Private Empire

  • Steve Coll. Private Empire: ExxonMobil and American Power. Penguin Press, 2012.

A few months ago, we published a powerful essay by Gary Sernovitz about the moral dilemma of Steve Jobs—and our complicity, as consumers, in the conditions of production for the gadgets that we enjoy. In the essay, Sernovitz was deeply critical of Jobs for not doing more to improve the lot of workers in the company’s factories in China. Now the shoe is on the other foot. Sernovitz, in addition to his work as a novelist and critic, is also an oil investor, and when Steve Coll’s book on Exxon was published this spring by Penguin, we asked Sernovitz to review it. What he’s produced is a very interesting and uncommonly honest forthright account of how the oil industry itself sees what it’s doing. We are running it with a response from Benjamin Kunkel.


If you work in the oil business, as I do (on the investment side), you get used to being blamed for gouging consumers, corrupting governments, starting wars, upending economies, polluting paradises, poisoning water, bankrolling terrorism, and—last but not least—causing the end of life on earth as we know it. So when I heard that Steve Coll, New Yorker investigative journalist and author of Ghost Wars (about the Taliban and the Pakistani ISI) and The Bin Ladens (about the family of you-know-who), had written Private Empire: ExxonMobil and American Power, I prepared myself for the three books to be released in a box set called “The Worst People on Earth.” It was with some personal relief, then, that as I read I found that Private Empire, while hardly a celebration of ExxonMobil, is not a muckraking. Nonetheless, reading it often felt like a chore. After 626 pages, ExxonMobil was pretty much what I thought it was, and if anything slightly more ethical. (For readers more suspicious of oil companies, it’s probably a lot more ethical.) One gets the sense that, with few smoking guns found, Coll’s heart may not have been in it, in the end. He concludes with a discussion of BP’s Macondo oil spill, which has almost no bearing on ExxonMobil, which has few operations in the Gulf of Mexico. That is like ending a biography of Rutherford B. Hayes with a chapter on William McKinley, just because McKinley got shot. Yet that conclusion has a bigger problem than its irrelevance. It cuts off the story just as it’s getting interesting. Coll’s book on today’s oil business mostly ignores the revolution in the business that happened as he was writing. This wasn’t totally Coll’s fault. He was not the only one who missed something. ExxonMobil did too.

Crude oil has been used by humans for millennia, and as long as you lived in a place where it seeped to the surface naturally, you could use it for pitch, sealant, medicine, construction, torches, weapons (the terrifying “Greek fire”)—whatever your ancient need. Yet crude as a central fact of life has had a relatively short history, in two phases: Better than a Whale and Better than a Horse. In the 1850s, whale oil, which had been a primary source of high quality interior lighting, became exceptionally expensive due to overfishing. This led to a burst of invention for replacements. The more widespread use of coal-derived natural gas for gas lighting was limited to cities, also expensive, and controlled by monopolies. Camphene, which came from tree-derived turpentine, had a slight drawback in its tendency to explode. Kerosene derived from crude oil and occasionally other substances seemed like the best choice, especially with advances in refining techniques and lamp safety. (The US patent application for kerosene was in 1854. Moby-Dick was published in 1851. If the novel were written today, it would be about a very determined manufacturer of fax machines.) What limited the adoption of kerosene, however, was supply: you didn’t have to chase a whale, but most oil lies underground. All you could do was to skim off what naturally occurred in creeks, for instance, or dig it out of the ground like a Romanian peasant. (This is not a metaphor: in the early 1850s, the world’s biggest oil producers were Romanian and Galician peasants.) But then in 1859, Edwin Drake drilled a seventy-foot well in Titusville, Pennsylvania, and woke up the next morning to find oil coming up.  From then on, if the oil didn’t come to you, you went to it.

For much of the next fifty years, the oil business was largely the kerosene business, which meant the indoor lighting business. But with Thomas Edison developing his incandescent light bulbs in the late 1870s, electric light began to gain market share against both gaslight and kerosene (whale oil, by then, had ceased to be competitive). Luckily for oil, in 1885 Karl Benz got a patent for an automobile running on an internal combustion engine. The first Model T came out twenty years later, sparking mass demand for cars. To this day, Better than a Horse remains the deep logic of oil use, and transportation accounts for two-thirds of oil demand. A gallon of gasoline, a simple oil derivative, can move a one-ton car thirty miles. A couple of horses could also do the trick, however slowly, cruelly, and expensively. But there are only about 60 million horses in the world. There are over one billion cars.

