Do oil companies need a belly rub?

In the United States, natural gas is cheap. Often, drilling gas costs more than its selling price. According to drillers in the state of North Dakota, that is why they simply flare off the gas that they find while developing the richest U.S. oilfields in decades — they can’t afford to pipe the gas to market. As a result, the drillers in the Bakken Shale are getting unfavorable publicity. Two weeks ago, the New York Times‘ Clifford Krauss piled on with a vivid description and slide show of the scene in and around New Town, ND. The natural gas fires, Krauss writes, "rise above fields of wheat and sunflowers and bales of hay. At night, they illuminate the prairie skies like giant fireflies." In a story by the Associated Press, an industry lobbyist pleads for state financial assistance to build a pipeline to carry the gas to market.

At this moment, I am interested in whether this black eye in North Dakota oil-shale country matters. Flaring wastes a lot of gas — in the case of North Dakota, 1 billion cubic meters of gas a year, sufficient to keep a city of 500,000 inhabitants warm and toasty — and pours CO2 into the atmosphere. It is usually thought of as the much-derided practice of petro-states such as Iran, Russia and Nigeria (a platform of the latter pictured above). But we are not talking about environmental impacts — we are talking about corporate and national impact, the type that can affect the bottom financial and economic line.

This blog has written numerous times that, when it comes to the energy industry, reputation does matter — if the public lacks confidence in an industry’s capacity to safeguard water and air, it could find itself shackled by regulators and unable to produce as much oil and natural gas as it might. I have also suggested that China — widely regarded as the most environmentally indifferent major industrializing country on the planet — will ultimately clean up its act because the Communist Party wants to avoid expulsion by a population with rising expectations of the good life.

But I am getting pushback from readers who argue that energy companies have learned through decades of experience that they can tough their way through seeming defeat (example: the collapse last year of what appeared to be all-but-certain enactment of cap-and-trade legislation in the U.S. Congress). Readers, along with several of my students at Georgetown, have argued forcefully that for a majority of people, jobs trump clean water.

Their argument goes that energy companies have been so beaten down by bad publicity going back to John D. Rockefeller in the late 19^th century that they see very little upside in proactive policing of their bad actors, transparency, and stepped-up public relations. Instead, they will act if a crisis strikes, and meanwhile do the usual hollow public relations exercises, while sitting tight and talking up how much employment they create.

Although the bare facts are true — the industry has faced much negative press — my intuition is that this is smug attitude masquerading as hurt puppy dog. As a measuring stick, I emailed Merrie Spaeth, a Dallas-based corporate crisis manager who worked in the Reagan White House. Here is her reply:

The Exxon Valdez did the industry a lot of damage. But worse, it convinced the industry that it can’t get a fair shake, so they’ve pretty much (in my view) confined themselves to advertising. Contrast that to what an organization like MADD (Mothers Against Drunk Driving) does. They get out and talk to anyone who will listen. Ditto for Mary Kay. [Company omitted] is one of our clients, and they have modeled themselves on MADD and Mary Kay. That is, we regularly have their local people [in the office], and get them ready to speak persuasively, listen carefully and answer questions. In other words, the power of person-to-person communication is badly needed.

So for me, it’s not really about transparency, although that’s important. It’s about talking in every community about the need for energy, what measures are done to ensure safety (as opposed to perfection) and accessibility.

So there are hurt puppy dogs out there. But hurt puppy dogs, too, do more than just whimper. In North Dakota, the smart players are unwittingly taking Spaeth’s advice. In a blog post, the NYT’s Krauss profiles the Whiting Petroleum Co., a Bakken pioneer that has built a small processing plant to capture 80 percent of its gas, allowing it to sell the valuable natural gas liquids contained within it, including propane and butane.