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Mine Explosion-Trial

Former Massey Energy CEO Don Blankenship departs the Robert C. Byrd United States Courthouse following the second day of jury deliberation in Charleston, W.Va., Wednesday, Nov. 18, 2015. Blankenship is charged with conspiring to break safety laws at the mine and defraud mine regulators, and with lying to financial regulators and investors about company safety in the years before an explosion killed 29 men at the Upper Big Branch mine in southern West Virginia in 2010. (AP Photo/Walter Scriptunas II)

Earlier this morning a federal court jury in West Virginia convicted Don Blankenship, the former CEO of Massey Coal, of conspiracy in connection with an April 2010 coal mine explosion that killed 29 coal miners more than a thousand feet underground. The explosion in Massey’s Upper Big Branch Mine was the worst mine explosion in the U.S. since 1970, when 38 miners were killed in an explosion in a coal mine in Kentucky.

Months after the explosion,  Blankenship stated to the media that

What we’re trying to do is actually avoid the focus on culpability and figure out what happened…. The focus ought to be on the physics, the chemistry, the math, the science … and figure out what we could do to prevent it from happening again, rather than try and point fingers.

(Massey CEO: Explosion probe needs to be completed, Associated Press State & Local Wire, November 20, 2010.)

Blankenship took the position that changes in the mine’s ventilation plan ordered by the federal Mine Health and Safety Administration contributed to the blast, and said a sudden release of natural gas flooded the mine and sparked the explosion. (Id.)

In other words, according to Blankenship, one principle that we must exclude at the outset is that of accountability.

The 2006 Mine Improvement and New Emergency Response Act boosted the number of mine inspectors, enhanced fines and imposed stricter safety regulations for the nation’s coal mines. However, the mining companies adopted a strategy of contesting every citation issued by the inspectors, and Massey Coal was the leader in clogging the Federal Mine Safety and Health Review Commission docket. In April 2010, the FMSHRC had 46,822 contested violation proceedings on its docket. Of that number, Massey was the leading challenger of citations, contesting 3,741 violation citations, which accounted for more than 11% of the dollar value of fines involved. Contests brought by Massey and other coal companies caused a backlog of cases that overloaded the FMSHRC.

An independent investigation completed in 2011 stated:

The story of Upper Big Branch is a cautionary tale of hubris. A company that was a towering presence in the Appalachian coalfields operated its mines in a profoundly reckless manner, and 29 coal miners paid with their lives for the corporate risk-taking. The April 5, 2010, explosion was not something that happened out of the blue, an event that could not have been anticipated or prevented. It was, to the contrary, a completely predictable result for a company that ignored basic safety standards and put too much faith in its own mythology.

Upper Big Branch, Report to the Governor, May 2011, pg. 108 

Perhaps instead of litigating every citation, Massey should have paid more attention to “the physics, the chemistry, the math, the science … [to] figure out what [Massey] could do to prevent [explosions] from happening….” The Wall Street Journal will no doubt seek to portray Blankenship as an object of pity, a martyr for the cause of fighting over-regulation. They might even insist that he not be crucified on a Cross of Carbon.

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Years ago the Virginia state tourism agency’s campaign slogan was “Virginia is For Lovers,” which was the wind-up for ads filled with golf courses, elegant seafood dinners and couples walking hand-in-hand on some sandy beach at sunset. But if you’re interested in mining uranium in Virginia, stay home.

Last Thursday, the sponsors of a bill to lift Virginia’s 3-decades old ban on uranium mining pulled the bill just before it was to go to the state senate’s natural resources committee, where it was sure to be defeated. There’s a farm outside Chatham, Virginia that’s sitting on an estimated 119,000,000 pounds of uranium oxide, the largest known undeveloped uranium deposit in the U.S., said to be worth at least $7 Billion.

A coalition of environmentalists, municipal leaders and farmers (presumably excluding the farmer sitting on all that uranium) opposed the legislation lifting the ban, which was being pushed by Virginia Uranium, Inc.  Their concern is that uranium mining would endanger the environment and the water supply. The bill’s sponsor said that any radioactive pollution at the mine could be contained, and he was frustrated that he was unable to convince his colleagues that uranium mining can be done safely and economically in Virginia.