The development of the natural gas market and infrastructure is the final pillar of the modern oil industry. Natural gas as we think of it today—gas coming from the same or similar reservoirs as oil and requiring the same drilling techniques—was considered a waste product until after World War II. Then, modern steelmaking techniques and investments in pipelines allowed for the increased use of gas for home heating, nice kitchen stoves, and power plants. For today’s so-called “oil” companies, natural gas is almost as important a part of their business as oil; on an energy equivalency basis, global natural gas consumption is 71 percent of oil and may one day exceed it. Together with coal, the three primary energy hydrocarbons—all organic matter cooked underground for millions of years into various molecular combinations of carbon and hydrogen—supply 87 percent of the world’s primary energy. They have made or enabled almost everything we think of as contemporary life: cars, planes, plastics, mass electrification. The burning of all this oil, coal, and gas has also released all of the stored up carbon and caused the steady and perilous warming of the globe.

ExxonMobil has been a central player in the modern history of oil from the beginning. Exxon was formerly Standard Oil of New Jersey, the largest and most important spawn of John D. Rockefeller’s Standard Oil trust, which began life in the 1860s as a Cleveland oil refiner only a few years into the first American oil boom. Rockefeller’s background—and Standard’s strength—was in the midstream and downstream segments of the industry (refining crude, transporting refined products, and marketing), but Standard in the 19th century also had some producing oilfields, making it the first integrated oil company. Standard’s control of over three-quarters of the US downstream market, however, was too much, and the government broke up its near monopoly. That was in 1911, coincidentally the year when Better than a Whale began taking a back seat to Better than a Horse and Standard’s gasoline sales first outpaced its sales of kerosene. Standard Oil of New Jersey retained about half of the old trust’s assets. Standard Oil of New York, which became Mobil, retained 9 percent.

Even before its reuniting merger with Mobil in 1999, Exxon retained the swagger of a company that was the US oil business in its early years. The company expanded its refining, marketing, and chemicals divisions globally. More importantly, it put exploration and production at the heart of the enterprise, as it never was under Rockefeller. Exxon and the other “Seven Sisters” (as Exxon, Mobil, Chevron, Gulf, Texaco, BP, and Royal Dutch Shell came to be called in the 1950s) developed oil reserves wherever they could find them, in South America, Southeast Asia, North America, and especially in the Middle East. This wasn’t always an easy road: the nationalization wave of the 1970s led to the loss of giant portions of the Seven Sisters’ oil fields; the triggered collapse of oil prices in 1986 proved once and for all that Saudi Arabia, not Exxon, was the most important actor in the global oil industry. Nonetheless, ExxonMobil has maintained its leading position as the other industrial giants of the 19th century have withered. Since 1955, when the Fortune 500 rankings of the world’s largest companies by revenue began, Exxon has been in the top five every year. Last year, it was number one again.

Steve Coll does not dwell on this long history. (A good source for that part of the story is Daniel Yergin’s The Prize.) He focuses on ExxonMobil over the last twenty-five years. Coll’s even-keeled voice, fair-minded decency, and tireless research convey the breadth of activities and stories inside the company. Coll talked to seemingly everyone he could find, and he follows ExxonMobil’s search for profits and volume in, among other places, Equatorial Guinea, Nigeria, Indonesia, and the greatest anthropological curiosity, Washington, DC. He captures ExxonMobil as the oil industry knows it: arrogant, rigid, a touch robotic, and as one rival executive said, “very prickly as partners.” Private Empire’s pleasures come most frequently from the reported perspective of Lee Raymond, ExxonMobil’s CEO from 1993 to 2005. How Coll managed to get “Iron Ass,” as Raymond’s colleagues called him, to speak to him is not detailed, but Coll paints a surprisingly complex picture of a legendary corporate bully and ugly mug, a man rarely remembered fondly by those who had even passing contact with him (including me).

Coll also captures the other side of ExxonMobil: the respect the company begrudgingly earns for its competence, probity, unrelenting focus on safety, and ability, as Coll writes, to “complete massive, complex, drilling and construction projects on time and on budget.” In 2007, the company drilled a seven-mile well—measured in vertical and horizontal distances—off the coast of Sakhalin Island in Russia, not far from the Arctic Circle. It built an oil business from scratch in Chad, one of the poorest and most isolated countries in the world, and constructed a 640-mile pipeline through Cameroon to get the oil to market.

