The Myth of the Petrodollar

In the comments beneath this post, Bardon remarks:

But there is another complexity here the Kissinger instigated Petrodollar.

The US economy would collapse overnight if this mechanism stopped, hence they need the Saudis and they need that Aramco IPO on Wall Street. BRICS are anti petrodollar and are working very hard to undermine and replace it, its the kind of stuff that starts wars.

The systems is such that non oil producing countries that want to buy oil must buy it in US$. So lets say Greece wants to buy Kuwaiti oil, it will do this in US $ which is neither the currency of the seller nor the buyer, meaning that it has to have US$ in the first place.

If the petrodollar system collapsed and remember the US could not even touch the sides with supplying oil to meet market demand, and no one buys it in US$ anymore then the demand for US$ would stop and it would absolutely tank overnight. Iran can’t wait to sell it in anything other than US$ and it looks like the BRICS nations are a likely taker, so they had better be quick in stopping Iran making any trades.

This theory is frequently brought forward to explain geopolitical developments involving the United States, and while others (Mr Worstall, for example) has dealt with it in the past, I might as well do so again.

The reasoning goes something like this. The US needs to ensure a demand for its currency, and therefore insists all oil around the world is sold in USD. If a country were to switch to selling oil in euros or another currency, the USD would nose-dive and destroy the US economy. The reason the US deposed of Saddam Hussein and Muammar Gaddafi was because each were about to start selling their oil in euros or gold. This theory even beats “wars for pipelines” into second place as an explanation for American foreign policy, and it is a persistent one. Sadly it’s not just the preserve of cranks on Zerohedge, I’ve actually had an MBA graduate insist that a country trading oil in euros presents a serious threat to US financial hegemony. And here’s a recent article in The Huffington Post telling us:

Non-Dollar Trading Is Killing the Petrodollar — And the Foundation of U.S.-Saudi Policy in the Middle East

It’s nonsense of course, and here’s why. According to this site, the value of oil traded is $1.7 trillion dollars per year. Looked at another way, oil production was about 97m barrels per day in 2015; let’s call it 100m making 36.5bn barrels a year. Assuming a sale price of $100 per barrel, annual production is worth $3.65 trillion dollars. Assuming $60 per barrel, it’s worth $2.19 trillion dollars. The exact number doesn’t matter, we’re just after an order of magnitude here.

Now according to this site, total foreign exchange (FX) transactions are valued at $5.1 trillion dollars per day. Trade in USD accounts for a whopping 88% of that, i.e. $4.49 trillion per day. According to another site, total FX was $5.3 trillion per day in 2013 of which USD trades accounted for 87%, i.e. $4.6 trillion per day. Again, we only need orders of magnitude here.

So, the demand for dollars driven by oil sales equals around $2-3 trillion dollars per year. Meanwhile, the overall demand for dollars equals around $4.5 trillion dollars per day. From these figures alone one can conclude that the currency in which oil is traded makes no difference whatsoever to the value of the USD. Reasons for going to war and bringing about regime change vary, but it is unlikely anyone would do so to protect one-three-hundredth of its currency demand.

So what would happen if a country switched to selling oil in yuan or euros? Well, those who hold USD would go to the FX market and buy yuan or euros at the prevailing rate and then use them to buy the oil. No need for any wars when you have a large and functioning FX market. You’ll notice that those peddling the myth of petrodollars driving American foreign policy never go into details of how all it is all supposed to work. There are good reasons for this.

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Des: Oil & Gas Contractor

I’m at a seminar and away from a keyboard until Thursday evening, so in the meantime I’ll leave you with this tale I wrote in 2010 about a bloke I worked with in the Middle East. Enjoy!

I first met Desmond – let’s call him Des – on the first night I ever spent in Abu Dhabi, 12th June 2003.  I remember the date because it was the day I emigrated from the UK (even if I didn’t know it at the time), and you remember dates like that.  Des was the offspring of an English father and Swedish mother, and thanks to the latter sported a head of perfectly bleach-blonde hair with not a speck of grey, despite being in his late forties.  It was because of this hair that his colleagues nicknamed him Billy Idol.

Des, me, and a South African called Phil had come to the Middle East to join a consultancy carrying out risk and safety analysis work on various projects in the UAE and Oman.  I had transferred from the consultancy’s UK operations, whereas the other two were outside contractors.  As it happened, we all arrived in Abu Dhabi on the same day.  My flight got in late and by the time I’d checked into the hotel it was already dark, although still stiflingly hot.  It was a heat that I would quickly have to get used to.  I met up with another engineeer from the UK who had been to Abu Dhabi before, and we both went to a bar called 49ers where one of the Australian engineers was enjoying his stag do along with the rest of my new colleagues.  The 49ers bar in Abu Dhabi is one not to be forgotten.  It is situated way up in the upper floors of a skyscraper, I forget which floor, but plenty high enough and out of reach of any ladders.  The bar is accessed via a tiny, underpowered lift which can hold a maximum of 6 people.  The bar itself is decked out in a wild west theme complete with wood panelling, and features an open flame grill.  The place was packed with over 200 people when I arrived, jammed in cheek and jowl and barely able to move.  The lift was the only means of egress.  There was no fire escape.  This visit to 49ers was my first and only.

