This week a study on peak oil by a German military think tank was leaked on the Internet. The document shows that the German government is closely studying the issue of peak oil, and is aware of the potential for serious consequences as oil production declines. The study is reminiscent of the Hirsch Report, commissioned by the U.S. Department of Energy, that warned of the risks posed by peak oil.

Europe's continued reliance on Russian oil and gas supplies may not be secure in the long term, according to the study.

The document warns of the potential for regional shortages, market failures, and a shift in political power toward those capable of exporting oil. This report describes potential outcomes that require planning and preparation. The scenarios outlined in the paper are exactly the kinds of drivers that lead me to advocate for greater regional energy self-sufficiency. The report clearly lays out just how vulnerable Europe will be because of its continuing dependence upon Russia for both oil and gas, and notes that Russia will be in a very strong political bargaining position as a result.

The report can be accessed from the popular German paper Der Spiegel in this story: Bundeswehr-Studie warnt vor dramatischer Ölkrise. The report is so far only available in German, and while Ich spreche ein wenig Deutsch (I speak a little German), I am not fluent enough to capture the essence of the report. (Der Spiegel has summarized the report in English now: Military Study Warns of a Potentially Drastic Oil Crisis).

However, I have a friend who is both fluent in German (his native tongue) and passionate about peak oil outreach. Given a week, I could probably translate the report. My friend (who didn’t want to be identified) did it overnight. Below is his translation of the major points in the report.

Peak Oil

Implications Of Resource Scarcity On (National) Security

Center for German Army Transformation, Group for “Future Studies”

July 2010

1.        Introduction

The focus of the document is on the topic of finite resources, using Peak Oil as an example. The report is part of a series of publications focused on long term (30 years) with the intent to enable the Ministry of Defense to take action early.

In the past, resources have always triggered conflicts, mostly of regional nature. For the future, the authors expect this to become a global problem, as scarcity (mainly of crude oil) will affect everybody.

The authors confirm multiple views on Peak Oil timing and concede that there will be Peak Oil eventually. The study isn’t about positioning the problem on a timeline, but instead about the consequences of a peak. They expect major consequences with a delay of 15-30 years after the peak has hit.

The report refers to the uncertainty of reserve statements mainly in OPEC countries based on the quota allocation method within OPEC but also refers to the possibility of better extraction technologies.

They suggest that it has become urgent to understand those consequences of an eventual peak now in order to have enough time to adapt.

2.        The Importance of Oil

2.1       Oil as a driver of globalization

95% of all industrial outputs is dependent on oil, in fuels, as a chemical base for polymer production etc. Oil has become a key driver of modern lifestyle and globalization.

Substantial oil price increases poses a systemic risk, not just for obvious things like transportation, but equally for other subsystems.

Thus, internationally, but equally nationally, there is a vital interest in securing access to oil, which is currently possible on world spot markets, with OPEC being cooperative due to a mutual dependency between key actors (and a massive presence of the U.S military in the gulf region).

Yet on the other hand, regional conflicts can always at least partially be attributed to resources, such as in the Caucasus region, the Middle East or in Nigeria, or they fuel conflicts due to the wealth they create (such as in Africa).

The report sees – within a timeframe until the year 2040 – a changed international security layout based on new risks (including transport risks for fuels) and new roles of actors in a possible conflict around the distribution of increasingly scarce resources.

2.2       German energy security

The term is defined narrowly as “reliable energy supply”, and then extended to include environmental objectives, technology transformation of societies, planning for energy demand and the long-term planning of a national strategy, tied in with international organizations

This expansion of the view is seen as required based on the globalization of energy markets. However, the report then narrows down the scope again to the possible risk from a supply shock, focusing on the key suppliers of oil: Russia, Norway and the U.K. It is noted that both European partners are already past their peak and that Germany is increasingly dependent on Russia, which currently is reliable but not necessarily so in the long term. Given the expected decline in German energy consumption, the Russian share will likely be 40% by 2025, with the Middle East, Africa and sources around the Caspian Sea making up for the increasing gap from declining European production.

3.        Possible Scenarios After Global Peak Oil

This chapter looks at gradual changes (3.1.) and the risk of disruptive changes (3.2) past a certain tipping point.

3.1       General interdependencies driven by Peak Oil

3.1.1      Oil as a deciding factor in international relationships
With increasing scarcity, producers are increasingly in an advantageous position, both from high revenues and access to cheaper oil when compared to spot market prices. This partly reverts the trend to free oil markets which took place after the ’70s shocks, and gives those countries more control over the supply chain, with a risk of monopolies and nationalizations, and of “political pricing.”

