The story of oil

In 1998, with the international oil business in the midst of one of its recurrent doldrums — prices had slumped to $10 a barrel, a 50-year low — executives at the company then still known as British Petroleum braced for a test supremely laden with significance for the company, and, as it would turn out, for the industry, too.

It was a $100 million gamble — for that was the cost of a test bore in Block 778, under 7,625 feet of water in the Gulf of Mexico. The potential payoff was a staggering $50 billion over the next 10 years.

For months beforehand, ships dragging seismic equipment had crisscrossed the waters of the gulf, firing bursts of sound into the seabed. And it was the harvesting of that echo data, recorded millisecond by millisecond, that had led the engineers to their precise quarry, a 12-inch hole they would drill through 4 miles of rock.

By reputation, this was the most complex geological area on the planet for oil prospectors. One of them likened recording sound through the thick salt formations that lay under the seabed to "photographing through frosted glass." And yet the prospectors working out of BP's Houston campus were not daunted: The oil business had been furiously reinventing itself to meet such challenges.

Looking for oil was no longer a game for old-timers. The seismic data that was once stored on miles of magnetic tape could now fit on an iPod, and the majors competed ferociously for the most talented young mathematicians and geophysicists.

On July 4, 1998, the company's drill sensors reported oil. David Rainey, BP's head of exploration, exclaimed: "Our sandbox has just got bigger." But the immense size of his triumph would soon become clear: a billion barrels of oil — enough to boost the revived company into competition with Exxon and Shell, and set off a scramble toward ever more risky deepwater gambles that the majors have pursued around the Atlantic rim ever since.

By 2004, BP had commissioned the construction of the world's largest oil platform, a 59,500-ton behemoth called the "Thunder Horse" — which they towed from South Korea to the warm gulf waters off Louisiana — to tap an invisible gusher of crude. There, it would shunt the well's output into a network of 25,000 miles of pipeline that traverse the ocean floor from Texas to Florida to fuel America's cars and heat its homes.

This tale of technological triumph, breathlessly recounted in Tom Bower's new book The Squeeze: Oil, Money and Greed in the 21st Century, still retains an elegiac quality. Indeed, if not exactly an epitaph, the deepwater adventures of companies like BP and its traditional competitors, which Bower chronicles in great detail, hang in one's thoughts like a chronicle of a death foretold.

Ingenuity is one way to describe the search for crude in deeper and deeper waters; another, equally apt, might be desperation. Once all-mighty, the large Western oil companies now control well under 10 percent of the world's known crude.

"Big oil never wanted to be here," read the telling first line of a recent Wall Street Journal feature about the successful efforts of Chevron in very deep waters not far from BP's big find.

"Chevron came here, an hourlong helicopter ride south of New Orleans, because so many of the places it would rather be — big, easily tapped oilfields close to shore — have become off-limits. Western oil companies have been kicked out of much of the Middle East in recent decades, had assets seized in Venezuela and seen much of the United States roped off because of environmental regulations," the article read. "Their access in Iran is limited by sanctions, in Russia by curbs on foreign investment, in Iraq by violence."

We associate few products with the swings and cycles that we all but take for granted with oil. The rise and fall of prices, and the expansion and contraction of the economies that drive them, consume our quotidian attentions. But such vicissitudes are not the half of oil's cyclical saga, and in many ways they are the least interesting part of the tale.

To really grapple with the history of this industry is to plunge into the rich essence of the story of mankind's last century, give or take a few years. All of the elements are there, from the final sprint of what, only recently, one might have imagined to be the semi-permanent ascendancy of the West to the resurrection of China and the rise of a host of other new or rehabilitated powers.

In this time, we have gone from widely accepted notions of progress as an irreversible march of material wealth and abundance to an increasingly common acceptance that the heedless consumption that underpins our notions of satisfaction and self-worth has become a mortal environmental menace.

By the same token, that confidence in inexhaustible material abundance has faded, first into an only slightly less quaint belief that science can force the horizons of scarcity into perpetual retreat, and more recently to a gathering acknowledgement of all sorts of limits.

Haunting every one of these plot lines is a specter that suffuses The Squeeze and two other new books, by the journalists Peter Maass and Michael Peel, about all manner of ravages and excesses committed in the quest for petroleum. It is the still vague and yet certain ghost of "peak oil."

Western historians have long fixated on the great ideological struggles, hot and cold, of the last century. For many, this competition, and the putative triumph of democracy, is the greatest story of our times.

But the century-long arc of oil's rise and eventual decline reveals a story whose significance is even greater than the political dispute that defined the Cold War. It is a story in which the West played a starring role, but to whose importance it has remained largely blind: the end of colonial subjugation, and the rise of "the rest."