Yet Private Empire never rises to greatness due to some architectural flaws. Coll seems to have chosen his covered topics by Venn Diagram. ExxonMobil is one circle. Things That Have to Do With Governments is another. Private Empire is the overlap. This results in a book with no momentum and not much glue. It also leads to the book’s oddest feature: it’s about the epiphenomenon of ExxonMobil. This is a long book about an oil company with remarkably little (unspilled) oil in it. There are no dramatic tales of whether a well will be a dry hole or whether a chemical project will succeed. Indeed, the company often fades from Private Empire altogether. Sometimes this is for the good. In Coll’s gripping chapters on Equatorial Guinea, with ExxonMobil out of the way for pages on end, we share Coll’s palpable excitement about topics closer to his prior beat: a venal and earnest dictator, bumbling coups, renegade foreign service officers.

When ExxonMobil returns to the spotlight, many of the stories are of an organization with the extraordinary political access, security, and legal and financial resources one expects from the world’s largest company. But ExxonMobil in Coll’s portrait just as often ends up far from the transnational, omnipotent force of the popular imagination. Coll reports, for instance, that before the invasion of Iraq, ExxonMobil executives decided that it “was not in ExxonMobil’s interests to become tainted by failed nation-building projects in a country that held one of the world’s largest unproduced oil and gas resource bases.” Staying aloof didn’t help, though. Neither ExxonMobil nor any American company got any special favors from the Iraqi government, and no international oil company has been allowed much profit.

In Washington, Coll writes, ExxonMobil is not like GE, aggressively grubbing for favors: “Raymond instructed the K Street office not to ask for specific tax earmarks but to concentrate on preventing unfavorable changes in the code.” And while ExxonMobil’s defensive strategy has worked—the beneficial tax rules are still there—Coll doesn’t report many offensive victories. A long, late chapter about ExxonMobil’s attempts to prevent the banning of DINP, a type of phthalate petrochemical, had me waiting for a tale of switched votes and midnight cash drops. But Coll ends with the whimper: the passed bill’s “final provisions on phthalates could not be described as a triumph for ExxonMobil—the consumer lobbyists had gotten more of what they wanted than the corporation.”

It is curious that ExxonMobil appears to be such a mild villain in a mild book. There are a few possible explanations for this. The company is almost certainly better behaved than it is generally perceived to be. There could also be something in the upstream oil and gas business that defines the often oblique ways companies interact with host nations. What an oil and gas producer wants is underground; most of the effort to get it comes in the drilling phase; most of the labor in that phase comes from oilfield services companies, often staffed by expat workers. While protecting and maintaining production facilities post-drilling is important, this is a simpler, less labor-intensive, and less intrusive operation than, say, running a copper mine—or a call center. But the reader’s impression of an ExxonMobil distant from the political and social implications of its actions could also be a function of Coll’s strengths. He digs up what seeps to the surface instead of drilling into the deeper questions about whether it’s ExxonMobil’s responsibility, or other governments’ responsibility, or our responsibility, or no one’s responsibility, to not put money into the hands of kleptocrats of resource-cursed nations.

The one area where ExxonMobil did try to actively influence public opinion and government policy was in the discussion of manmade climate change. Coll doesn’t spend many pages detailing ExxonMobil’s sponsorship of studies trying to disprove global warming, maybe because it’s old news. He does, however, make it clear that this dispiriting effort was a particular passion of Lee Raymond. This does not mean that Raymond is alone in denying the threat of climate change. In my experience, the left wing of the US oil business yawns at the words global warming. The others think it’s a devious plot cooked up by envious losers (Democrats, Parisians, humanities professors, et cetera). Coll reports that Rex Tillerson, Raymond’s successor, had his Nixon-in-China moment in early 2009 when ExxonMobil acknowledged the risks of manmade climate change and announced the company’s quixotic (and maybe window-dressing) support for a carbon tax. It’s not easy to trace causation to ExxonMobil: political efforts to battle climate change gained momentum as Lee Raymond was funneling money to anti-global warming groups. The momentum stopped dead with the global recession, when ExxonMobil finally came around.  Nonetheless, having the CEO of the largest company in the world mocking climate change and funding “skeptics” was not irrelevant to the creation of a culture in which 58 percent of Republicans, according to a December 2011 Pew Research poll, believe that global warming is “not too serious” or “not a problem” at all.