Further, oil producers use increasing amounts of their production internally at lower prices, which increases domestic consumption and inefficiencies, accelerating the problem. [The authors miss out on the fact that high oil prices also bring more wealth to the country which AGAIN increases resource consumption].

The report then looks at increasing “strategic” moves by key actors including the Chinese CNPC (China National Petroleum Corporation), which tries to grab the sources that are still available (particularly in Asia and Africa), but often at relatively unattractive conditions.

The focus of risks is expected in the “strategic ellipse” region (a term used for the region East of Europe reaching from Saudi Arabia in the South to Russia and former Soviet Union countries in the North), because a majority of oil reserves are located in this area.

Overall, the authors expect a reduction of “free market” mechanisms in oil trade, and a rise in more protectionism, exchange deals, and political alliances between suppliers and customers, which could lead to significant geopolitical shifts. Equally, the authors expect this interdependency to shape foreign affairs of oil importers, making them more tolerant towards rogue behavior of suppliers out of sheer need.

Overall, higher volatility and loss of trust are seen as possible outcomes in a world where oil supplies are limited, increasing the need for “oil related diplomacy” and thus increasing risks for moral hazard among all actors, which in turn decreases overall global supply security.

The report then refers to already existing actions of the German government to tie close economic relationships with energy suppliers, and to the tendency of consuming countries to reduce oil dependency, trying to steer clear of risks of future supply shocks.

The Middle East is identified as a very dangerous region with high external involvement from many players and thus a very unstable overall situation.

Overall, the report expects a reduction of the importance of “Western values” related to democracy, and human rights in the context of politically motivated alliances, which increasingly are driven by emerging economies such as China – likely leading to double standards. Emerging economies are equally expected to receive higher recognition in international organizations, particularly those with strength in resources (such as Russia).

3.1.2      New security risks based on additional/alternative energy resources
New conflicts are potentially arising from oil exploration in international or disputed ocean waters, where multiple issues arise, particularly around the arctic circle, with further geopolitical risks for conflict.

Also, the shift to natural gas is reviewed as an extension of the “oil age”, because it might be able to replace crude oil as a bridging source until new solutions are found. The risks for problems from transporting gas (pipelines) and the related issues (as seen between Russia and its neighbors during the past years) are highlighted.

Equally, nuclear power as a potential source is highlighted – emphasizing the risk for safety and the proliferation of nuclear technology. This would also require an increasing shift towards electricity.

Equally, the competition between biofuel and food production is highlighted, showing the limits of biofuel outputs to compensate for reductions in oil availability, and also showing risks for water supply and soil degradation from excessive use.

Overall, the authors see a trend to increase the energy autonomy of entire regions from external supplies, both in the ability to generate alternative fuels (from biofuels and coal), but particularly in electricity generation.

3.1.3      A shift in roles between private and public actors
Based on the increasing importance of oil, governments are becoming more relevant in securing the benefits of oil, both on the supply and on the demand side. This puts a higher emphasis on political negotiations and deals, and increases the risks for nationalizations of resources and key exploration activities.

Exploration licenses are seen as a key area where bidding wars (including non-financial commitments) might emerge. Equally, increasing pressure to renegotiate or revoke already existing licenses might emerge. Ultimately, each country will try to secure sufficient oil to keep its standard of living.

On the other hand, private enterprises are seen on the rise in protecting infrastructure and ensuring production and transportation security in less developed regions, particularly if weaker countries become unable to keep their own services up.

The dependency on oil-related infrastructure (pipelines, refineries, harbors, key pathways on oceans) will increase, and thus the risk. Damaging infrastructure through hostile acts (sabotage, war) might become an attractive target for groups or countries with a tendency to use violence. The same is expected for electricity and natural gas-related infrastructure – they all might require higher protection.

Generally, the focus of risks is expected in the region which the authors consider the “strategic ellipse” (a term used for the region East of Europe reaching from Saudi Arabia in the South to Russia and former Soviet Union countries in the North), because a majority of oil reserves are located in this area.

3.1.4      Economical and political crises as a consequence of the transition to “post-fossil” societies
A number of risks of higher oil prices are seen for modern economies, particularly in transportation. Security risks are seen in resulting systemic crises.

A first direct consequence of higher oil prices and lower availability of fossil fuels is a possible reduction in transportation capacity, equally in individual transportation and in freight forwarding. This might lead to another “mobility crisis” for societies that heavily depend on cars and trucks.

