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Wall Street Journal

 

Notes From Underground

July 02, 2010

By Mark P. Mills

Oil matters everywhere, and there is no alternative in sight..

On June 13, 2010—merely Day 55 in the nightmare of the Deep Horizon explosion in the Gulf of Mexico—a fleet of naked bicyclists rode the streets of Manhattan to protest oil and BP, the company whose reputation is now so badly stained by a well that will not stop gushing. YouTube immortalized this high-minded protest, showing us protesters riding along proudly and chanting "more ass, less gas." Oil brings out the worst in a lot of people, as Tom Bower makes abundantly clear in "Oil: Money, Politics, and Power in the 21st Century."

Mr. Bower offers a portrait of the industry and its recent history, describing its major players, fluctuating prices and labyrinthine ways. He himself shows a refreshing resistance to the temptation to wag a finger at the supposed excesses of Western consumer economies, always in need of energy. You will find no arm-flapping here about climate change, peak oil or the urgent need for green technology. Indeed, Mr. Bower grants the logic of oil’s popularity. It is abundant and efficient and powers a great deal of necessary activity. It is impossible to imagine early 21st-century life without oil, and we shouldn’t even try, Mr. Bower implies, though he grants that breakthroughs in technology can change everything overnight.

But at the moment: The world spends $4 million on oil every minute of every day, every day of every year, amounting to $2 trillion bought and moved annually. The briefest thought will reveal the difficulty of significantly reducing such a large business with "alternatives." Consider the scale in physical terms. The world produces nearly 1,000 barrels of oil every second. If those barrels were physically stacked up, the pile would grow taller at 2,000 miles per hour. The financial scale explains why, as Mr. Bower notes, 80% of the world’s oil resources are nationalized and controlled by governments, not private businesses.

Thus among the outsize personalities in Mr. Bower’s chronicle are not only industrialists—prominently Lord Browne, the head of BP from 1995 to 2007—but also Mikhail Gorbachev, Jimmy Carter, Margaret Thatcher and both Bush presidents, father and son. The story ranges widely in geographical terms, too, from the Gulf of Mexico to the North Sea, from Nigeria to Siberia and Kazakhstan. In the case of oil, Mr. Bower observes, it is not technology or environmentalism that dominates the commodity market but geopolitical power.

Mr. Bower spends a disproportionate amount of time on the Russian front, and for good reason. Oil is the vital source of Russia’s foreign currency and for Western politicians serves as a tantalizing offset to OPEC’s dominance. Russia’s oil reserves are mostly found in deep deposits in challenging terrain, where Western technological expertise is needed. Mr. Bower follows Western executives as they seek to make deals with Russia’s oil companies, offering both technology and expertise.

But deal after deal with Russia collapses, sometimes slowly, sometimes dramatically—with, say, the shock-troop arrest of oil oligarchs. Mr. Bower believes that Western oil executives do not understand the geopolitics of Russian oil, let alone Russian culture. "Few realized," he writes, referring to the late 1990s, "that a big NOT FOR SALE sign was being erected across the country." While industry leaders and Western politicians took meetings and signed deals with Russian potentates, they missed key facts, including the details of Vladimir Putin’s doctoral thesis, where (Mr. Bower tells us) Mr. Putin "developed an argument that Russia’s prosperity and restoration as a superpower should be built by reasserting sovereignty over its natural resources."

But the most interesting figure in Mr. Bower’s narrative is not Mr. Putin but BP’s Lord Browne, who understood cultural politics better than his peers. In the 1990s, BP launched what was arguably the oil industry’s most successful public-relations campaign, for all the good it is doing the company now. The campaign transformed BP into a shining example of a progressive company—one supposedly "Beyond Petroleum."

It is clear from Mr. Bower’s account that, while BP remained first and foremost an oil company, Lord Browne drank his own Kool-Aid, basking in encomia from the media and green mavens. He gave lectures at Stanford, appeared on "Charlie Rose," cozied up to Greenpeace and promised to spend $1 billion on solar technology.

The Beyond Petroleum campaign, conceived by PR masters Ogilvy & Mather, was originally intended as an internal strategy, aimed at making the company appear more green-sensitive. But it so excited Lord Browne that he delivered a May 1997 speech proclaiming BP the first "green" oil major. The company produced a 200-page "Reputation Manual" with facts about BP’s greenness, formed a political-style "war room" in Houston, and launched a multiyear media blitz. Mr. Bower claims that the rebranding cost BP $200 million.

The cost is now measurable in irony, as the Gulf of Mexico grows ever more slick and BP ever more hated. But the campaign was hokum from the start. At this point in history it is almost impossible to find a place "beyond" petroleum. It’s not just the scale of the task but its nature. Energy-dense liquids are valuable, and oil is uniquely valuable in its combination of density, ease of storage and transport, and, believe it or not, safety. Every alternative is worse on all metrics, including cost, even at twice today’s oil price. If liquid hydrocarbons didn’t exist, we would have to invent them.

Never mind green: We stand now on the precipice of an unprecedented rise in oil demand emerging from Asia’s economies. Mr. Bower points to the irony, and portent, of a 620-mile oil pipeline from Kazakhstan to northeast China, considering that for "200 years the Kazakhs had sought alliances with Russia as a defense against the Chinese." Geopolitics again.

Original Source: http://online.wsj.com/article/SB10001424052748703964104575334792656690052.html?KEYWORDS=mark+p+mills

 

 
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