Virginia is an example of the Deepwater/Fukushima Dividend at work. The public no longer believes that government regulators, much less the energy companies themselves, are credible.  This comes at a time, after the Wall Street-driven financial meltdown, when Americans’ confidence in public institutions has fallen to record lows. That Virginia is either a “purple” or “red” state doesn’t matter that much if voters think that their drinking water will be giving them and their children cancer in a few years.

In the Deepwater Horizon case, the regulators were (literally) sleeping with the regulated and sharing illegal drugs. The contractors on the Deepwater Horizon drilling rig cut corners on cementing the well and other safety measures because the rig was costing them $525,000 a day to rent from Transocean, and the project was already $58MM over budget. Those were the considerations driving operational and safety decisions on the Deepwater Horizon. The amounts are laughable when compared to tens (if not hundreds) of billions of economic and environmental damage done to the Gulf of Mexico from the worst oil spill in the history of the United States. Even during the height of the oil spill, BP claimed falsely that the oil leaking away a mile below the surface was only a fraction of what government officials were estimating.

Those steps are not well-calculated to inspire confidence.

Fukushima and its surrounding region learned the real meaning of Japan’s “nuclear village,” a euphemism for the state of regulatory capture in which the country’s nuclear regulators would leave the agency, usually in their 50’s, and take a nice cushy job at Tokyo Electric Power Company that paid far above what they earned working for the government. There was even a name for it: amakudari, or “ascent into heaven.” The ascent of these bureaucrats was, of course, not as momentous as that of the radioactive plume that contaminated a large swath of Japan’s countryside north and west of the Fukushima plant. If you think regulatory capture happens only in Japan, think again.

The fact that the Virginia bill’s sponsor said it would take a few more legislative sessions to get the ban lifted shows that the energy industry has not yet come to grips with the effects of Deepwater Horizon and Fukushima.  They have a lot of catching up to do, and if the public believes that government watchdogs will soon become industry lapdogs, it’ll be long time before that farmer in Chatham gets a warm glow from all that uranium under his land.

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This past Thursday Tom Albanese got booted from the CEO slot at Rio Tinto, the world’s second largest mining company (2011 earnings $15.5 Bn), but things might have worked out differently if he’d read The Sparkspread’s August 2012 post: Energy’s All About Infrastructure. It doesn’t matter if you’ve got tremendous energy resources in your neck of the woods if the infrastructure is not in place to move it from source to sink.

For example, India has tremendous coal reserves, but it has neither the capacity to extract all it needs nor the railroad network to reliably transport it. The railroads in India, with mostly the same tracks that were there when the Brits left in 1947, are notoriously decrepit and dangerous. Not to mention overcrowded:

Boarding Train in India

(Yes, there really is a train somewhere under all those people trying to get on board. One can only wonder how the conductors collect fares.) Despite being the third largest coal producer in the world in 2011 (585MM metric tons), India still has to import more than 100MM metric tons from Indonesia, South Africa and Australia.

Why does all that crude oil in Cushing, Oklahoma trade at a discount (about $15 – 20/bbl) to the Brent? Not enough pipelines and port facilities (i.e., infrastructure) to get it to the world market.

Nor is it that important that North Dakota has the greatest wind energy potential in the continental United States because its transmission grid is so thin. Renewable or not, electricity has to get from source to sink, and that requires infrastructure.

Back to Rio Tinto. In 2011, Albanese and Doug Ritchie, Rio Tinto’s energy guy, spent $4.2 Bn ($3.7 Bn for the company and another $516MM for a 65% stake in the Benga thermal and coking mine) for Riversdale Mining Ltd., a coal miner in Mozambique. With mineral extraction potential in developed countries on the decline, miners have been wandering into more and more remote areas to grow their reserves. Mozambique definitely qualifies as remote. Admittedly, Rio Tinto was more interested in the Benga’s higher margin coking coal than its thermal, but as far as infrastructure is concerned the principle is the same.

Rio Tinto planned to ship the coal down the Zambezi River, but that strategy ran aground when they found they couldn’t dredge the Zambezi. Worse, Rio Tinto failed to get the government approvals it needed for the shipments. As far as Riversdale Mining was concerned, the Zambezi was the infrastructure, and the failure to confirm its usability and availability was a major blunder. Another mining major, Anglo American, didn’t bid on Riversdale because of “serious transportation issues.” It’s as if Albanese asked for directions in Mozambique and was told: “You can’t get there from here.” Then last Thursday his board of directors told him where he could go.

Energy Rule Number One: It’s all about infrastructure.

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