Higher cost in commercial transportation markets might severely affect current supply chains, and no alternatives are in sight (electric trucks don’t exist yet). Particularly food might become a critical issue for countries that are a) highly dependent on imports and b) are susceptible to price-increases of food products, particularly affecting Africa, parts of Asia and Latin America, and the Middle East.

High oil prices would further affect almost all aspects of society, as it will also influence the cost of chemicals and all products derived from them, which might substantially alter the nature of value chains and make certain things uneconomical – ultimately leading to higher unemployment during a transformational phase away from an oil based economy. This might particularly affect the German car industry.

Limits in availability might also strengthen regulatory efforts, encourage the allocation of energy (oil) by rationing schemes and possible other actions limiting free markets.

Additionally, the changes and likely reduction in standard of living might render societies less stable and make them more attracted to extremist political positions and even trigger changes in government systems, as trust into key actors in politics will diminish. This might be a particular risk for the relatively young democratic countries in Eastern Europe.

3.1.5      More selective intervention – key actors overwhelmed
Overall, more expensive transportation and increasing problems “at home” might reduce the ability of larger countries to intervene internationally (politically and/or with military action), and also lower the readiness to provide help to poorer countries. The focus will be more on a country’s egotistic (energy) interest and not so much on an ideal of transferring Western values. The gap will likely not be filled by NGOs, as they will be affected by similar limits.

Overall, international institutions will be weakened, as they will have less resources to provide help and support, and it becomes equally possible that help will be attached to direct (energy) needs of the donors.

3.2      Systemic risks after reaching a “tipping point”

In addition to the gradual risks, there might be risks of non-linear events, where a reduction of economic output based on Peak Oil might affect market-driven economies in a way that they stop functioning altogether, leaving the range of a relatively steady downward trajectory.

Such a scenario could pan out by an initially slow decline of trade and economic activity, combined with higher stress on government budgets from lower tax income, higher social cost and growing investment into alternative technologies.

Investment will decline and debt service will be challenged, leading to a crash in financial markets, accompanied by a loss of trust into currencies and a break-up of value and supply chains – because trade is no longer possible. This would in turn lead to the collapse of economies, mass unemployment, government defaults and infrastructure breakdowns, ultimately followed by famines and total system collapse.

4.        Challenges for Germany

4.1      Risk of new dependencies for Germany

Oil as a new factor of global power would create significant dependencies for Germany, and in order to avoid supply issues, strong ties with suppliers are a must, but equally a diversification of supply relationships, taking into account that a supplier might intentionally reduce capacity to accomplish political objectives.

Among the key supplier countries is Russia (supplying 35% of German oil imports), where reliability risks are prevalent, given past experience. Natural gas, as a possible temporary substitute, bears the same risk (37% come from Russia). Thus, a diversification becomes essential.

4.2      Focus of politics on supply relationships

Germany needs strong and reliable ties to Russia and other Caspian Sea countries. This might create some challenges in international relations, particularly with smaller Eastern European countries [like Poland]. Thus, intensifying relationships to the Middle East might be equally relevant. However, all those relationships have an inherent risk of being instruments in conflicts, which puts a certain limit on treating all foreign partners the same.

4.3      More pragmatic foreign policy

The need to mitigate supply risks might require some compromises on foreign affairs topics (such as human rights). Equally, more active diplomatic efforts will be required with a focus of energy security in mind. This is more difficult given Germany’s reluctance to engage in political power play due to its history, but needs to be tackled in order to deal with the challenges ahead. The authors don’t want to encourage military solutions, but suggest a strong preventive development of political and diplomatic initiatives to tackle the problem.

4.4      Importance and freedom of industrial nations reduced

All industrial nations that depend on energy imports will become more dependent on new partners, both in emerging economies and supplier countries. This requires a new focus in foreign affairs, sometimes giving up standards in negotiations with countries that have different cultures and political systems.

4.5      Help in stabilizing supplier countries at risk

Some supplier countries (and surrounding regions) might be destabilized by the force of higher resource prices. This is an area where Germany needs to help by providing support for nation building and conflict resolution on the national and international level. This is in conflict with the lower economic power likely to result from Peak Oil, which might make interventions less likely and requires new approaches of “stabilization with lower effort.”

4.6      Growing conflict potential concerning the Arctic Circle

Germany might have to take positions in case of an upcoming conflict regarding resources in the Arctic Circle, where multiple countries (including Russia) have open claims for accessing oil and gas fields. This requires further research.

4.7      Nuclear technology proliferation

The risk for nuclear technology proliferation and thus more countries with the potential for nuclear weapons (and the risk for terrorists having access to nuclear material) is growing due to the proliferation of nuclear technology for energy generation. Equally, risks for terrorist attacks and accidents on German soil are rising. Both scenarios require more surveillance, intelligence and preventive action.

