The oil chief’s new clothes: Behind the grand strategy, energy bosses are just like the rest of us
The brains of oil company bosses appear to work in different ways to the mere mortals that stalk the Palace of Westminster.
These titans of grand strategy, outlining their plans at the World National Oil Companies Congress in central London, look like they have one thing in common: they take the long view. They do not operate on the five-year electoral cycles of ministers and MPs. It takes a whole decade for a new oil or gas field to become operational. Even civil wars or regime change are no obstacles to success.
"I've not seen a regional instability last 20, 30, 40 years anywhere in the world," shrugs Jay Pryor, the vice president in charge of business development at US energy giant Chevron. He's talking, astonishingly, about Iraq. "There may be a problem in the neighbourhood," Pryor concedes, but the oil companies seem to get by with an extraordinary sense of sang-froid. The energy business is managed as a portfolio and, in any given year around the world, the attitude is to expect trouble to rear its ugly head. "We manage these things as a portfolio," Pryor says. "You're probably going to get a phone call from somewhere that something's not quite right."
The scale at which these energy behemoths operate is eye-watering. Every second the equivalent of 130,000 gallons of oil is consumed right now, and that is only going to go up. The numbers are mind-boggling – and there are a lot of seconds left in the 21st century.
Civil wars and revolutions are over in a few years – the blink of the eye at the top level of strategy. Peter Voser, Royal Dutch Shell's chief executive officer, explains there are two scenarios currently being considered by his 'in-house scenario team' analysing the future. In one, the urge towards economic growth trumps climate change until calamity strikes well into the second half of this century, prompting a rapid surge in renewable. In the other the transition is more stable, but countries pay the price with turgid economies.
Oil and gas, Voser is convinced, will prosper in both. The global middle class will be growing in numbers as poverty declines. There will be two billion more people on the planet. Demand for energy is not going to go away. "The growth in renewable will be astronomical," it's predicted. By 2060, it could have doubled. Still, with just 18% of the total energy mix across the world in 2010 being used for electricity generation, there is lots of room left for oil and gas. They are "embedded in the very fabric of a stable society," Statoil's chief executive Helge Lund says.
Such long-term vision far outstretches the thinking even of ministers, who think they are pushing it even to look as far ahead as the 2050 carbon emissions target. Don't let the oil men fool you, though. They operate in a field above and beyond the petty squabbles of nation states. But they have to win contracts and keep governments happy all the same. It is not a game they are winning at right now.
"Trust is like good manners," Lund says. "If you have to tell people you have it, clearly you have not." He believes the answer is more transparency. That is the way to combat a world where economic growth is strictly limited by a never-ending financial crisis, a world where Time magazine names the protester its person of the year. "We need to engage much more," he insists. "We need to be much more transparent in how we're doing things."
Step outside the main conference hall and a more cynical view prevails. Transparency for most oil companies might be about compliance, a much less politically glamorous word. Or it might be about something else altogether. "When you ask these questions about transparency," one oil man tells me frankly, "why don't you just come out and say what you're really talking about?" He means bribes. All the big energy firms have skeletons in their closet on this. Shell is in trouble in Nigeria at the moment with an ongoing, thoroughly awkward, court case. The company's boss isn't bothered by Lund's worries about the current climate. "These are all short-term trends," he says dismissively. "We are in a long-term business."
Yet what current governments decide does matter, at every level. In the North Sea, oil firms conducting seismic surveys employ someone to stand on the bridge and spot any "big fishes" (they're talking about whales and the like). The air cannons, which fire off a bang every few seconds so loud those on board struggle to sleep, are deemed so upsetting to the local wildlife the ships alter course if they have to. It's just one example of how the industry has to take action to mitigate its impact, appeasing the environmentalists in the process. They do so because the governments giving them authority to conduct the offshore drilling tell them to.
Energy companies don't like to admit it, but they are vulnerable to the policy decisions of governments. They feel like there's some sort of mismatch between what's achievable and what's realistic, too. "The key focus for us is really to bring forward affordable energy," Lund says, desperately trying to cling to something meaningful. He and the other oil giants appreciate the need to lower emissions, and the intense pressure consumers place on politicians to ensure energy bills fall rather than rise. They accept that communicating "what is possible" is proving difficult – and are trying to play down the prospects for shale gas in Europe as a result.
Voser himself admits the decisions taken in the next ten years will determine the climate future for the rest of the century. He takes aim at European subsidies for renewable energy and complains about politicians' failure to come up with a firm global carbon target. "We need to be very careful over the short-term, because the long-term effect post the next elections, post the next two elections, is actually quite severe," he warns.
The word which keeps cropping up is "emotion" – something the public, and occasionally politicians, are guilty of. "We need to make sure we have data-driven decisions," Pryor of Chevron says, "that people understand the science, they don't just go on emotion."
For all their blasé talk of grand strategy, the need to win over governments remains critical. Look at the North Sea, where unusually the British government declined to include stability clauses in contracts. Over the last 40 years the government has frequently changed the rules of the game, oil chiefs complain. When that happens investors stay away, resulting in "fallow blocks". It takes the next lot in power to change the rules, after which investors return again. George Osborne's windfall tax on North Sea companies is just the latest example of all this.
Such nitty-gritty tax negotiations are what you'd expect, but there is a sense the oil company is sliding further and further away from the policymakers it needs to keep happy. "I think it is extremely important the triangle between civil society, government and corporate starts to work better," Shell's Voser worries. "Over the last four or five years, that triangle has been completely broken." The hand-wringing continues.
