Defending Big Bad Oil

Something has been snapping inside of me. Perhaps this state of mind has been coming a year or two. Perhaps it took Canada to purge me of dirty idealism. I think I am getting cured silently but not gently.
One of my idealistic state of mind opinions was being opinionated about Platonic dilemmas such as the ideal "State of a State" and "Ideals of Ideal Corporations". Too bad, too sad it took me so many decades of life to understand the implicit reality of the state of States and Corporations and those that run them or inhabit them, including myself.

"It's the money stupid!"


No wonder - Now (ofcourse its never too late !)I can catch the pulse behind the whining.

As an energy journalist, I have raised many questions about big oil. I think I have reported the truth, based on interviews, research and visits to many oil producing countries. Today, I have added more perspective on my understanding of oil. I feel I have matured as an energy journalist.
I have been objective in my print and television reporting even as in my mind many competing questions have jostled for attention. Why did the oil companies behave the way they did, say in a country like Nigeria?. Why are many oil producing countries still struggling with poverty?
Initially my mind comprehended it all as part of the very nature of these big giant oil companies. Big bad oil!
When I shifted base from the Middle East to Canada I never thought I will have anything to do with energy. As destiny would have it, I got embroiled in the most controversial aspect of energy – environment and energy production.
I fought hard like many others,in making people understand, that environmental inputs need to be given a financial value as these are common resources. I fought hard to talk about a balance between environment and the economy. But the questions kept nagging me. Why do these companies not pay for the environmental resources they use?.
Perhaps the answer lies in concentrating harder on the other side of the coin.
What about governments? After all governments are the negotiators. Oil companies are doing what their mandate is – getting the best terms for their shareholders and squeezing governments for concessions. Are governments honing their negotiation skills?
An important lesson to learn is from neighbouring Alaska where oil tax at Prudhoe Bay is 25 per cent of the net profit of a barrel of oil when prices are at or below $52 and escalates as oil prices go up.
It’s not the oil industries problem if governments do not protect the rights of their people. The Ogoni tribe in Nigeria being one such example. That does not absolve these companies but it’s looking at both sides of an equation. If governments are not responsible for running countries and States to the best advantage of their people, why should corporations take all the blame?
After all it’s not as if they are forcing governments at gun point to give them concessions and put up with anything they do. Governments could have shown equal smartness and savvy in their maths and economics. My being purged of idealism as also understanding that there are more pieces to the puzzle, does not mean that in my mind I have absolved oil companies of all responsibility (not that my thinking matters to them. I’m not so naive). I am only involving the other players who get away - most of the time -scot free from all the criticism. People like me and you and the policy makers.
Yes, me and you dear reader. Some of you, I’m sure are policy makers and understand what I’m saying. We are culprits as well. I know many of you are going to dislike me- (Ill remind you, I have many enemies already - so be kind in judging me), for saying so.
They say that people deserve the government they get – obviously they choose it. I am beginning to understand that people also get the kind of economy they deserve. After all economies are shaped as much by government economic and foreign policy as they are by big business.
Let’s look at bad oil. They have merely taken advantage of a trend which no government – no NGO no think tank has had the power to change- namely the insatiable hunger for oil in this part of the world.
But for the exponential oil demand, that was in part fuelled by the automobile sector and its thrust to change buying patterns to create demand (easy bank credit, instalment payments etc. ironically pioneered by one of the giant US automobile manufacturers), these companies may have had a different history. The symbiotic relationship of these two sectors of our economy cannot be downplayed.
Consider that according to EIA statistics OECD accounts for almost two thirds of the worldwide daily consumption of oil. Within the OECD, U.S and Canada stand out at 3 gallons per day per capita consumption compared to 1.4 gallons for the rest of the OECD countries. For the non OECD countries the figure stands at an incredible low of 0.2. So if the world consumes around 76 million barrels of oil a day, U.S consumes 20 million barrels a day.
The story does not end here. In the United States in contrast to other regions of the world, about two thirds of oil is used for transportation. From around 2 billion barrels of oil per year in the 1980’s, United States oil consumption has increased to 8 billion barrels per year in 2008. Over half of this is imported.
Though transportation fuel accounts for much lesser consumption in Canada, the country’s total energy consumption of 9,540 petajoules in 2005 stood 25 per cent over 1999 levels. Emission growth at 25 per cent over and above 1999 levels matched the energy consumption.
Compare this to what was happening in the automobile industry. The sale of SUVs and big pick up trucks was in full swing in America, fanning the demand for more gasoline. In the 1990’s thanks to cheap Middle East oil the automobile sector thrived. As late as 2007, 16.09 million units were sold by automobile companies. Up until early 2000’s oil was just about $15 until it saw its 2007 six times increase.
My point is that till these companies had stakes in the Middle East, where cost of extraction is a pittance, the automobile industry thrived as consumers could fill up cheap. The oil companies did exactly what the consumers demanded. Spoilt consumers! Besides the automobile industry was the backbone of the economy. Pampered! So pampered that they did not brace up for two major risks that any auto company should- cheaper competition, higher commodity prices. Till foreign markets were not proliferated by the Japanese and Chinese and the Indian car makers, everything was okay.
No one thanked the oil companies then for making it so convenient for the automobile industry to flourish. No one questioned the massive growing imports. After all the automobile industry was thriving at the back of cheap oil. No one asked the oil companies to stop expanding into Middle East and other markets. In fact government foreign policy played an equally powerful role in the expansion of the oil companies, outside of the United States.
The staggering production-consumption deficit has added a major burden on US trade deficits. As oil prices increase the US deficit increases. Oil majors in their own way helped keep the deficit down. Now they have been thrown out by the nationalised oil companies of foreign countries where oil was cheap. Alberta is open but oil is expensive to extract here. Strangely enough, high oil prices helped Alberta to make oil extraction economical for oil companies used to a dollar per barrel oil extraction costs. What is forgotten is that because of these companies American consumers could get cheap oil from the Middle East. An additional advantage was the growth of the car industry in the Middle East.
Now these oil producing countries are going it alone and our majors here do not have much production assets –not much in cheap production areas atleast. Oil has shot up and cheaper car companies are ruling the roost.
It is ironic that expensive oil – of course coupled with cheap cars from Japan, Korea, China, India are tolling the death knell of the American automobile industry.
Expensive oil still has demand but cars that consume too much expensive oil are silently being hastened to their graveyards. Those who did not see it coming were just the automobile sector and the governments of the States where car production once thrived.
I have not even touched the other aspect – The return on equity and the wealth created for shareholders by these companies. Even as oil and gas output was declining in 2005 due to declines in production, return on equity for most of the seven major integrated oil companies was nearly four times. So while Exxon Mobil in 2005 had a 9.7 million dollar return on oil sales, return on equity was 32.5 million dollars. Occidental was an exception. Return on sales was 34.7 and return on equity was 35.1 million dollars. Return on sales despite diminishing production meant higher oil prices were making it possible.