4.8      Higher conflict potential regarding critical infrastructure

Energy delivery infrastructure for all sources including electricity will have a higher importance in an oil constrained world, thus, securing its reliability, security and availability becomes mission-critical. International cooperation is needed to secure large international supply paths (pipelines, sea routes).

4.9      Larger “energy regions” change international alliances

The expectation of stronger connections between suppliers and consumers across continents creates different settings for current international alliances and security risks. DESERTEC (a large power production system in Northern Africa based on CSP) would require different settings even for military strategies.

4.10   Peak Oil for armed forces

Armed forces would also be significantly affected by fossil fuel limits, as they are very dependent on oil products. Significant investments in alternative energy procurement technologies (biofuels, coal-to-liquids – Fischer-Tropsch) and applications (electric and hybrid vehicles) would be required, with long transition times. Further, local energy-independence of stationary troop infrastructure (like military bases) using more renewable sources would be beneficial. Long term objective would be to fully convert Germany’s armed forces to only use renewable energy sources by 2100.

4.11   Crude Oil as a systemic risk

For scenarios which end with a complete destabilization of societies, Germany is at a significant risk given its strong participation in a globalized economy. Being still able to act requires a number of basic infrastructures to keep functioning, both for the country and its armed forces. Work is required to look into redundancy, high-resilience of infrastructure and local self-organization approaches.

5.        Summary

The report sees significant risks arising from an unavoidable peak in oil production, which go beyond gradual shifts in energy systems and economies. This will likely lead to economic change and new geopolitical risks that affect much more than just what we can anticipate. The overall ability to describe exact outcomes is very limited, as many scenarios are possible, and further research is required.

Overall, more emphasis needs to be put on understanding and shaping international relationships in respect to energy security, anticipating and integrating the ongoing shift to different players in a resource-constrained world.

In any case, Germany has to identify and implement alternatives to the current transportation technologies that require oil, and put a similar emphasis on avoiding other dependencies, for example concerning rare earths.

For armed forces, Peak Oil creates significant risks, both from a mobility standpoint as well as from dependencies on other societal services. Understanding those risks requires further analysis and likely a very different approach in the future.

In general, more preparation is required for society and army to make sure that problems are recognized and solutions are actively implemented.

The U.S. Securities and Exchange Commission (SEC) is reportedly investigating whether employees at BP illegally profited from information not made available to the public in the aftermath of the Deepwater Horizon oil spill, according to anonymous sources quoted by Reuters.

According to the report, the investigation is still in the preliminary stages.

BP admitted last week that the SEC and the Department of Justice were conducting “informal inquiries into securities matters arising in relation” to the offshore rig explosion and subsequent spill.

The SEC has yet to give official confirmation of the probe.

In the two months following the spill, BP share prices plummeted — shaving off half of the company’s market value. As pessimistic news about failed efforts to cap the leaking well was released, investor confidence took hit after hit causing the stock to tumble. This may have potentially enabled someone with insider knowledge of the failed attempts to replace the well cap before it was known to the public to have capitalized on such information in an illegal manner.

The exact targets of the investigation are unknown at this time.

The news that BP investors may have been taken advantage of comes at a crucial time, just as BP is beginning to unveil its restructuring plan in a bid to regain investor confidence lost in the wake of the oil spill.

TNK-BP is Russia's third largest oil company and has nearly 100,000 employees.

BP’s embattled CEO, Tony Hayward, is about to be reassigned to TNK-BP, a joint venture in Russia.

After much speculation and many reports in the press that Hayward’s days were numbered, the company finally announced on Tuesday that he will step down from his position as chief executive officer effective Oct. 1.

“The BP board is deeply saddened to lose a CEO whose success over some three years in driving the performance of the company was so widely and deservedly admired,” said BP chairman Carl-Henric Svanberg.

BP also announced a record $17 billion quarterly loss as a result of costs related to the spill.

“The Gulf of Mexico explosion was a terrible tragedy for which — as the man in charge of BP when it happened — I will always feel a deep responsibility, regardless of where blame is ultimately found to lie,” Mr. Hayward said in a statement.

In an ironic twist, Bob Dudley, who is set to replace Hayward as BP’s CEO, was formerly the chief executive at TNK-BP before a bitter dispute resulted in him being ousted from Russia by the Kremlin.

BP maintains a share in the Kovytka field located in Eastern Siberia, which is said to be one of the largest undeveloped natural gas fields in the world.