Private Empire is not a book overflowing with surprises, but three-quarters into it, I did a doubletake when Coll quotes an oil executive’s statement from 2008, which expresses that “Geopolitics, by far, is the largest uncertainty in the entire world of energy.” Coll continues: “The most material and volatile facts in the global oil business arose not from alternative energy technology labs. They involved extortion rackets, kidnapping, and maritime piracy carried out by militia cult leaders in the swampy deltas of Nigeria.”

This is stunningly wrong. The most material and volatile facts in the oil business in 2008 were the unlocking of abundant oil and natural gas in shale and other low permeability (“tight”) reservoirs in the United States through hydraulic fracturing (“fracking”) and other techniques. Private Empire barely deals with this. This is partly Coll’s fault and partly ExxonMobil’s. Coll is thoughtful about the company’s existential challenge in offsetting its depleting resources base. He tracks ExxonMobil trying to combat this challenge by taking advantage of its competitive advantages of scale and competency to develop giant, capital-intensive projects—hence Equatorial Guinea, Sakhalin Island, Chad. Yet as ExxonMobil was pursuing this strategy, wrestling with topography and politics and harsh climates, smaller oil and gas companies were perfecting techniques to improve drilling results in the Barnett Shale, all of forty miles from ExxonMobil’s suburban Dallas headquarters. And they were using the traditional talents of the oil business, geology and production engineering, often through the application of old technologies. (The first use of hydraulic fracturing was in 1949.) The techniques that were worked out in the Barnett—more sophisticated fracking, horizontal drilling, better proppants, asset-based technical teams, refined empirical understanding—led to astonishing increases in well productivity between 2007 and 2012. Originally, the industry thought these techniques would be useful only for developing natural gas fields, given the assumption that only natural gas molecules would be capable of flowing through the microscopic fractures in the fracked rock. But beginning about two years ago, the industry discovered that these techniques worked in many oil plays too. And now, the industry has opened up oil and gas fields in places that were left for dead by the smart guys at the large international oil companies: onshore reservoirs in familiar places like Texas, Colorado, Louisiana, and Oklahoma, but also in North Dakota, Ohio, and (right back where we started) Pennsylvania.

This technical revolution in well drilling and completion techniques has turned all of the assumptions about the US oil and gas business on their head. Five years ago, almost everyone assumed the United States was running out of natural gas, and the industry built gas-importing terminals. The United States now has an oversupply of natural gas, leading to a 75 percent collapse in its price, lower power costs for American manufacturers and utilities, the revitalization of the chemical and fertilizer industries, and the announced construction of export terminals. Just as important, US oil and natural gas liquids production rose by 1.1 million barrels per day between 2008 and 2011, the largest single source of incremental supply in the world. These are mind-boggling facts. Citibank just published a report describing North America as “the new Middle East.” With all our recent worries about whether Americans are good at anything, I can assure you that Americans are good at the oil business. With shrinking demand for oil in the United States (due to the weak economy and encouraging improvements in energy efficiency), the United States now imports 17 percent less oil and petroleum products than it did five years ago. Imports are likely to shrink further, with important implications for balance of trade payments and foreign policy. And the oil and natural gas business could be entering a period in which it joins the modern world, with technology relentlessly driving down the cost of production (as it does in, say, flat screen TVs) rather than merely allowing for the possibility of production from incrementally higher cost places.

And ExxonMobil missed this. And so in 2010, for $41 billion, it bought XTO Resources, a US shale gas developer. This is one of the signal events in the global oil business in the last decade. It was an implicit admission (with a very hefty price tag) that ExxonMobil’s strategy for years, to run away from US onshore reservoirs, was a mistake. Coll devotes his penultimate chapter to the XTO acquisition, but in the consistently flattened perspective of Private Empire, the chapter is just another story in the long life of ExxonMobil, no more or less important than the one about the gasoline spill in Maryland in 2006. The chapter is also somewhat of a mess, rare for the book, with Coll jumbling together questions of whether ExxonMobil paid too much for XTO with nods to fracking controversies and shallow (and dubious) assertions about the potential geological limitations of shale gas reservoirs.

