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The Oil and the Glory

The Weekly Wrap — May 4, 2012

On the shale gas patch, the twain decidedly do not meet: Shale gas drillers, on the receiving end of two years of withering attacks by anti-fracking elements, have launched a counter-offensive. A special-purposed group of 11 big industry players including ExxonMobil, Shell, Chevron and Anadarko issued an eight-page code of conduct for hydraulic fracturing in ...

Mladen Antonov  AFP/Getty Images
Mladen Antonov AFP/Getty Images

On the shale gas patch, the twain decidedly do not meet: Shale gas drillers, on the receiving end of two years of withering attacks by anti-fracking elements, have launched a counter-offensive. A special-purposed group of 11 big industry players including ExxonMobil, Shell, Chevron and Anadarko issued an eight-page code of conduct for hydraulic fracturing in Pennsylvania and New York (pictured above, outside the town of Waynesburg, Pa.). I spoke with Anadarko CEO James Hackett, a leader of the group, before the Obama administration’s release today of somewhat stiff rules governing fracking on federal land. As I wrote at EnergyWire, Hackett said the group wished to "set a good example" — a high bar for all operators on the patch in order to reassure public opinion. But Hackett’s vituperative description of critics suggests little room for conciliation between the sides. In a nutshell, Hackett sees himself as a patriot, and his critics as anti-science extremists, and worse.

The industry embarked on the standards as part of studies requested by the Department of Energy and a diverse group called the National Petroleum Council. But it was all against the backdrop of hyper-critical media like "Gasland," Josh Fox’s much-watched 2010 documentary on fracking. The companies felt that shale gas "can be developed responsibly, but you had a slew of articles coming out from the New York Times. Whether they were fact-based or not didn’t seem to matter," Hackett told me. "The Cornell study, the Duke study, the hysteria that people were trying to create around hydraulic fracturing, which was scientifically misplaced."

So there was industry interest in counter-attacking, Hackett said. But once they were into the process, the CEOs started thinking more broadly that they had something to gain by conceding to regulation. Hackett:

There was a feeling that this could be a useful way for us to proceed long term, because the truth is that the technology does keep changing and the practices keep changing. And we have every bit or more a stake of how the regulatory process evolves and society’s acceptances of our industry. We have a bigger stake than I’d say than anyone else but the citizenry that we want to make sure is educated about what the benefits of this are so that they don’t just say, ‘You lose your license to operate,’ without understanding what it means when they say that.

Read on for more of James Hackett, and the rest of the Wrap.

Critics responding to the standards said the companies did not in fact set a high bar. And on one of the key metrics — full public disclosure of the ingredients of fluid used in the fracking process — Hackett in my view was not flexible. He said that — by posting all but 0.5 percent of fracking fluid content on the website, and by making private disclosure of 100 percent of the fluid content to state regulators — companies are doing what they should. He said that drilling service companies such as Halliburton and Schlumberger — which do the actual fracking for the production companies — have competitive reasons why they don’t wish to publicly reveal every molecule contained in their fluids.

I suggested that, on balance, the financial and national security stakes of getting shale gas right are higher than protecting the competitive edge of a fluid. But Hackett replied, "If society ever decides that it has to compel the service companies to give up trade secrets, that’s crossing a pretty interesting line."

Hackett was the most expansive when he decided to broaden out the discussion to the whole matter of environmentalism and clean energy. Hackett:

It is a huge issue for me emotionally and as a patriot that we have a chance for the first time in my 30-year-plus career to actually become close to technically independent of foreign sources of oil. You think about that for a country that has had an energy policy that only consists of aircraft carriers in the Middle East for over 30 years of my life, and the opportunity to change that metric, and the leverage it affords American policy, the lives it saves, the balance of payments implications, making us less susceptible to people who don’t like us. Letting free enterprise flourish in a way it wasn’t a few years ago.

We are on the cusp of this, and there are people in the country who, I don’t know if they care like I do about those things. Well I will be darned if I let them keep me from educating my fellow citizens about why this is so cool. And if it takes us to our dying breaths and spending a lot of personal time on this, we gotta get this message across. And I don’t think that comes by just sitting still. It’s obvious in this country that it’s not enough. There’s an element that will take to the streets, will use any tool at its disposal including bad science to create a fiction that is not scalable, affordable, for the poor, for anyone, and doesn’t get us off foreign oil. To think that somebody can actually say to an American that renewable energy is somehow fixing our dependence on foreign oil is unforgiveable. How does wind and solar in any near term, medium term horizon ever make us less dependent on foreign oil? Well of course it doesn’t because it doesn’t provide transportation fuel. And until you have electric cars, it won’t. And until you have battery technology for storage, it doesn’t.