Hayward’s new position will be as a non-executive director on the board of TNK-BP, Russia’s third-largest oil company. BP owns a 50% stake in TNK-BP.

BP CEO Tony Hayward.

BP is scrambling to rebuild it’s devastated image in the aftermath of the Deepwater Horizon oil rig explosion which killed 11 rig workers and caused oil to leak into the Gulf of Mexico.

Comments made by Hayward in the early days of the spill response –such as “I would like my life back” and that the spill was “relatively tiny” compared to the size of the Gulf of Mexico– erupted into a public relations nightmare for the company which they have yet to recover from.

Dudley, an American, is said to be a softspoken character, and BP hopes that he can broadcast a positive image to both the government and the public as it launches a major restructuring process aimed at getting what was once Britain’s largest company back on its feet.

Dudley was in London on Monday to attend the board meeting discussing the company’s reshuffling and Hayward’s severance package. Hayward will receive a $1.6 million payoff – a year’s salary.

“The tragedy of the Macondo well explosion and subsequent environmental damage has been a watershed incident,” Svanberg said in a statement. BP will be a “different company going forward, requiring fresh leadership,” he said.

The move may be part of a strategy overhaul – dubbed as “Future BP.”

Tony Hayward, the embattled CEO of BP, will soon be stepping down from his post, according to a report in The Times of London.

BP CEO Tony Hayward's job is reportedly in jeapordy.

“You would be hard-pushed to find anyone within the company who does not think he is irreparably damaged – both by his own performance and by the event itself,” a company insider was quoted as telling the paper.

Hayward is expected to step down within ten weeks –possibly as soon as next month– according to the report.

An American, Robert Dudley, who is currently heading BP’s Gulf Coast restoration efforts, is seen as Hayward’s most likely successor.

BP has denied the report, with a company spokesman saying that Hayward still has “full support from the board and will remain in place.”

Is Robert Dudley next in line at BP?

Hayward took a beating in the media and caused a major PR problem for BP after his “I want my life back” comment on May 30. His battered image failed to recover since that remark, which forced BP to replace him with Dudley as the company’s point man in the spill cleanup and containment operations.

The Times reported that a move to replace Hayward may be announced together with a full strategy overhaul for the company which is being dubbed as “Future BP.”

The company has watched as BP shares lost 40 percent of its value since the well exploded in late April and has come under increasing pressure to replace Hayward following the failures of BP to cap the leaking well. While the leaking oil well has since been capped, tests are still underway to see if the containment cap will hold and effectively stop the flow of oil.

BP agreed this week to sell $7 billion worth of assets to Apache Corp. as the company scrambles to pay for the mounting costs of damage and cleanup operations caused by the spill.

China has knocked the U.S. out of the top spot –a position it held for more than a century– as the world’s biggest energy consumer, according to new data from the International Energy Agency.

China consumed 2,252 million tons of ‘oil equivalent’ last year, which is about 4 percent more than the 2,170 million tons the U.S. consumed. Oil equivalent is the term used by the IEA to bring all forms of energy into a comparable form, including crude oil, coal, natural gas, nuclear, hydropower, wind and solar power.

Projections were for China not to overtake the U.S. for another 5 years, but the takeover occured faster than expected with the effects of the global recesssion causing the U.S. economy to decline at a time that the Chinese economy was continuing to expand at a double-digit pace. Energy consumption in the U.S. flatlined while China continued to consume more.

Energy consumption in the U.S. was double that of China’s just a decade ago.

The U.S. still remains the world’s largest energy consumer per capita, with the average American using 5 times more energy than the average Chinese citizen.

“The fact that China overtook the U.S. as the world’s largest energy consumer symbolizes the start of a new age in the history of energy,” IEA chief economist Fatih Birol was quoted as saying by the Wall Street Journal.

China relies on coal for much of its electricity generation, which accounts for why China already passed the U.S. as the world’s largest polluter several years ago.

The U.S. still remains comfortably in the lead in terms of crude oil consumption, with a consumption rate of 19 million barrels of oil per day. China currently consumes only nine million barrels of oil per day, although their consumption rate continues to climb.

Over the next 15 years, China’s electricity demand is expected to increase by 1,000 GW – equivalent to the total U.S. electricity output today.

Underwater video showed a positive development in BP’s quest to contain the leaking oil well Monday evening, when a tighter-fitting containment cap was placed on top of the gushing well.

The new cap, for the time being, seems to have accomplished its task of restricting the flow of oil from the well. If the cap holds through the upcoming tests, this would be the first time that the spill has been contained since the April explosion on BP’s Deepwater Horizon oil rig.