With the drying up of oil revenues in Alberta, people – silent till now and enjoying the fruits of excessive government spending thanks to the oil revenue, have started whining. Everything seems wrong with the oil companies. So why were they silent till now? I still remember distinctly my first job as a senior producer in one of Edmonton’s upstart internet television companies. It lasted short, but the one lesson it taught me- people here loved their oil companies. Oil prices were touching the roof and so was Alberta economy. Journalists at least two years back and at least in that company were unwilling to look at issues like environment. You were a pariah if you spoke of environment. VOW!!!! Those very journalists cringing !! Oh may be they are missing the spoils and till energy prices are way up and they get the darn excessive spending spinning again- they are going to talk.
But now I have changed and I want to say that its not the Big bad oil that they need to bitch about but the fact that because of big bad oil they lived in an era of cheap oil and could buy a plethora of cars and SUV’s – damned be the rest of the world. Big bad oil sweated it out in these Middle Eastern countries and gave them cheap sustained oil for their big SUVs.
Well, why (and this is four fingers pointing at me) why do we always blame these oil companies. Yes, they are what they are polluting sometimes ruthless but these very companies have also provided much else --!!!!!
And so much for our economy being over dependent on oil revenues- have we even started talking of a game plan to encourage other sources of the economy to speed up and take over-big bad oil - albeit slowly?.

.