fix the part of the problem they created. We want them to fix what they broke, and what they promised to fix. The industry also wants the coastal buffer restored to protect its own enormous investment in infrastructure—pipelines, wells, and 20 percent of the nation's refining capacity. Chris John, head of Louisiana Mid-Continent Oil and Gas, an industry trade association, says "our viability depends on" the buffer. But the industry wants taxpayers to pay for a problem it, the most profitable industry in the world, created.
Outside of waiting on a sure to be insufficient BP judgement, Graves's and Jindal's strategy relies completely on the expectation that taxpayers will pick up the tab for a problem the oil and gas industry created. That strategy needs to be reconsidered.


Tim said...

And $50 billion is probably low-balling it, too. It's $50 billion based on today's prices and a construction schedule of a few years. Every year we delay getting started, project costs go up.

Clay said...


LA DNR on severance taxes.

Note how the rate starts low, escalates rapidly during the Huey Long years, then flattens out completely until it's upped to match the Federal rate of 12.5% in the oil boom of the 70's.