For Big Oil, Libya is just another fix it’s in
The global oil industry is in a fix. It’s still trying to persuade Washington to revive access to the Gulf of Mexico, one of the world’s sole remaining dictator-free oil-rich zones, and it’s locked out of Libya for the foreseeable future. Meanwhile, its greatest recent coup — a technological breakthrough that has unlocked a bonanza ...
The global oil industry is in a fix. It's still trying to persuade Washington to revive access to the Gulf of Mexico, one of the world's sole remaining dictator-free oil-rich zones, and it's locked out of Libya for the foreseeable future. Meanwhile, its greatest recent coup -- a technological breakthrough that has unlocked a bonanza of natural gas locked in shale in the United States -- is under threat by homeowners and activists across the country who question whether the method is environmentally safe. On top of all this, global oil demand is rising fast along with robust economic recovery, and the world will pour terrible scorn on the industry if, despite the hurdles, it fails to supply sufficient oil and natural gas to fuel everyone's cars, homes and factories.
The global oil industry is in a fix. It’s still trying to persuade Washington to revive access to the Gulf of Mexico, one of the world’s sole remaining dictator-free oil-rich zones, and it’s locked out of Libya for the foreseeable future. Meanwhile, its greatest recent coup — a technological breakthrough that has unlocked a bonanza of natural gas locked in shale in the United States — is under threat by homeowners and activists across the country who question whether the method is environmentally safe. On top of all this, global oil demand is rising fast along with robust economic recovery, and the world will pour terrible scorn on the industry if, despite the hurdles, it fails to supply sufficient oil and natural gas to fuel everyone’s cars, homes and factories.
Such is the outlook of Christophe de Margerie, CEO of the French oil company Total, and by far Big Oil’s most plain-spoken (and most distinctively mustachioed — see above) representative. He delivered it to a packed house of about 1,500 of his peers, gathered in Houston for the opening session of CERAWeek, the Davos of the oil industry, a conference hosted by Dan Yergin, author of The Prize.
De Margerie’s somewhat counterintuitive prescription for the industry? In order:
1. Hunt aggressively for oil and gas;
2. When you find it, make sure to produce it in a way that non-oil industry folks can live with;
3. Meanwhile, get the world to use less oil and gas.
Why should oil companies persuade the world to use less of its product? Because, asserted de Margerie, starting in just a few years, the industry will be incapable of producing as much as the world wants. In his reckoning, demand for oil will surpass the current 87.5 million barrels a day, but various hindrances will prevent the industry from producing much more — it can increase supply by an additional 8 percent, to about 95 million barrels a day, but "it’s impossible to go higher."
De Margerie has spoken similarly for a few years, but never in the context we have today, in which doubt has been cast on the stability of the Middle East, the source of a third of the world’s oil supply. He didn’t spell out the local and geopolitical consequences if he’s right, but he didn’t need to — his rivals at Shell have already done so in a separate report (a decade-long global economic slump, resource competition among nations, and compulsory fuel rationing for everyone not lucky enough to be living in a petrostate).
With this mayhem possibly ahead of us, the world will not court oil companies respectfully as potential saviors, as the companies may feel would be justified — they will have to produce oil and gas, and do so safely and cleanly, or the world will bar them from drilling, and then still foist "the chain of responsibility on us" for failing, de Margerie said.
In one respect, the industry is already mobilizing. In the Gulf of Mexico, BP CEO Robert Dudley told the conference, a new regime is taking shape in which no well will be drilled unless there is the type of equipment standing by that the company finally used to cap the runaway Macondo oil well last summer. It is partners with ExxonMobil, Shell, and Chevron in this safety effort. They may ultimately sway the Barack Obama administration, which so far has been cautious to say the least about issuing new drilling licenses in the Gulf.
Not so much with shale gas. This fuel, extracted with a method called hydraulic fracturing that dislodges gas from otherwise impermeable shale by shattering and then subjecting it to a blast of water and sand, has revolutionized global energy and geopolitics by creating a natural gas glut.This surplus, for instance, has greatly reduced Russia’s gas-driven bullying influence in Europe.
But a documentary called Gasland, a takedown of shale gas drilling, known as fracking, that was nominated for an Oscar this year, has single-handedly tarnished the industry’s reputation. The film accuses the drillers, among other things, of tainting water aquifers with chemical poisons. Yet shale gas drillers have responded with barely veiled contempt. As though scripted, John Hess, chairman of Hess Corp., mounted the same stage as de Margerie a couple of hours later and saluted the industry’s performance:
We need to let states continue their successful oversight of hydraulic fracturing, a practice that has been going on safely for more than a half-century. Sixty percent of U.S. wells are hydraulically fractured. … Hydraulic fracturing is proven, safe and environmentally secure when it is properly applied with the appropriate regulatory oversight. Most states do a very good job of regulating this activity. Adding duplicative regulation at the federal level would be counterproductive and economically wasteful.
When I myself have spoken to such drillers and their lobbyists, and asked why they don’t get in front of this moving anti-fracking locomotive and, for instance, fully disclose the chemicals they are using and get on TV boasting about it, I have been basically told to mind my own business. Christopher Swann wrote a great piece on the subject for Reuters Breakingviews.
Yet de Margerie takes these drillers to task, and says that this is precisely what they should do. "If it is totally crazy, we cannot let there be a film like this without an answer," he said. " … If we want [shale gas], we have to be transparent."
More from Foreign Policy
Chinese Hospitals Are Housing Another Deadly Outbreak
Authorities are covering up the spread of antibiotic-resistant pneumonia.
Henry Kissinger, Colossus on the World Stage
The late statesman was a master of realpolitik—whom some regarded as a war criminal.
The West’s False Choice in Ukraine
The crossroads is not between war and compromise, but between victory and defeat.
Washington wants to get tough on China, and the leaders of the House China Committee are in the driver’s seat.