Western hegemony during the colonial era, which began in the 17th century and ended in the wake of the Second World War, created "one of the great asymmetries of world history," as the historian Niall Ferguson has written.

That asymmetry, as the journalist and analyst Martin Jacques notes in his new book, When China Rules the World, was no accident, for Europe "forcibly sought to prevent — by a combination of economic and military means — Asia from taking the same route." Decolonization, Jacques writes, was "arguably … the most important event of the 20th century, creating the conditions for the majority of the world's population to become the dominant players of the 21st century."

This is best illustrated, no doubt, by the example of China, which with 20 percent of the world's population may serve as a surrogate or indicator, if a leading-edge one, for the nonwhite populations of the planet as a whole.

China, as everyone knows, is on the march economically, followed by India's billion-plus, and by people elsewhere in Asia, in Latin America and — although less widely acknowledged — in Africa, too, and the surge of production, consumption and new wealth among these recently enfranchised populations will condition what's left of oil's long, wild ride down to the last drop.

Growth like this is projected to drive a 1 percent annual rise in oil demand, according to the International Energy Agency, whose forecasts have been criticized in many quarters for being too conservative. Power generating capacity during this time-span will rise by 4,800 gigawatts, or five times the United States' present output.

Virtually all of this growth will come from non-high-income countries, the IEA claims, and 28 percent of it from China alone — where oil consumption is expected to nearly double, to 15 million barrels a day, by 2030. The IEA's 2009 World Energy Outlook warns that current investments fall far short of what will be needed to meet future demand; it is the prospect of this looming shortfall that has stoked fears that the "end of oil" may come sooner than previously expected.

Peak oil, again and again

The concept of "peak oil" dates back at least to 1956, and to the work of M. King Hubbert, a Shell geologist who predicted that American oil production would reach its apex in 1970 and decline irreversibly thereafter. Hubbert and his followers, in fact, have erroneously predicted numerous such peaks, and their forecasts have been steadily revised further into the future thanks to the discovery of important new sources of oil — beginning in Alaska — and their own chronic inability to foresee the advancing yield of new technologies.

As a concept, peak oil wouldn't die, though, and that is because its most basic premise is intuitively obvious: There's only so much oil in the world, and if we keep using it, it will eventually run out.

The devil, it might be said, is in the details, and Bower's book, as well as Peter Maass' Crude World: The Violent Twilight of Oil, show the lengths to which oil-producing countries, particularly the leading producers in the Middle East, go to preserve the secrecy surrounding their underground reserves. The fuzziness of this picture is further blurred by the parallel efforts of the major oil companies to inflate estimates of the reserves under their control.

Undaunted, Colin Campbell, a former geologist for many of the big oil companies who has become a leading peak oil alarmist, has arrived at the following calculations.

Citing manifold studies, he figures that before mankind began consuming the resource, total global reserves amounted to 1,930 billion barrels. "Considering the world had so far consumed 944 billion barrels … that meant that the world had used 49 per cent of its oil, and was about to hit the peak. If OPEC countries' suspicious figures were discounted, then the peak had already been passed."

Discussions like this have an inevitable way of circling back to Saudi Arabia, and in particular to its Ghawar field, the largest in the world, which has produced 60 billion barrels so far all by itself, and this is where Maass takes up the peak oil debate.

Skepticism about Ghawar's ability to maintain its astounding output has risen in recent years, driven by doubts about the technical management of the field, and especially the use of increasing amounts of water to force oil out of the ground. Matthew Simmons, a businessman and investor who has become a leading peakist, claims that it may not be long before "the remarkably high well flow rates at Ghawar's northern end will fade, as reservoir pressures finally plummet. The death of this great king leaves no field of vaguely comparable stature in the line of succession. Twilight at Ghawar is fast approaching."

Daniel Yergin, president of the industry consultancy Cambridge Energy Research Associates — whom Maass calls the "closest thing the oil world has to a guru" — dismisses the warnings of Simmons and his peers. "This is not the first time that the world has 'run out of oil,' " Yergin tells Maass. "It's more like the fifth. Cycles of shortage and surplus characterise the entire history of the oil industry."

In some of the book's best reporting, Maass goes beyond Yergin, and lands firmly in the worriers' camp. This happens when we meet Sadad al Husseini, Aramco's former top executive for exploration and production. We are told that Husseini, who holds a doctorate in geological sciences from Brown University, and keeps a dozen or so vials of oil in an armoire in his Dhahran office — samples from oilfields that he discovered himself — knows more about the Saudi fields than any other individual.