I met up with the others and enjoyed a round of handshaking quickly followed by a round of beers.  It was way too noisy to speak to anybody and, feeling a bit homesick, I was quite glad when after a while somebody decided on behalf of us all that we should go to a nightclub across the roundabout, behind – indeed part of – the Le Meridien hotel.  It took all of us about twenty minutes to get out via the tiny lift and congregate on the pavement outside, leaving me to shudder at the thought of a fire in the place.  I found myself with the others in a smart club filled with people who were anything but.  Dozens of low-class Chinese and Central Asian hookers lined the bars and the dancefloors, perfectly matched by the generally fat, sleazing expatriates and few locals for whom they were the sole reason for being there.  I remember being seriously tired and wanting to leave, but having no local money on me and no idea where the hotel was, or even what it was called.  It was a miserable experience, but I do remember meeting Des in the Foyer, shaking his hand, and him being very pleased to tell me we’d be going to Oman together on the Saturday (today was a Thursday, hence a weekend in the Muslim lands).

I didn’t know Des then, but by golly I knew his CV.  He was recruited on the basis that his CV was probably one of the finest anyone had ever seen in the oil and gas business, and I’d read it when I was still back in the UK.  I still have a copy of it, and it is in front of me now.  Des was fluent in three languages: English, Swedish, and German.  This much was true.  Des held 5 higher education qualifications (including 2 bachelors and 1 masters) in no less than 4 disciplines.  He was a chartered engineer twice over, a member of an additional 5 professional bodies, and had another 15 professional certificates to his name.  He had been the safety manager for all of Shell’s offshore facilities in the Dutch sector and a senior safety specialist for Sakhalin Energy, which caught my attention even back then.  He’d held senior positions with Fluor Daniel, Kvaerner, Occidental, Statoil, and Mobil.  And his overseas experience covered the UK, Holland, Sweden, Norway, Saudi Arabia, Kuwait, Qatar, Iran, and Pakistan.  On the basis of his CV, you’d be stupid not to hire him.  On the basis of his CV, you’d be equally stupid not to do some rudimentary verification of even a fraction of it.

On his first night with his new colleagues, none of whom he knew, Des borrowed the equivalent of $120 from the Australian stag and left the club in the company of a ropey Chinese prostitute.  I hitched a lift back to the hotel with the engineer from the UK, thankful he knew where he was going.

Des and I caught a Gulf Air flight from Abu Dhabi to Muscat the following Saturday, arriving mid-morning in heat equally as oppressive as that which we left behind.  We found our way to the apartment which would be our home for the next two months, buying some basic groceries on the way, and after a few more hours of getting ourselves kitted out with safety gear and other admin tasks we drove to the Mina Al-Fahal refinery situated on the coast just outside of Muscat.  Our job, as I remember it, was to carry out a risk and safety assessment of the refinery, most of which needed to be done at the facility itself.  The project schedule allowed two months for this phase of the work, so I was somewhat surprised when Des confidentally told me it would only take a couple of weeks.  However, Des was the lead engineer and I was his junior, so I trusted he knew what he was doing.

Now at the time I was delighted to be on this project with Des.  Here was me at 26 years of age, finally abroad and visiting a proper facility in a hands-on role with a chap whose experience was so impressive that I could not fail to learn from him.  And even though I was a bit homesick in those first few days and weeks, I did enjoy the experience.  It was roasting hot outside, and anyone sensible or not unlucky enough to be incarnated this time around as an Indian labourer stayed well indoors.  But Des and I had a job to do, so we walked down every pipe and vessel and piece of equipment in that refinery, crawling over hot pipes in an already oven-like temperature, me writing down every hazard that Des pointed out.  As a method of getting an up-close look at a refinery it was a good one, and it was even better at making you appreciate the Middle Eastern climate and the wonders of air conditioning.  As a means of doing the job we were contracted to do, it was almost worthless.  But this I didn’t know at the time, and we went on our merry way for the rest of the week.

Now Des liked to talk, and he especially liked to talk about himself, and most of all he liked to talk about how damned good he was.  At first, I quite liked his tales of the various jobs he’d been on and countries he’d visited.  I’m a gullible fool even now and generally believe what I’m told until proven otherwise, and I reckon it’s made me more friends than it’s got me into trouble so I’ll stick with it for now.  Des had been there and done it, and here was I on a job with him.  Yeah, this is all right, I thought.  We even talked about the next project coming up, the big one in Kuwait which would go on for a year, and we’d go together.  But as the week wore on, Des talked less about where he’d worked (tales which were suspiciously devoid of details, I saw in hindsight) and more about how great he was in other walks of life, especially his prowess with women.  Des was on his (if I recall correctly) fourth wife, the second of which had run away with his best friend and business partner, the two of them clearing him out completely and disappearing into the night.  The third wife was an Iranian whom he married for a joke, or convenience, or something.  He had a son by either the first or second wife.  And his fourth wife, who was a coloured South African, was living in his house in Holland with her two children (neither of whom were his own).  Describing his various marriages took up an entire evening, and his conquests with several dozen other women two or three more.  Then came the stories of when he was in the army and he was the best at shooting, driving, camouflage, escape and evasion, and every other aspect of soldiering which I can think of.  Next it was how he was almost shot to death in Pakistan, and how he saw a man executed in front of his eyes for some misdemeanour, and by that point I think even I’d stopped listening.  I used to scurry into my room, which unfortunately I shared with Des (who used to smoke in bed!), leaving a colleague assigned to another project but living with us, a chap called Chris, to make his own escape if and when he could whilst I lied and said I had to make a phone call to the UK.