An image still from BP video footage shows the new containment cap placed on the leaking oil well.

“Significant progress has been made on the capping stack installation,” said National Incident Commander, Retired Coast Guard Admiral Thad Allen. “As a result of that progress, BP will perform a ‘Well Integrity Test’ tomorrow morning. This test involves closing one or more of the valves on the new cap for a period of time to allow BP to measure pressures in the well.”

The test can take from 6 hours to 2 days depending on the measurements that are observed, said Allen.

LIVE UNDERWATER VIDEO FEEDS VIA BP:

BP is still hesitant to claim victory, as the long term viability of the well cap remains uncertain. “The sealing cap system never before has been deployed at these depths or under these conditions, and its efficiency and ability to contain the oil and gas cannot be assured,” BP said in a statement regarding the new cap.

“People feel very good about what we accomplished in the last couple days,” BP Senior Vice President Kent Wells said. “But the job is not over.”

UPDATE: BP’s “Skandi ROV2″ robotic camera feed is still showing some oil leakage, although minimal compared to what was seen gushing previously.

"BP needs to tell us what it will do if the well bore is compromised and 100,000 barrels per day of oil spills into the ocean," Markey said.

An internal BP document released by U.S. Representative Ed Markey (D-Mass.) today revealed that the worst-case scenario spill rate could be 100,000 barrels –or 4.2 million gallons– per day – substantially higher than the numbers originally released to the public.

“Right from the beginning, BP was either lying or grossly incompetent. First they said it was only 1,000. Then they said it was 5,000 barrels. Now we’re up to 100,000 barrels,” Markey said on NBC’s “Meet the Press.”

"This document raises very troubling questions about what BP knew and when they knew it," says Congressman Ed Markey.

Markey said that the company submitted the documents to Congress at a time when the leak was estimated at only 5,000 barrels a day, and BP told congressmen that the worst case scenario would be 60,000 barrels a day.

The scenario, according to the undated documents, can occur if the wellhead and blow-out preventer are removed from the well. “If we have incorrectly modeled the restrictions – the rate could be as high as (about) 100,000 barrels per day,” the document stated, although those numbers are considered to be “low probability worst case.”

A BP spokesman acknowledged that the document containing the flow rate estimates appeared to be genuine, but pointed to the fact that the calculations only applied to a scenario where the blow-out preventer is removed.

Markey, however, remained unconvinced. “Even if we can’t know for certain the condition of the well bore, we should have known how much oil could flow from it  -  BP did,” Markey added.

Mr. Markey cited Coast Guard Admiral Thad Allen’s Thursday press briefing where the Admiral alluded to the fact that the condition of the well bore remains unknown. “I think that one thing that nobody knows is the condition of the well bore from below the blowout preventer down to the actual oil field itself,” said Admiral Allen. “And we don’t know… if the well bore has been compromised or not.”

“This document raises very troubling questions about what BP knew and when they knew it. It is clear that, from the beginning, BP has not been straightforward with the government or the American people about the true size of this spill,” Markey, the Democratic chairman of the House Energy and Commerce Subcommittee on Energy and the Environment, noted in a statement released together with the document.

Markey also pointed out that BP has so far had a poor record of dealing with worst-case scenarios.

Justice Litle, Editorial Director, Taipan Publishing Group

Investors sold BP shares in a panic last week, as risks came to light that were obvious a long time ago.

British Petroleum (BP) shares plunged to a 14-year low last week on fears of political fallout.

With investors seemingly deciding to panic all at once, BP’s U.S. exchange-traded ADR (the company also trades in London) tumbled 16% in one day on Wednesday. That fall cut the share price almost exactly in half, as measured from pre-oil spill highs just under $60 per share.

For us there is just one question: What took so long?

As a quick refresher, here’s what we’ve written about the spill thus far:

• The BP Oil Spill Is a Game Changer for Alternative Energy

• Criminal Charges Could Cut BP’s Stock in Half

• BP Stock Buy Ratings Prove Wall Street Is Insane

• The BP Oil Spill Means Heightened Stagflation Rise

So far, every one of those commonsense observations is proving out. But let’s just focus on the political risk angle for a moment. Why didn’t more investors see this coming?

This stuff is not rocket science. It’s not even high school chemistry class. It’s just paying attention.

Seeing what happened to BP (in respect to the mounting risks) took about as much effort as looking out the window, seeing an elephant standing in the front yard, and then saying “Hey! There’s an elephant out in the yard.”