In 2004, the IEA forecast that by 2025 Saudi Arabia would produce 22.5 million barrels of oil a day, up dramatically from the 9 million or so it produces now. (A year later, under fire for being overly optimistic, the agency revised the figure downward.) Maass quotes the Saudi oil minister, Ali al Naimi, as saying that "we can maintain 12.5 or 15 million for the next 30 to 50 years" — still far short of the IEA projection.

Husseini sees the situation differently: During periods of economic expansion, global oil demand increases by as much as a few percentage points each year; yet the large, old fields are simultaneously declining by a small percentage annually. For supply to keep pace with rising demand, Husseini concludes, would require finding "a whole new Saudi Arabia every couple of years."

With a fifth of the world's known reserves — more than twice as much as the runner-up, Iran — Saudi Arabia has always clung jealously to its position as the world's "central bank of oil." But when Maass asks Husseini whether the country can pump the 20 million barrels a day that would be required to answer the world's future needs, his response is a flat no.

"The expectations are beyond what is achievable," Husseini says. "This is a global problem … that is not going to be solved by tinkering with the Saudi industry."

For some, price and the tally of recoverable reserves are different ways of expressing the same crucial variable. If the price rises high enough, keepers of this faith insist, new supplies will surely materialize. Costly technology has already worked prodigious wonders along these very lines — not just in ever-deeper waters, but through exorbitant marvels like horizontal drilling and three-dimensional seismic imaging, or through the recovery of petroleum from sludge in places like Venezuela's Orinoco River, or production from tar sands in Canada.

But for all of this, few would say that man's inventiveness is a sure bet for petroleum's future, especially if as Husseini says, this requires finding multiple new Saudis, never mind every couple of years. What is far more likely is that, at some point, rising prices will depress consumption — and that this, rather than the "end of oil," will push people toward alternative energy sources, lowering their costs and radically altering the dynamics of the global economy.

Petroleum's price

The spot market price per barrel is not, of course, the only way to reckon petroleum's cost, and it is on this theme that the work of Maass — and of the Financial Times correspondent Michael Peel, in A Swamp Full of Dollars: Pipelines and Paramilitaries at Nigeria's Oil Frontier — assumes much of its allure.

Frightened by the prospect of global warming and its consequences, the major consuming nations have suddenly awakened to the big picture environmental costs of their petroleum-centric lives and of oil itself. Only rarely, though, do they pause to seriously consider the steep localized costs inflicted upon the producing countries.

The 1989 Exxon Valdez spill in Alaska, which figures in the books by Bower and Maass, captured Western imaginations and arguably forever changed the public image of the major oil companies, largely because the accident occurred in American waters.

Comparable horrors have been regularly visited on entire countries in the oil-producing periphery, though, scarcely provoking a raised eyebrow in the West — and certainly not calling into question its oil-dependent economies.

Maass' illustration of this sordid underside of the oil business takes us to Ecuador, where a 300-mile long pipeline was built across the country in the 1970s, followed by a second, similar network in 2003. The country produces 500,000 barrels a day, with most of it going to California, leading the writer to invoke the grim irony that one of America's most environmentally conscious states depends on one of the biggest catastrophes wrought by big oil in the Western hemisphere for its crude.

Maass writes that Texaco spilled 18 billion gallons of wastewater, as well as 16 million gallons of oil — far more than what the Exxon Valdez supertanker spilled into Prince William Sound — into unlined waste pits, or directly into the Amazon River system.

Today, wherever one finds pipelines in Ecuador, one finds deforestation and soil laden with dripping crude. Steve Donziger, a crusading environmental lawyer who is suing Chevron (which absorbed Texaco in 2001) calls it "the oil world's Chernobyl."

There is something even more striking, though, than this kind of wanton despoiling of nature. It is the fact stated on the very first page of Crude World: "One of the ironies of oil-rich countries is that most are not rich." Furthermore, as the former World Bank economist Paul Collier has found — in a study of 160 countries that Maass cites — "dependence on primary commodities substantially increases the risk of conflict, unless the primary commodity is extremely plentiful, such as is the case of oil in Saudi Arabia."

Maass points to quotes from pioneers of the petroleum business that reinforce an intuitive suspicion that this is how things were intended to be all along. "The meek shall inherit the Earth, but not the mineral rights," says J. Paul Getty.

Aphorisms on injustice like these seem cut to measure for Nigeria. For Michael Peel, the country is the perfect metaphor for the rich world's predatory pursuit of petroleum. He describes Nigeria, whose population is the largest in Africa, and which produced about as much oil in the last decade as places like Kuwait, Iran and Venezuela, as a "Greek tragedy," and "a little laboratory for the arrogance of a fossil-fuel-obsessed world."