By the end of the week, this had all got pretty tiresome, and so I was glad when Des told me we’d be going back to Abu Dhabi for the weekend for R&R.  I have no idea how we got the tickets, but when we got back the regional boss, whose villa we were now for some reason all living in, was somewhat surprised to see us.  He thought we were supposed to be down in Oman on the refinery tomorrow.  I looked bewildered and said I was following Des, who was supposed to be in charge.  It was all very confusing so Des, me, and another Brit called Steve who was also living in the villa set off to a bar somewhere in Abu Dhabi.  Within a remarkably short time we all found ourselves in the infamous Al-Ain Palace, or the Ally Pally, a low-down dive of a place known only for its abundance of cheap, third-rate Chinese hookers.  To cut a short story even shorter, the three of us ended up going back to the villa in a taxi with a huge Chinese prostitute with a smashed front tooth whom Des had picked up.  Steve and I weren’t interested in doing likewise, which seemed to annoy Des, which he showed by pretending the girl was actually with one of us even when she stopped at a McDonalds and came out with an armful of burgers which she presented to him as some sort of weird tribute.  I remember the four of us sitting in the villa around the nice, pine breakfast bar table (which, incidentally, I later took ownership of and it saw action in two of my apartments in Sakhalin, before I gave it away to a friend a week before my demobilisation in return for – ironically – a Chinese meal) with Steve, Des, and a huge Chinese girl with a smashed tooth who wouldn’t shut up or stop eating burgers.  Des had the bright idea of them going for a swim (in what was a family compound where hookers, much less nightswimming ones, were frowned upon).  She leaped from the stool, whipped up her dress to show a pair of large, sweaty, polyester granny pants and told us that she didn’t have a swimming costume.  However, she told us loudly in a comical Chinese accent, she could “go down for five minutes, no need come up for air”.  I have never laughed so hard.

Until, that is, Des thought the better of watching her perform strokes in the communal pool and took her to his bedroom, albeit for much the same purpose.  Within a few minutes Steve and I were stood outside the door listening to a Chinese girl screaming blue murder, an English-Swedish halfbreed grunting like a boar, and bedroom furniture testing the very limits for which it was manufactured.  This went on for about twenty minutes with all the subtely and finesse of a rock through a window, before the villa fell silent, Steve and I stopped laughing, and we went to bed.  The next morning, the Chinese girl safely paid off and sent packing before sunrise, Des denied having sex at all and insisted they were “just talking”.  Believing anything Des said after that was nigh-on impossible.

Once again Des and I took the Gulf Air flight down to Muscat to continue our work in the refinery.  The stories continued in the same manner as before, with each one of his exploits being better and more impressive than the last.  It was getting embarassing.  Before he’d even start recounting how he and a whole group of people had to do some very difficult test, Chris or I used to pipe up “Let me guess: you were the only one that passed?” in the vain hope of saving half an hour by cutting directly to the inevitable conclusion.  By this time his previous wives, girlfriends, and lovers seemed to have caught up with him because the apartment phone started going and he’d sit at all hours of the night talking and smoking.  Then, to my complete surprise, my UK mobile rang with some woman asking for Des.  Assuming it was important, I passed him the phone and he giggled like a schoolboy and launched into a twenty minute chit-chat with some ex-lover of his.  My UK phone was on roaming at a cost of over a pound a minute, and I was seriously unimpressed.  The cheeky sod had given her my number because he was too damned tight fisted to buy his own SIM card, and was now busy running up my UK bill whilst he relived one of his affairs.  Eventually I got the phone back from him, but he couldn’t see the problem.  He’d pay me back, he promised.

And that was another problem with Des.  He was a tight-fisted old sod, refusing to pay for anything and expecting the company – or failing that, his colleagues – to pick up the bill for everything.  He didn’t see why he should have to pay for his food even when on a per diem; when everyone in the villa went to the supermarket and chipped in, he’d be nowhere to be seen until he was spotted guzzling the beers we’d all just bought; and he certainly wasn’t going to pay a few dollars for a SIM card so his tarts could call him in Oman, not whilst he had my number to dish out!  And he was pulling the classic contractor’s trick of claiming destitution on arrival and needing an advance on his salary, which the boss gave him out of his own pocket.  Despite all this, Des would boast that back in Holland he owned a huge house, a yacht, and a Merecedes SUV.  Once I got the phone back from him, it stayed in my pocket and I’d told him the credit had run out.

Then halfway through the week he probably wished he’d not picked up a phone.  He had called his wife back in Holland on her mobile and from the music in the background it had sounded as if she was in a bar or nightclub, but she had told him she was at home.  I think there was a man’s voice in the background as well, I can’t remember, but Des got very agitated.  He called her at home (all of this using the extortionately expensive apartment phone) but there was no answer.  He called her again on her mobile, but she didn’t pick up, and nor did she answer her phone for the rest of the night.  Des was beside himself, confessing to me almost in tears that he thought his wife was having an affair.  By that point I’d lost all respect for the man, and just sloped off to bed leaving him to brood by himself (until he went to bed and smoked his way through five or six cigarettes on the other side of the room).

It wasn’t just the personal stuff that was going wrong with Des, the work itself was fast falling to pieces as well.  After a week on the site, and consulting the programme of work, it became clear that Des had not the faintest idea what he was doing.  He barely consulted the scope of work or project execution plan, and breezily dismissed my concerns that we should be doing certain tasks in a certain way with a wave of a cigarette-filled hand.  As it happened, the regional boss didn’t have much of a clue either (and if you want to extrapolate that across the entire company feel free, I’ll not stop you), so things just carried on the way they were for another week, with me doing what I was told and getting more confused and disillusioned by the day, until we were summoned back to Abu Dhabi.