The opposing sides harbor mirror images of the other: Hackett accuses anti-frackers of injecting false science into their grievances; anti-frackers accuse the energy industry of undermining science in order to kill global warming legislation.


Can oil prices be manipulated? Yes, suggests an investigation on Urals blend: In a must-read investigative piece two years in the making, The Economist magazine considers the question of whether Gunvor, Russia’s biggest oil trading firm, has manipulated the price of the country’s crude oil blend. The magazine’s suspicion is that Gunvor did so over the four-year period that its journalists studied: From 2005 through 2009, Gunvor drove down the price of Urals crude, bought up large volumes of oil at that price, then sold it on in Europe and elsewhere at a large markup, the magazine asserts in words, charts and graphs.

This story is important for a couple of reasons. The first is that Gunvor head Gennady Timchenko is a long-time friend of Russian leader Vladimir Putin, under whom he rose from obscurity to dominate oil trading, one of the nation’s most competitive and rough-and tumble industries, and a top player in natural gas.  This blog has described how in 2009 Putin forced France’s Total to partner with Novatek, another company-from-nowhere, if it wanted access to a premium natural gas field. Timchenko owns 23.5 percent of Novatek.

The other reason is the matter of how oil prices can be set by forces other than the free market. For a long time, some of our top-tier institutions and colleagues have suggested that oil prices cannot be manipulated, or if they can, not in a way that matters. The promoters of this case have included both people with skin in the game, such as investment banks, and those without, such as impartial think tanks. I have gone the other way, arguing that the question is not whether trading results in the rise and fall of oil prices — it definitely does; the question is whether to allow healthy speculation such as airlines hedging fuel purchases, while zeroing out what is arguably abuse, such as hedge funds pushing up prices simply to earn a dollar. In its piece, the Economist — while writing that in the end it has "no proven case" — effectively argues that the latter is what occurred at Gunvor’s hands in Russia.


Last days of the Czar’s serviette: On Monday, Russian President Dmitry Medvedev will step down, and probably vanish into obscurity as the underling honored to serve four years as a placeholder as Vladimir Putin reoccupies the Kremlin. By appearances a thoughtful man, Medvedev will doubtlessly experience a bittersweet sensation. The sweet part will be a feeling of patriotism and fulfilled duty: In 2008, with his mentor legally barred from serving more than two consecutive terms as president, Medvedev stepped in to carry out the distinctly Russian political philosophy known as Putinism. Now, he gracefully steps aside, probably to serve as Putin’s prime minister. The bitter part will be departing with no other legacy.

History has other such figures — in Russia, there is Alexander Kerensky, who led Russia in the few months between the fall of the Romanov Dynasty and the Bolshevik takeover; in the U.S., there is Gerald Ford, who served Richard Nixon’s final two years after Watergate before Jimmy Carter’s populist triumph. In the case of Medvedev, others read possibilities into his tenure that he himself apparently did not — that he could have worked harder to usher in blind and irreproachable justice; that he could have done more to establish a truly impartial electoral system; that, as president, he could have simply shown more spunk. Ironically, by playing out his farcical role, he helped to galvanize the previously disparate opposition, furious at the presumptuousness and self-entitlement of Putinism with which Medvedev himself opted to live.


LBJ, Exxon and Bin Ladin: The received wisdom is that serious non-fiction is dying, and it is not hard to decipher the source of that perception. Just look at the dearth of morning newspapers on the driveways in your neighborhood, and in the hands of the riders on your morning train to work — there is the occasional Economist, and Kindle, but I underscore the word occasional. The quarterly earnings of newspaper companies continue their long slide. So one is surprised and gratified, but mostly relieved, at the market response to this week in serious non-fiction book publishing. Tuesday saw the launch of three big books: As of this writing, Steve Coll’s Private Empire, the only genuine treatment of ExxonMobil in many decades (review and interview published here at O&G) is No. 36 on Amazon; Peter Bergen’s Manhunt, a definitive look at the lead-up to Osama bin Ladin’s killing last May, is No. 19; and Robert Caro’s The Passage of Power, the fourth in his seminal biography of Lyndon Johnson, is No. 9. The market pie for serious non-fiction is not defined — consumers appear to be willing to buy as many important works as they deem interesting. Coll’s early success is especially satisfying as a New York book editor friend told me only recently that energy books "do not sell."

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