The Weekly Wrap — June 29, 2012 (Part I)
The world according to Rex Tillerson: What are we to make of the CEO of ExxonMobil, who in a speech lasting just over an hour managed to tarnish journalists covering his industry as "lazy," the public as "illiterate," and critics as "manufacturers of fear"? As for worries about global warming, Exxon’s Rex Tillerson suggested they ...
The world according to Rex Tillerson: What are we to make of the CEO of ExxonMobil, who in a speech lasting just over an hour managed to tarnish journalists covering his industry as "lazy," the public as "illiterate," and critics as "manufacturers of fear"? As for worries about global warming, Exxon's Rex Tillerson suggested they relax about rising seas and disappearing agriculture -- "we will adapt," he said.
Cynics might say, ‘What should one expect from ExxonMobil'? But if so, they would not have been listening to Tillerson since he became CEO six years ago, a period in which he has been much more measured: In flat, evenly delivered and nuanced language, the 60-year-old native Texan has softened Exxon's sharpest and most-criticized edges, most conspicuously repudiating its funding of a clutch of scholars whose tracts -- challenging conventional climate science -- have been seized upon by global warming critics as evidence of a hoax. So was his speech Wednesday before the Council on Foreign Relations in New York simply a bad hair day? Or are we essentially watching a reversion to the days of Exxon's abrasive former CEO, Lee Raymond? Here, watch the video yourself:
The world according to Rex Tillerson: What are we to make of the CEO of ExxonMobil, who in a speech lasting just over an hour managed to tarnish journalists covering his industry as "lazy," the public as "illiterate," and critics as "manufacturers of fear"? As for worries about global warming, Exxon’s Rex Tillerson suggested they relax about rising seas and disappearing agriculture — "we will adapt," he said.
Cynics might say, ‘What should one expect from ExxonMobil’? But if so, they would not have been listening to Tillerson since he became CEO six years ago, a period in which he has been much more measured: In flat, evenly delivered and nuanced language, the 60-year-old native Texan has softened Exxon’s sharpest and most-criticized edges, most conspicuously repudiating its funding of a clutch of scholars whose tracts — challenging conventional climate science — have been seized upon by global warming critics as evidence of a hoax. So was his speech Wednesday before the Council on Foreign Relations in New York simply a bad hair day? Or are we essentially watching a reversion to the days of Exxon’s abrasive former CEO, Lee Raymond? Here, watch the video yourself:
The last time we witnessed such a philosophical lurch by Exxon was in January 2009, when Barack Obama was about to take the oath of office, and the sense of Washington politics was the inevitability of a federal cap on carbon emissions. Explaining explicitly that he sensed this political shift, Tillerson appeared at the Wilson Center in Washington, and announced that Exxon now accepted climate science. As an ameliorative, Tillerson proposed that emissions of heat-trapping gases be discouraged through the use of a carbon tax. It was after this speech that Exxon stopped funding hoax die-hards.
Exxon did not respond to two emails seeking to plumb its latest thinking. But with this week’s talk, which I describe at EnergyWire, Tillerson seems to comes full circle. Look for the company to pour its lobbying might into campaigns that twin climate adaptation with head-long development of American oil and gas resources.
Go to the Jump for the rest of Rex Tillerson, and more of the Wrap.
With the following language, I sense that Tillerson is signaling a pivot back to the Raymond era:
I think there are much more pressing priorities [than global warming] that we as a human being race and society need to deal with. There are still hundreds of millions, billions of people living in abject poverty around the world. They need electricity. They need electricity they can count on, that they can afford. They need fuel to cook their food on that’s not animal dung. There are more people’s health being dramatically affected because they could — they don’t even have access to fossil fuels to burn. They’d love to burn fossil fuels because their quality of life would rise immeasurably, and their quality of health and the health of their children and their future would rise immeasurably.
Global warming is happening, Tillerson suggests, but it is a Darwinian problem. The reverberations, he says
do require us to begin to exert — or spend more policy effort on adaptation: What do you want to do if we think the future has a sea level rising 4 inches, 6 inches? Where are the impacted areas, and what do you want to do to adapt to that? And as human beings, as a species, that’s why we’re all still here. We have spent our entire existence adapting, OK? So we will adapt to this. Changes to weather patterns that move crop production areas around — we’ll adapt to that. It’s an engineering problem, and it has engineering solutions. And so I don’t — the fear factor that people want to throw out there to say, ‘We just have to stop this,’ I do not accept.
As a coda, Tillerson seemed much more relaxed in this pivot than with the last in 2009.
An end to the geopolitics of oil prices? When it comes to oil prices, what do you get when you add a torrential hurricane, war in the Middle East and impending sanctions on a major petroleum producer? The answer is that it depends whether you are talking about the years 2005 to 2011, or now. If it’s the former, you get prices through the roof. As for now — pass the olives.