Upon arrival, for no reason which I can remember, a decision was made that the work on site had been completed, I was to go to Dubai to prepare for the Kuwait project, and Des was to stay in Abu Dhabi to do the desk work associated with the refinery job.  Within minutes of Des having sat down in the office, a huge problem arose like a mushroom cloud.  Des’ bags had gone missing on the flight from Muscat to Abu Dhabi.  One or two of the old hands in the office swung into action, made a few calls, and told him not to sweat.  Happens all the time, they said, they’ll show up in a day or so.  But Des was beside himself.  He demanded to be driven to the airport and a search for his bags begun immediately.  The boss told him not to worry, he could buy some clothes in the M&S over the road, toiletries he had spare in the villa, and it would only be a couple of days.  Des refused to calm down, and would not do any work until something was done.  Smelling something a little fishy, the boss asked what exactly was in his missing bags.  Des flew into a rage during which we learned that in the bags he had checked into the hold of a Middle Eastern airline were the keys to his house, the keys to his car, the keys to his boat, the ownership documents for his house, boat, and car, his birth certificate, his bank documents, and seemingly every essential document a man will possess.

“Why the hell are you carrying all that about with you, Des?”, asked the boss, reasonably.

It turned out that Des did not trust his wife and had to carry all his worldly documents around with him to stop her from selling up and absconding in the same manner as his second wife.

“Why the hell did you put all that into checked baggage, Des?”, asked the boss, again reasonably.

Des didn’t know.  Nor did we.  But we did wonder if Des was half as well travelled as he, and his CV, said he was.

Des’ bags turned up a couple of days later.  But the problems didn’t stop there.  I was the youngest person in the regional office by about 20 years and most of the expat employees were middle aged with a wife and family somewhere, so the degree of compassion offered at that time was probably greater than you’d find in most companies, and certainly greater than that displayed a few months later (but that’s another post).  In short, Des wanted to see his wife and step-children, presumably to make sure the former was still around and not still in a nightclub somewhere with her phone switched off.  It is not easy to get a visa to the UAE for South African nationals (which is what his family was), it is more time consuming and requires more documentation than for, say Brits, who just turn up and walk in.  Rather than being grateful for the efforts the company was going to, Des was raging against the company for taking so long and not having enough power or connections to just get them all in.  Eventually, enough paperwork was collected to submit an application, but the immigration authorities returned a rather surprising decision:  Des’ wife and younger step-daughter were allowed a visa, but the older step-daughter, who was 12, was not.  The reason: the elder girl did not appear to be anything to do with Des, hence she could not be admitted as his family.  The boss asked a few basic questions, which Des, poor chap, did his best to answer.  It transpired that Des and his wife had sensibly decided some years ago for Des to formally adopt her children as his own.  The adoption of the younger girl went well enough, but at the 11th hour the elder girl – who had a mental age of 7 and a whole heap of behavioural problems and learning difficulties – decided she wanted to be with her biological father, who was some sort of bum or criminal or loser down in South Africa, who was long separated from the mother.  The adoption couldn’t proceed without her consent, and so she was never formally adopted by Des, even though she reversed her decision mere days later and came to live with the rest of them in Holland.  The result was that the company couldn’t get a visa for his elder daughter.  Des went bananas, bellowing that the company was useless and had no power or influence.  The boss’ exasperated reply is immortal:

“Des!  It’s not the company’s fault that you didn’t adopt your daughter!”

It was agreed that his wife and younger daughter would come over anyway, and so Des awaited their arrival.  In the meantime, he continued to demonstrate incompetence of impressive proportions as he burned through the remaining manhours allocated to the project.  Nothing that was supposed to have been done was being done, and sitting at my desk in the Dubai office I received several phone calls from the boss asking what the hell had happened down in Oman.  What I told you was happening, I replied.  The guy doesn’t know what the hell he’s doing.  Chris, a good mate of the boss, backed me up and I was in the clear.

Things also got a little complicated for Des when he was asked to provide his degree certificate in order to get his work visa.  Des replied that he didn’t have it, even though on his CV it says, as I have pointed out, he has five such qualifications which would suffice.  The story Des told was that the University of Gothenburg had moved and the records never moved with it.  Later the story changed to the records having all been lost in a fire.  Either way, he could not possibly get his hands on a degree certificate.  None of us was convinced, except possibly Des himself who was turning out to be a pathological liar.  Meanwhile, they decided to get Des working on something else until they could figure out what to do, and asked him to help write the method statements for some proposals they were putting together.  Des refused point blank, said it wasn’t his job, and put his feet up on the desk until his wife and daughter arrived.

Which in due course they did, and the company – in a rare display of generosity – put them up in a nice hotel with a beach in Abu Dhabi.  Des seemed to perk up when his family were around him, and although I wasn’t there I heard that they all went out for some nice meals in the evening and enjoyed themselves.  That is, until the Dutch embassy called the office with the news that Des’ neighbours had alerted the authorities because a 12 year old girl had been left home alone whilst her mother had cleared off to Abu Dhabi with her other daughter.  The daughter was now in the care of the authorities, and the mother really should get herself home pronto.  At this point, Des’ colleagues just shook their heads and wondered whether to laugh or cry.

The boss wasn’t sure what to do with Des.  He was lined up for the project manager’s role for the big job in Kuwait, but he had proven himself useless, unreliable, and uncooperative both in work and in every other way we could think of.  But we were short of people, and mobilising expats on short notice is not easy, and the boss was considering keeping him on.  Fortunately, Des made the decision for us.  His colleagues in the villa woke one morning with Des saying he was sick and would stay in bed.  By the time they came home after work, he had disappeared along with all his bags.  He never paid the Australian the $120 from his first night, I never saw the money from my phone bill, he owed the boss a few hundred dollars and the company even more.  He just upped and left.

We heard from Des a few months later.  The boss received an email from him saying he was working in Iran, the job was terrible, and could he have his old job back.  The email went unanswered, but it gave us a laugh.