The Nigerias of the world, and they are many, prove something else, though. The great turning points of the last century — the end of colonial rule, and the end of the Cold War — delivered into this world scores of new countries, with many of them now even ruled as nominal democracies. Their seemingly permanent elites, whether drawn from castes, or ethnic groups, or the military have been freed to pursue the wealth which comes with running their own shows, and pursue it they have.

Oil and other natural resources have been nationalized, diminishing or altogether squeezing out the once-towering Western companies that long ran the show, while the new bosses build patronage machines of their own and skim off massive profits, all too often for placement in numbered accounts abroad. The democratization of wealth and development, as opposed to the fiction of the ballot box, must await another day.

A Swamp Full of Dollars benefits from its tight focus on one country, whereas the other titles occasionally suffer from sprawl. Peel, who covered Nigeria for the FT from 2002 to 2005, makes a clean break from the two-dimensional coverage of Africa that is so commonplace. What is more, the cast of villains who are willing to thoroughly despoil Nigeria, pumping it dry of oil and leaving its more than 150 million citizens with no future, is not stacked simplistically with fall guys, whether whites or Africans. Blame this thick can be spread plenty wide.

Bower introduces the idea — interestingly — that developing Nigeria's oil was one of the West's first big plays to diversify and weaken OPEC, but Peel digs much further into the murky history. In 1851, the British attacked Lagos under the pretext of an antislavery drive. Within 10 years, they had established a colony, and immediately set about dislodging local palm-oil traders in order to establish Britain's own commercial monopoly.

"Palm oil flowed to Britain and elsewhere in Europe, where it was used in making soap, candles and the explosive nitroglycerine. Most importantly of all, it served as a lubricant to stop the machines that were driving Europe's industrial prosperity from wearing out."

Peel takes us to the birthplace of big oil in Nigeria, Oloibiri, in the Niger Delta, where Royal Dutch Shell signed contracts with local chiefs in 1956, and finds it much as I did 20 years ago. "Oloibiri should have been like Texas, or Johannesburg after the discovery of gold," he paraphrases a local chief as saying. "Instead, big oil had taken what it wanted and in return polluted rivers, devastated land and offered little compensation."

"They don't only steal from us," the chief says. "They are also out to kill us." The theft alone has been audacious enough. According to Bower, under the terms of the original deal, Shell paid the government $2 a barrel, regardless of the world price, until it reached $100. At that point, the royalty increased to $2.50.

Nigeria's revenue boom would come during the 1960s, the country's volatile first decade of independence, when a British official described the country as the "locus classicus" in West Africa for "corruption and for the system of kleptocracy." Meanwhile, other British officials were exchanging memos about the need to learn from the French, whose skills at "confidence, bribery and uncompromising policies" were giving them advantages.

At the time, London lusted after a cut of the $154.8 billion that Nigeria announced it planned to spend in a new five-year plan. Officials spoke of the need to take a "less scrupulous line" in Africa, while a memo circulated at the British High Commission in Lagosgos stated flatly: "We need to grab our share."

As corruption-greased contracts were let, the scale of waste, theft and money laundering in eagerly solicitous Western banks, as detailed here, was extraordinary. This was the beginning of a cycle of powerful booms and busts in Nigeria, all directly tied to the oil economy; a cycle with a pronounced tendency to enrich a corrupt few at the expense of the impoverished many.

This pattern has been repeated in country after country in the so-called Third World, its causes as clear as its effects, and yet the West generally denies any complicity, even as it banks the profits.

By the time one has finished reading the sordid details of the rule of Sani Abacha, Nigeria's last military dictator — whose sons adopted the names Keyser and Söze in one of many schemes that barely bothered to conceal their theft of colossal sums, ostensibly in league with their father — one feels entitled to a little outrage.

Abacha died in power in 1998 — according to one widespread account, in the company of several Chinese prostitutes. What is undisputed is that he was unmolested by any serious sanctions as he ran his country into the ground, murdered opponents and stole an estimated $5 billion.

It is hard not to ask, then, what separates a tyrant like Abacha from more demonized dictators like Robert Mugabe?

Oil, of course, and we need it.

Howard W. French is a longtime former correspondent for the New York Times. Between 1990 and 2008, he served as bureau chief for Central America and the Caribbean, for West and Central Africa, and in Tokyo and Shanghai. He is the author of A Continent for the Taking: The Tragedy and Hope of Africa, and teaches at the Columbia University Graduate School of Journalism. This article was originally published in the Review section of The National, Abu Dhabi.

The story of oil 02/12/10 [Last modified: Friday, February 12, 2010 5:27pm]

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