But apparently that’s too much to ask of Wall Street…

I mean seriously. How could the White House not go after BP? How could there not be attempts to recoup a serious chunk of the catastrophe-level economic damages to the $2.2 trillion Gulf economy?

And we haven’t even gotten to criminal charges or class-action lawsuits yet! Are investors going to be gobsmacked yet again when Houston trial lawyer Tony Buzbee and his fellow crusaders try to turn a litany of oil spill damage claims into big tobacco times 10?

It makes you wonder how efficient markets can possibly be – hint, not that efficient – when risks that are plain as day get routinely ignored… until they become headlines. Then everyone panics.

Still Getting Worse

Unfortunately too, the situation in the Gulf is still getting worse… and BP’s claims are sounding less believable by the day.

Less than two weeks ago, BP CEO Tony Hayward categorically denied the presence of undersea crude oil plumes. “The oil is on the surface,” Hayward declared. “There aren’t any plumes.”

Now we have confirmation that there ARE plumes. “The government and university researchers confirmed Tuesday,” the NYT reports, “that plumes of dispersed oil were spreading far below the ocean surface from the leaking well in the Gulf of Mexico, raising fresh concern about the potential impact of the spill on sea life.”

Defenders of BP argue that the plumes could be “natural seepage,” i.e. not necessarily a byproduct of the Deepwater Horizon spill. Scientists want to do a test comparison to confirm or disconfirm the link… but BP won’t allow it.

BP has also made efforts to shut out the media and reduce on-site journalist coverage of the worst-hit spill areas. The name of the game is spin, deny and delay.

The actual gusher from the wellhead could be worse now too. Earlier this week, BP’s chief operating officer said the flow should fall to a “relative trickle” in the near future, with nearly all the oil being captured and contained. But Dr. Ira Leifer, a scientist working with the U.S. government, thinks the flow rate of oil may have increased dramatically as a result of cutting the pipe.

“The well pipe is clearly fluxing way more than it did before,” Dr. Leifer reported. “By way more, I don’t mean 20 percent, I mean multiple factors.”

At first the flow rate was supposed to be 5,000 barrels a day. Remember that quaint number? This week BP said it was capturing 11,000 barrels a day. Oh really! The latest government estimate is 12,000 to 19,000 barrels a day. But if Dr. Leifer is right, that could be another lowball, with the true rate closer to 100,000 barrels a day.

One of the reasons it’s so hard to be sure is because BP doesn’t want the information coming out, and they have no intention of trying to help clarify things. Just the opposite in fact.

“It’s apparent that BP is playing games with us, presumably under the advice of their legal team,” Dr. Leifer said. “It’s six weeks that it’s been dumping into the gulf, and still no measurements.”

An International Incident

Want more bad news? Okay, here you go: The whole thing is threatening to become an international incident. BP is one of the most prominent companies in Britain – hence its original name, British Petroleum – and as such BP’s dividend is a lifeline for British pensioners.

The U.K. Telegraph estimates that, as far as U.K. pension payouts go, an astonishing £1 out of every £6 comes from BP. Were the U.S. government to forcibly bankrupt BP, British retirees could see nearly 17% of their pension income disappear.

So it’s no wonder there was much agitation and anger across the pond when President Obama stated publicly that he would have fired BP’s CEO were it up to him… and that he is trying to figure out “whose ass to kick.” (It remains to be seen whether this is just more hot air and political theater for the cameras.)

It’s a no-win situation for U.S.-British relations… actually a no-win situation for everyone really. And the clumsy bad behavior of BP greatly increases the odds of further political backlash.

One possibility is further spin and delay from BP as the crude oil continues to gush and gush, until finally the U.S. Navy is called in. Another possibility is a hurricane coming in and, as energy expert Matt Simmons puts it, “painting the Gulf Coast black.”

Even in a best-case scenario of “capturing and containing” the massive flow before something truly bad happens, huge lawsuits still loom.

Black Box Risk

All in all, your humble editor marvels at those who declare BP shares to be “too cheap to pass up.” There is risk, and then there is black box risk. How do you invest in something that might be a zero, with clear and present dangers present that no one can get a handle on?

Buying BP now still feels like buying the money center banks in the fall of 2008. As Citigroup demonstrated all too well, a stock that looks “too cheap to pass up” at $30 could yet be on its way to $10… or even to $1.

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader, and Managing Editor to the free investing and trading e-letter Taipan Daily. His articles have been featured in Futures magazine, he has been quoted in The Wall Street Journal and has even contributed regular market commentary to Reuters and Dow Jones.

The following article is provided by UNC’s Powering A Nation journalism team.