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Two Approaches to Safety

Tim Worstall makes the following remark in response to a column by Polly Toynbee:

There was significant regulation here. What there wasn’t was responsibility. And a little more of the second can be very much more important than the first. Whether we call it the Clerk of Works, or professional responsibility, whatever, that one individual–and yes, making it one person does concentrate minds wonderfully–owns a project, the benefits and failures of it in that liability sense, tends to make things safer. On the very sensible basis that someone with their knackers potentially in the vice tends to pay attention. Box ticking doesn’t have quite the same effect.

This is absolutely correct.

In the wake of Piper Alpha, the regulations governing North Sea oil and gas operations were completely overhauled to address the many, many shortcomings that had led to the world’s worst oilfield disaster. One of them was to adopt what is known in the industry as a risk-based approach to safety, and put the responsibility to implement it on the shoulders of the operating companies.

What this means in practice is this. Each company must demonstrate, to the satisfaction of the UK HSE and – God forbid – a tribunal or court in the event of an accident, that the residual risks have been minimised to a degree which is As Low As Reasonable Practicable (ALARP). Residual risk is the term used to described the risks associated with a facility or operation which remain once mitigation and prevention measures have been implemented. This is important: playing around with highly volatile hydrocarbons is an inherently dangerous business, and there will always be risks associated with it. The requirement is not to eliminate risks entirely, as that would entail leaving the hydrocarbons in the ground, but to minimise the risks that remain once you’ve done all you can.

This is the principle of ALARP: “reasonably practicable” is an open term with no strict definition, but is well understood in the risk management industry. It recognises the fact that money spent on safety and minimising risks is a scarce resource and must be properly targetted. If open-ended safety obligations are demanded of an oil company, commercial operations will cease.

Most important is the word demonstrate, which is why I emboldened it. How a company demonstrates that it has minimised the risks associated with its operations is largely up to them, but the North Sea has developed a standard process (with associated tools and techniques) which all operators now follow. In short, it consists of:

1. Identifying potential hazards and the events they could lead to.

2. Identifying the consequences of such events should they occur, in terms of effects on humans, the environment, the asset, and the company reputation.

3. Identifying what can be done to prevent the event (preventative measures).

4.Identifying what can be done to mitigate the impact of the event, should it occur (mitigation measures).

5. How the company intends to manage the residual risks of their operations once 3 and 4 have been implemented.

This process focuses the minds of those charged with designing, building, and operating the installations to ensure the residual risks are ALARP, and can indeed be demonstrated to the satisfaction of anyone who may ask (e.g. regulatory bodies). I am heavily involved in this entire process as my day-job, and have been for years. I take the approach that if I find myself hauled in front of a court facing twenty to thirty years in an African prison for manslaughter, can I demonstrate that I did everything I could do minimise the risks associated with the installation? I am not exaggerating, I really do think this. In Nigeria I was responsible for signing off designs. Gulp.

By telling companies that they have to demonstrate their facilities and operations are as safe as they can be, and all potentially catastrophic scenarios have been thought of and addressed, it forces them to take responsibility for the complete design and operation. Moreover, it forces them to consider the installation as a whole, i.e. how the different systems interact with one another, and address the unique complexities of their particular situation.

The alternative system is one whereby clever people draw up a set of rules and regulations that must be followed, and if a company does then – in theory – the installation will be safe. This is called a prescriptive-based approach to safety. In effect it’s a giant box-ticking exercise, which involves little actual thinking on the part of the design engineers and allows them to shift responsibility to those who drafted the regulations if something goes wrong. As far as I am aware, this is how most industries are regulated: companies obtain a set of prescriptive rules and regulations and if they follow them to the letter, they are covered. Indeed, this is how the American Occupational Safety and Health Administration (OSHA) works, and this approach is applied to their own oilfields.

The shortcomings of the prescriptive-based approach are obvious, but a risk-based approach is more complicated and expensive to implement. However, the lessons from Piper Alpha might well be dusted off and re-learned in the wake of the Grenfell Tower fire. I highly doubt that the British building regulatory regime allowed banned cladding to be installed: I am reasonably certain that it was quite legal. However, they were clearly not suitable for the application, because nobody considered the cladding system as a whole as it was installed on that particular tower, and what might happen in the event of a fire. All they did was select a panel type that was approved by the regulations, comply with all the other regulations, and assume they were safe.

The problem with prescriptive regulations is that they cannot anticipate every scenario, and it only takes one unique application of a certain product or system to leave the whole thing prone to a catastrophe. Or course lessons will be learned from the Grenfell Tower fire and that particular gap will be closed, but others will remain so long as we insist on a prescriptive-based approach to safety. The irony is that all those people calling for companies to take greater responsibility for the works they carry out are likely to be the same people calling for greater regulation, which will inevitably be of the prescriptive type. The two demands are not compatible: either we tell companies to follow the regulations, or we tell them to proceed as they see fit but demonstrate to the regulators that they’ve done the job properly and take full responsibility if it later proves they haven’t.

My guess is we’ll end up with an unhealthy mess of both: companies told to follow regulations but also carry the can when those regulations prove to be inadequate, leading to increased prices, a lack of transparency, and yet more cosy partnerships and conflicts of interest between private businesses and those writing the regulations. None of this will make the public any safer.

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Further thoughts on the Grenfell Tower

Over the past 24 hours social media seems to have been inundated with experts on structural engineering and fire protection. I am no expert in either, but I know a bit about the latter – a career in oil and gas will leave you with more knowledge on fires and explosions than most. I probably know more about structural engineering than most people, too.