We are speaking of this week’s combination of Tropical Storm Debby, which walloped Florida with two feet of rain, and led half the oil installations in the Gulf of Mexico to shut down protectively; Syria’s shooting down of a Turkish jet; and yesterday’s triggering of U.S. financial sanctions against Iran. Until just a year ago, such a one-two-three punch would have been received by oil traders as a signal to bid oil prices well over $100 a barrel (for the cantankerously stubborn among us who still refuse to believe that oil traders move the market, read this at Bloomberg). This time, prices stayed right at about $90 a barrel, their lowest since December 2010.
What gives? In terms of the Iran sanctions, one reason the loss of some 600,000 barrels a day to the market has not bitten is that Saudi Arabia has worked overtime pumping record volumes of oil, and filling up storage tanks around the world. A second reason is that, with a decision yesterday in China’s favor, the U.S. has granted sanction waivers to all 20 of Iran’s major oil importers.
But what else is going on? I asked four analysts. Here are their replies.
Guy Caruso, Center for Strategic and International Studies:
Tensions over Syria and Iran could escalate, but the hurricane had little effect on supply, and the financial market seems to perceive a higher risk in the Euro crisis and its possible impact on GDP and energy use. Ultimately, I think the answer is in abundant supply. The Saudis put a lot of oil on the market from January through June. They are getting lower [orders] from their [buyers] for July and August delivery. Iran has a significant amount of oil in floating storage (40 million barrels in supertankers on the sea) looking for a home. And U.S. oil production is higher than expected.
Ed Morse, Citigroup:
It starts with the surplus and complacency. But it includes more telling concerns over Euro macro risk (and with it dollar appreciation and commodity price headwinds), and persistent losses incurred by [oil futures buyers] taking a bull position.
Roger Diwan, PFC Energy:
So far, the [sanctions] strategy of the EU and the U.S. is working even better than the most optimistic predictions: the Iranians are in a tight cage — volumes and prices are down. They are shutting production, losing capacity probably, and without a clear way to end this standoff.
Phil Flynn, Price Futures Group:
I think it shows the value of fracking. While Debby was not a monster, that cushion of a 22-year-high crude supply sure gave the market comfort. Look at how the U.S. dependence on Persian Gulf oil production has fallen.
The conundrum of natural gas excess: If you own a surplus of some product, what’s the best course of action? Sock it away for a rainy day, or cash it in? Such is the conundrum facing the winner of November’s presidential election, namely whether it is time for the U.S. to become a natural gas exporter, or wiser to husband its cheap, new-found gas resources for the sole use of the United States.
At home, U.S. demand for gas seems easy to meet for years to come. Yet the issue is more complicated because industrial users say that the cheap gas is precisely why the United States is poised for a new manufacturing revival. They therefore oppose exports that might trigger domestic gas prices to surge, and curtail the American manufacturing advantage. The same goes for populist politics — no politician wants to be accused of causing a rise in consumer heating costs. Yet, U.S. producers, hurting with low gas prices, are pushing the opposite way — unless exports are permitted, they say, they will be forced to halt at least some production. The law of supply and demand suggests that the result would be higher prices anyway.
In terms of the coming elections, we have little idea how Mitt Romney would decide on exports should he win. But we do have insight into the thinking of the Obama Administration should the President again come out on top. We are told that, should there be more certainty in conventional projections of a sharp long-term gas production increase, White House officials favor approving a total of seven major liquefied natural gas export terminals (one has already been okayed). That could mean annual LNG exports of some 60 billion cubic meters of gas.
If such exports proceed, what are some potential geopolitical reverberations? Even though U.S. gas has not left American shores as yet, it has already triggered a chain reaction and undermined Russia’s gas-led influence in Europe: The unexpected U.S. gas bounty first shut out fuel destined for the U.S., mainly from Qatar, which as a result was diverted to Europe, where it has undercut Russian gas prices. When U.S. LNG actually reaches foreign shores, there clearly will be more of a shakeup. One probable outcome is a global reduction in the expected growth of greenhouse gas emissions. That is because the LNG will undercut the economics of coal in places like China and Europe, and make cleaner-burning gas-fired electric turbines much more affordable. The LNG will hurt the economies of gas-exporting countries such as Australia and Qatar, in addition of course to further damaging Russia. To the degree that natural gas infrastructure is widely installed in countries like Germany and Japan, the LNG will also undermine the oil industry, and petroleum-exporting countries, such as members of OPEC.
Go to Part II of the Wrap, and a look at shale gas and the Chinese political transition.
More from Foreign Policy
What’s the Harm in Talking to Russia? A Lot, Actually.
Diplomacy is neither intrinsically moral nor always strategically wise.
Ukraine Has a Secret Resistance Operating Behind Russian Lines
Modern-day Ukrainian partisans are quietly working to undermine the occupation.
The Franco-German Motor Is on Fire
The war in Ukraine has turned Europe’s most powerful countries against each other like hardly ever before.
How the U.S.-Chinese Technology War Is Changing the World
Washington’s crackdown on technology access is creating a new kind of global conflict.