BP has made claims that it has not blocked media from covering the oil spill. But a contract that became valid May 2 suggested otherwise.

BP required workers employed in the Vessels of Opportunity program and other programs to sign a contract. The Vessels of Opportunity contract put fishermen at risk of losing their job, which is their only form of income, if they speak with the media.

The contract included a clause prohibiting them and their deckhands from making “news releases, marketing presentation, or any other public statements” while working on the clean-up. It also included an additional section titled “Agreement Regarding Proprietary and Confidential Information,” which states that workers cannot disclose “Data” gathered while on the job, including “plans,” “reports,” “information” and “etc.”

We were able to obtain a copy of the contract from an anonymous source. Below are the clauses pertaining to media relations.

(view first image larger; view second image larger; view the first page of the contract)

On May 24, some received a notice indicating that Article 22 and paragraph five of Exhibit C were deleted from the original contract. Still, many are confused and concerned with their job security if they speak with media members. Below is a copy of the first page of this letter, also obtained from an anonymous source.

(view larger image: page 1, page 2)

Media outlets have also reported being forced off of oiled beaches and restricted from staging areas by the oil company. Some fishermen we have spoken with say they were told explicitly by their supervisors that they were not allowed to tell anyone what they see while out on the job.

One loophole we’ve found in gaining access is with the fishermen’s wives. Many of them see what their husbands, their families, and their community are going through, and they are willing to speak out.

“I don’t care – I didn’t sign a contract,” said Cherie Pete, who owns Maw’s Sandwich & Snack Shop and has lived in Venice all her life. This is a sentiment shared by many wives we’ve spoken to. Her husband, a lifelong shrimper and boat builder, is now working with Louisiana Wildlife and Fisheries as a contractor paid by BP.

Some fishermen are worried to let us document their lives at home, outside of their employment with BP, for fear of being fired from the only work they can do right now. Ultimately, BP is not directly limiting media contact, but the contract added more uncertainty on top of what the fishermen are already experiencing.

Written by Lauren Frohne and Jessey Dearing; Edited by Mike Ehrlich and Elena Rue, under the auspicies of UNC’s Powering A Nation and shared with Consumer Energy Report.

"We will not rest until justice is done," said U.S. Attorney General Eric Holder.

BP stock drops 15%, sheds $20 billion in value, as the market reacts to the continuing turmoil in the aftermath of the Gulf of Mexico oil spill.

U.S. Attorney General Eric Holder announced that the Justice Department has launched a criminal probe of the BP oil spill. “We will prosecute to the fullest extent of the law anyone who has violated the law,” Holder told reporters today in New Orleans. “We will not rest until justice is done.”

Federal agencies, including the FBI, are participating in the probe.

Among the many statutes the DOJ is reviewing are:

• The Clean Water Act, which carries civil penalties and fines as well as criminal penalties;
• The Oil Pollution Act of 1990, which can be used to hold parties liable for cleanup costs and reimbursement for government efforts;
• The Migratory Bird Treaty Act and Endangered Species Acts, which provide penalties for injury and death to wildlife and bird species; and,
• Other traditional criminal statutes.

“There is one thing I will not let be forgotten in this incident: In addition to the extensive costs being borne by our environment and by communities along the Gulf Coast, the initial explosion and fire also took the lives of 11 rig workers. Eleven innocent lives lost,” Holder said in a prepared statement. “As we examine the causes of the explosion and subsequent spill, I want to assure the American people that we will not forget the price those workers paid.”

According to government estimates, the spill has already leaked between 20 and 44 million gallons of oil.

“If we find evidence of illegal behavior, we will be forceful in our response,” he said.

The Justice Department has already demanded that the involved parties, including BP, Transocean and Halliburton, preserve all documents related to the disaster.

BP's stock has fallen dramatically since the April 20 explosion on one of its oil rigs in the Gulf of Mexico.

The aftermath of the April 20 explosion which took place on the BP-operated Horizon Deepwater rig was labeled as the “greatest environmental disaster of its kind in our history” by President Barack Obama today.

Shareholder Reaction

The companies involved in the oil spill witnessed a sharp selloff of their shares today in response to the criminal probe. BP and Halliburton each suffered a loss of nearly 15 percent, while Transocean saw their shares plummet nearly 12 percent.

BP shares have fallen 40 percent since the explosion, erasing nearly $75 billion of value in the process. Shares in BP shed $20 billion today alone.

Analysts estimate that BP will suffer between $4 billion to $25 billion in losses when all is said and done. The total bill will vary greatly depending on the length of time it takes to cap the spill.