When I was involved in the construction of a residential unit in Sakhalin, I was told the fire protection was not there to protect the asset, it was to buy enough time for everyone to evacuate. Once everyone is out – well, let it burn, claim the insurance, and build another one. Of course, it was designed not to burn, but if it did the priority was to get everyone out ASAP. Being owned by an oil company, the unit we built had alarms and a full evacuation plan.

I have no idea what the philosophy was in the Grenfell Tower, but it should have been to get everyone out ASAP in the event of a fire: you hear the alarm, everyone evacuates, the firemen turn up to see what’s what. From what I’m hearing, people believed they should stay in their apartments because the flats were designed to contain fires, or something like that. Even if they were designed to contain fires, you should still evacuate. Yes, it’s a pain in the arse standing in the carpark in your pyjamas at 1am, but it’s better than burning to death.

Back when I worked for a Shell-affiliated company, an email went around about two Shell employees who were staying in a hotel in (I think) India. When you work for a major oil company, particularly Shell, safety is dinned into you from day one to the point that it becomes second-nature even outside your workplace. Next time you see Rex Tillerson boarding or disembarking from a plane, notice how he always holds the handrail: he got that from ExxonMobil. Anyway, these two guys were in their hotel rooms when the fire alarm went off. Most people would have just thought “sod it” and stayed in bed, but these boys were good little soldiers and grabbed their passports and left via the fire escape. They got outside and found the whole building was alight, and some people died. Shell saw fit to circulate this in an email, and it made an impression on me. If you hear an alarm, get the hell out of there. Better to look a fool than be dead.

Anyway, my point is that fire protection is usually installed to slow down the spread of a fire, and give people enough time to get out. A lot of people are asking why sprinkler systems weren’t installed in the Grenfell Tower. Contrary to what most people think, sprinkler systems are not supposed to extinguish fires: they are activated by heat and designed to keep surfaces cool, thus preventing the fire from spreading. You know when you see the firemen spraying water at a fire? Most of the time they’re not aiming it at the flames, they’re soaking the areas around it. They don’t have enough water to put the fire out, so the best they can do is try to keep the surrounding surfaces cool enough so it won’t spread. Eventually the fire will spread, if it’s hot enough and there is enough fuel, but it will take more time and hopefully everyone will be out by then. All the firemen do from then is to try to stop the building collapsing and the fire spreading to other properties.

I doubt there are many residential buildings in the world which have the sort of evacuation procedures you see in offices and hotels. Perhaps this will change, or at the very least people will be advised to evacuate rather than stay in their apartments. There is not much point installing sprinkler systems which buy people time to evacuate if everyone is staying put.

I confess I was surprised that the cladding was flammable. This is a rather colossal failure of the building regulations, and raises the question how much of this stuff has been installed already. Quite a bit, would be my guess. It is possible to get cladding which has insulating properties and is also fireproof, and we use it extensively on oil and gas facilities. It is usually a form of mineral wool, but it is probably too expensive for large-scale residential use. You also need to keep the stuff dry: it isn’t much good when sopping wet, meaning the external cladding needs to be watertight, i.e. properly designed and installed.

I have heard reports that £9m was spent refurbishing the Grenfell Tower recently. What isn’t clear is how much of that went on purchasing certified materials and paying qualified, experienced tradesmen and how much went on kickbacks, admin fees, consultancy, fees, and audits to ensure the companies involved had diverse management teams and recycled their office waste properly. As I learned in Russia, spending $50m on a building doesn’t always give you $50m worth of building.

Finally, Twitter user Old Holborn has discovered that the monthly rent in the Grenfell Tower was £1,625 per month. It might be slightly less now, but this is London so perhaps not. I’m wondering why this tower, sitting in one of the most expensive boroughs in the country and consisting mainly of social housing, was occupied almost exclusively by immigrants from the poorest parts of the world. Actually, I know the answer to that.

This whole incident raises so many questions it’s hard to know where to begin.

And this:

On Thursday, the first victim of the fire was named as Syrian refugee Mohammed Alhajali, 23.

In a statement, the Syria Solidarity Campaign said Mr Alhajali, a civil engineering student, had been in a flat on the 14th floor when the fire broke out, and had spent two hours on the phone to a friend in Syria.

He had been trying to get through to his family while he was waiting to be rescued.

“Mohammed came to this country for safety and the UK failed to protect him,” the group said.

Speaks volumes.

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Why NHS Food Is Crap

One of the things you notice if you work long enough for large companies is that the quality of any given support service suddenly becomes a lot better if the people managing it are themselves users of that service.

When I worked in Africa, the senior management had their own company-supplied vehicles and drivers to take them to and from the airport; everyone else used a shuttle bus. With no senior management ever having to see what taking the shuttle bus was like, you can imagine the state of it.

You sometimes see a similar thing with travel departments. The administrative staff who work in them are usually local employees who generally don’t have to go on business trips in far-flung cities taking flights that leave at 7am. When you come to deal with them, this becomes painfully obvious.

Last week I saw somebody on Twitter complaining about the food in the NHS, and naturally somebody leaped in underneath to claim that this was a result of the catering being outsourced to private companies. There exists a mindset among some people that private companies cannot possibly provide a better service than public bodies because of the profit factor, the veritable planet of evidence to the contrary notwithstanding. But in the case of the NHS the food really is terrible, at least from what I’ve seen and heard.

Thanks to a decade or so traipsing around oil and gas offices, installations, and construction sites I’ve seen a lot of mass-catering and it ranges from extremely good to absolute shite. In most cases the catering has been outsourced to one of two companies: Eurest (a subsidiary of Compass, which is British) and Sodexo (which is French). I don’t know if they supply the NHS with catering services, but I’d be surprised if they don’t. What I found is that the quality of food is dependent on two things:

1. Budget

2. Whether the management or the management’s close colleagues eat it.

One the first point, the budget is the difference between reasonable food and very good food. With the oil industry swimming in money until fairly recently, the food in the canteens was generally pretty good, and offshore it could be outstanding (the food on the Safe Astoria was superb, thanks to a Singaporean chef).