Reading this chapter was like reading a book about Microsoft in 1999 with no mention of the internet until the final pages (a mention that muses on whether the internet was here to stay). So why did Coll, an exceptionally talented journalist, miss the big story? Partly this was because of his background as an international and political investigative reporter. Coll chose to write about an oil company and governmental entities, not about an oil company and, well, oil. Partly this was a fault of taking cues from his subjects inside ExxonMobil: faulting Coll is like faulting a biographer of Rutherford B. Hayes for not writing about Teddy Roosevelt, just because Roosevelt had a more important life. Partly Coll suffered from unlucky timing. The tight oil and shale gas revolution has rolled over its skeptics in the last two years. Coll by then was finishing up his book.

The aggressive use of fracking, horizontal drilling, and other techniques will almost certainly extend the period in which hydrocarbons will be physically available and affordable enough to provide the world’s population—growing in numbers and in their expectation of a “modern” lifestyle—with the energy it demands. Ten years ago, “peak oil,” a geological thesis with a Malthusian tinge that forecasts an age of acute scarcity, was on the fringes of the debate, property of the survivalist right and deep ecology left. Five years ago, it moved nearer to the center. Today it is on the fringes again. Once again, just as the oil industry seemed licked, it has found a way to bring new hydrocarbons to market at a reasonable price.

Whether this is good or bad is hard to say. Fracking carries a risk of localized industrial pollution. Not surprisingly, the oil industry and anti-fracking activists have widely different opinions on the magnitude of that risk and the potential impact. I find the industry’s evidence in general much more convincing. In August of last year, for example, Ian Urbina, in a series of articles for the Times I had nicknamed “Every Bad Thing I Can Possibly Think of to Say about Natural Gas,” wrote about discovering one “documented case” of fracking polluting the water table—in a well drilled in 1984, in Wyoming, absurdly far in time and distance from anything to do with modern shale gas development. Nonetheless, the debate on fracking’s safety and impact will go on.  Whatever one’s opinion of it, fracking has been essential to the discovery in the United States of a century’s worth of natural gas, a relatively clean fuel, available at stunningly low prices. And fracking is allowing gas to steadily displace coal (in power plants) and increasingly oil (for chemical manufacturing and fleet transportation)—all for the good in reducing greenhouse gas emissions. The unlocking of tight oil reservoirs has fewer environmental benefits, but the ability to produce more oil from North Dakota or West Texas has clear advantages over producing it from the deepwater Gulf of Mexico—or Iran. And whether one is kept awake by the environmental consequences of more hydrocarbon use or an alternative nightmare of insufficient energy supply depends on the facts you study, but also on your politics, personality, and yes, source of income. It is inconceivable that we can easily or quickly replace 87 percent of the global energy supply that comes from hydrocarbons. (Another 11 percent comes from nuclear power and hydroelectric dams, hardly growing or uncomplicated energy sources.) But it is also inconceivable that we are not slowing down the emissions of greenhouse gases, knowing what will come.

I understand why people dislike oil companies, though I do not understand why they dislike them more than other companies, or why the dislike is never muted by guilt-by-associated-consumption. People’s desire to drive cars, fly in planes, use electricity, and have plastic stuff isn’t manufactured by the oil business to have something to sell. One can’t say the same about Angry Birds. Yet my conscience is not settled by we-give-them-what-they-want. I have stood by and watched a well being fracked, funded in small part by my money, and worried about the possibility that we, as an industry, didn’t have the proper controls to make sure accidents didn’t happen. But I was proud to help, in a tiny way, unlock huge supplies of a clean hydrocarbon as part of an American energy renaissance. I worry about how much more burned oil the atmosphere can take. But I like being part of the global energy economy allowing a Chinese farmer, now buying a truck, to lift his family further out of subsistence.  I can see no better near-term project—imperfect maybe, but pragmatic—for those who care about the environment than a push for natural gas to phase out coal as quickly as possible.  But I am suspicious of my motivations because I know that that would be an equally satisfying, and profitable, project for the oil business too.

And I wonder how I will feel about what I am now doing in twenty years. I daydream of finding a job in which I can cast off the heavy weight of that unloved and distrusted word: oil. But even if I stop being part of the production of oil and gas, I will still almost certainly be consuming it—using computers, air conditioning against the rising heat, flying to vacations, catching a cab. Will just being a consumer make me a better person? And how do we measure these distances of complicity? In cubits, with our forearm?  In inches, with a ruler? Or in microns with something modern and electronic—and probably powered by coal or gas or oil.

Read Benjamin Kunkel’s response.

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