But it is the second point that makes the real difference. The one place in the whole Sakhalin II construction project where the food was absolutely woeful was at the transit camp in Nogliki, halfway up Sakhalin Island. As the name suggests, it was a camp set up for people to spend a night or two in transit between Nogliki, where the train from Yuzhno-Sakhalinsk terminated, and the various construction camps that lay further to the north. Aside from a few poor bastards who were based there permanently, people were only supposed to be there for one or two nights, and it showed. I spent a night there between coming off the Lun-A platform and going to inspect the Piltun lighthouse.  The beds had been bought second-hand from the folk who dismantled the barracks at Auschwitz and fitted with dark brown sheets that were supposed to be that colour. Dinner consisted of a slab of grey meat and watery gravy by an Indian who told me that’s all there was. By contrast, the grub on the actual sites was excellent. Senior managers never, ever stayed at the transit camp.

The reason why the NHS food is crap is not because private companies are providing it, but because the people who administer the catering contract do not eat it. I’d be surprised if even the NHS staff eat it; if they do, they are low-level staff who don’t have much clout with the people in charge. Or perhaps the staff are fed in separate canteens? I don’t know, but the reason it is crap is because those who eat it have no influence over those who pay for it, and those who pay for it don’t eat it. If people want the food in the NHS to improve they should insist that the middle management eat it as well. It would improve overnight at no additional cost.

Of course, this is a long-winded version of Milton Friedman’s four ways to spend money, but it’s fun to spot examples of it in the wild.

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The Fate of the Transocean Winner

Credit where it is due, Tom Lamont writing for The Guardian has done some splendid reporting here covering the fate of the semisubmersible drilling vessel Transocean Winner, which ran aground on the Hebrides last year. It is very long, but well worth a read.

I was pleased to see that, while the author reasonably writes about the environmental and societal issues surrounding shipbreaking, he resists any temptation to go off on a rant about fossil fuels or global warming. It is refreshing. It’s how journalism should be done.

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Obama’s Arctic Ban Overturned

Donald Trump has signed an executive order aimed at reducing restrictions on oil drilling in the Arctic and Atlantic in order to “unleash American energy”.

reports the BBC.

It could undo a ban put in place by Barack Obama in order to protect swathes of the ocean from development.

A ban put in place via executive order in December 2016 is one of many pieces of legislation Obama petulantly signed in his last hours in office mainly to hamstring his successor. In other words, reversing the ban will take us back to the end of last year. Was America a vast wasteland where any human peaking out of the ash piles would be picked off by giant, mutant pterodactyls? No.

It is debatable how much income might be generated by a reversal of Mr Obama’s order. Worldwide prices for oil have dropped in recent years, with a review by news agency Reuters finding the amount of money oil companies spent in the central Gulf of Mexico’s annual lease sale dropped by more than 75% between 2012 and 2017.

Perhaps Trump, unlike Reuters and BBC journalists, is aware that the oil industry is cyclic and the period in question mostly covers a downturn.

David Jenkins, president of Conservatives for Responsible Stewardship, a non-profit conservation group, said: “The Trump administration’s hasty move today toward expanding offshore oil drilling … defies market realities and is as reckless as it is unnecessary.”

If it defies market realities, i.e. nobody is going to drill in these waters anyway, then what’s the problem? How can it be both reckless and unnecessary? Alas, thanks to the BBC’s policy of quoting environmental groups’ press releases without scrutiny, we don’t get to find out.

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ExxonMobil’s Lobbying Efforts

This is a rather good tweet from ExxonMobil, presumably posted to set straight the dimwitted journalists who reported on Rex Tillerson’s confirmation hearing yesterday:

This is something ExxonMobil has long claimed, and was reported in Steve Coll’s Private Empire: ExxonMobil and American Power: their efforts in Washington D.C. are aimed less at trying to change government policy than 1) trying to figure out how government policy will impact ExxonMobil, and 2) inform lawmakers what impact those policies will actually have.

The difference might be too subtle for some, but this is different from ExxonMobil lobbying the US government to implement (or not) policies in order to benefit the corporation at the expense of everyone else.

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Fracking Idiots

Via Tim Worstall, The Daily Telegraph dishes up some quality journalism on the subject of fracking:

Plans are being made for fracking to take place under Sherwood Forest where an ancient oak stands where according to legend Robin Hood and his merry men rested.

Ineos, one of the world’s biggest chemicals company, is poised to start looking for gas under Sherwood Forest, Nottinghamshire, in a move which could lead to it seeking permission to frack the area.

So are plans being made to start fracking, or is Ineos looking for gas?  Which is it?

Fracking is the process of drilling down into the earth before a high-pressure water mixture is directed at the rock to release the gas inside.

The Government has committed to fast tracking permissions for exploratory work amid forecasts that trillions of cubic feet of shale gas may be recoverable from underneath parts of the UK.

Fracking is not the same as exploratory work, which takes the form (at this stage) of seismic surveys which do not involve drilling.

Documents show Ineos – via their land surveyors, Fisher German – have been in correspondence with the Forestry Commission since August 2016, regarding access to their land.

Access in order to drill?  No.

If these plans progress, Ineos’ seismic surveys would pass within a few hundred yards of the Major Oak, a 1,000-year-old tree near the village of Edwinstowe.

Pass within?  These people have no idea what form a seismic survey takes, do they?

According to local folklore, it was Robin Hood’s shelter where he and his merry men slept and hid from the Sheriff of Nottingham in the 15th century.

In a 2002 survey, it was voted “Britain’s favourite tree”.

Information The Daily Telegraph considers more important to impart to its readers than the differences between carrying out a seismic survey and drilling a well.

Guy Shrubsole, a Friends of the Earth campaigner, said: “Is nothing sacred? By hunting for shale gas in Sherwood Forest, Ineos is sticking two fingers up at England’s green heritage, all in the pursuit of profit.

“The public wants to protect their English countryside and prefers renewable energy, not dirty shale gas, which will only add to climate change.”

And on the last day of 2016 a self-appointed expert declared what the public wanted, a practice which hitherto seemed doomed following high-level episodes of catastrophic wrongness regarding Brexit and Donald Trump.

Ineos confirmed that it was looking to start work in Sherwood Forest but insisted that great care would be taken to protect the Major Oak.

Tom Pickering, Ineos’s Shale operations director, said: “Any decision to position a well site will take into account environmental features such as the Major Oak and the planning process would also consider those issues.”

No decision on fracking under Sherwood Forest had yet been taken, he said, adding that Ineos would “undertake an extensive exploratory programme of seismic data acquisition across our wider licence area to better understand the subsurface geology including the fracture systems”.

Asked how Ineos would protect the trees of Sherwood Forest, Mr Pickering added: “When we do drill a vertical ‘coring’ well in the area, there are many general and specific environmental protections in place and we will of course abide by them.”

There was a time when journalists asked difficult questions that forced companies to reveal information that had hitherto been kept hidden.  Nowadays, journalists ask questions which can be answered by a cursory ready of a company’s website.

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More Ruling by Decree from Barack Obama

Apparently Barack Obama doesn’t think America resembles a banana republic quite enough, and is keen to do something about that before he leaves office.  From the BBC:

Outgoing US President Barack Obama has permanently banned offshore oil and gas drilling in the “vast majority” of US-owned northern waters.

Permanently?  Just like that?

Mr Obama designated areas in the Arctic and Atlantic oceans as “indefinitely off limits” to future leasing.

The move is widely seen as an attempt to protect the region before Mr Obama leaves office in January.

Apparently eight years in office wasn’t long enough.

Supporters of president-elect Donald Trump could find it difficult to reverse the decision.

I imagine Trump’s supporters would find reversing Obama’s decisions difficult, yes.  Trump himself?  Maybe not so much.

Canada also committed to a similar measure in its own Arctic waters, in a joint announcement with Washington.

The White House said the decision was for “a strong, sustainable and viable Arctic economy and ecosystem.” It cited native cultural needs, wildlife concerns, and the “vulnerability” of the region to oil spills as some of the reasons for the ban.

Counterarguments such as jobs and energy independence from the rapidly imploding Middle East were presumably not considered.

But while Canada will review the move every five years, the White House insists Mr Obama’s declaration is permanent.

Read that again – “Mr Obama’s declaration is permament” – and remind yourself this is the USA and not Venezuela or Zimbabwe.

The decision relies on a 1953 law which allows the president to ban leasing of offshore resources indefinitely.

Really?  Which law?  The BBC doesn’t tell us, I suspect because this law allows for no such thing.

During the election campaign, Donald Trump said he would take advantage of existing US oil reserves, prompting concern from environmental groups.

But supporters have already suggested that any attempt to reverse the “permanent” decision outlined by the law would be open to a legal challenge.

Leave aside the idiotic belief that an administration can bind its successors and that a mechanism exists which allows Obama to declare something into law but doesn’t allow the next president to reverse it.  Let’s look at the fact that these idiots never learn.  If indeed Obama is allowed to make laws simply by issuing decrees from his office that completely bypass Congress and cannot be reversed, then Donald Trump is going to avail himself of those exact same powers in just over a month’s time, isn’t he?  Is that what everyone wants?

Reacting to the Arctic declaration, Friends of the Earth said: “No president has ever rescinded a previous president’s permanent withdrawal of offshore areas from oil and gas development.

That’s probably because no former president has been idiotic enough to do such a thing via last-minute declaration as he’s packing his bags to leave.  But I’m glad the clowns at Friends of the Earth understand the concept of precedent: they might find Trump is using this word a lot soon suffixed with the phrase “set by Obama”.

“If Donald Trump tries to reverse President Obama’s withdrawals, he will find himself in court.”

In which court?  On what charges?  Perhaps the BBC could have asked Friends of the Earth such basic questions.

However, the American Petroleum Institute said “there is no such thing as a permanent ban,” and that it hoped Mr Trump’s administration would simply reverse the decision.

Ah, finally somebody sensible.

Oil firms will still want to explore for further profits, though.

And there was me thinking oil companies explored for reserves.  Such high quality journalism is what Brits are forced to pay £3.5bn a year for.

And the next secretary of state, Exxon’s Rex Tillerson, may offer the industry a route round the ban by paving the way to an Arctic drilling deal with Russia.

What garbled rubbish is this?  Obama’s declaration – assuming it is worth anything – concerns US arctic waters.  Drilling in non-US waters is no more “getting around the ban” than drinking in a bar in Paris is “getting around” the Saudi ban on alcohol consumption.  And the “Arctic drilling deal” they refer to is an exploration pact between ExxonMobil and Rosneft, not “the industry” and “Russia”.

Very little oil drilling currently takes place in the Arctic region, as it is more expensive and difficult than other available options.

Well, yes.  It’s almost as if Obama’s declaration is mere posturing.

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