Private Empire: ExxonMobil and American Power (27 page)

Raymond had developed a friendship with Federal Reserve chairman Alan Greenspan. The men had gotten to know each other while serving together briefly on the J.P. Morgan board of directors, and then stayed in touch. Raymond impressed his analysis about natural gas on the Federal Reserve chairman: The American economy needed planning to build the facilities to import and reconvert liquefied natural gas in the future. ExxonMobil’s economic forecasters in corporate planning reported to the Management Committee that they expected the global L.N.G. market to double by 2010. ExxonMobil was busy investing in that market worldwide. The global sales force in the corporation’s gas marketing division finalized a contract to ship two billion cubic feet of liquefied gas from Qatar into the United Kingdom, for example. Raymond educated Greenspan about the coming shape of the emerging global L.N.G. market. Without telling Raymond in advance that he intended to go public, Greenspan testified before Congress, highlighting America’s coming gas deficit as a strategic issue for the American economy. Preparing for an L.N.G. world would require construction of large import terminals that carried environmental and safety risks, but the thrust of Greenspan’s testimony was that America’s gas deficits would demand such risk taking. Greenspan’s friendship with Raymond was not well known, but one analyst aware of the relationship remembered reading Greenspan’s unusual testimony about natural gas markets and thinking, “He’s giving Raymond’s testimony!”

As it turned out, the natural gas market in the United States was one of the few industry subjects that Lee Raymond had misjudged. “Gas production has peaked in North America,” he declared at an industry conference in 2003. America’s only large, unexploited deposits of gas were in Alaska, stranded from commercial markets in the Lower 48 for lack of a pipeline. Even if a pipeline were built, Raymond continued, he expected total American gas production to decline, “unless there’s some huge find that nobody has any idea where it would be.”
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In fact, such a find, of sorts, was coming by the decade’s end, and it would transform ExxonMobil’s strategy within the United States. Lee Raymond just did not see it coming. Hardly anyone else did, either.

A
bdullah Bin Abdul-Aziz, the crown prince of Saudi Arabia, was in his mid-seventies at the time of the ExxonMobil merger. He moved among manicured, well-watered palace complexes the size of some college campuses. There was one palace in Riyadh, the Saudi capital, and another in Jeddah, and another in the desert where Abdullah bred Arabian horses. The prince kept an unusual schedule. He slept in two four-hour shifts, one between 9 p.m. and 1 a.m. and a second between 8 a.m. and noon. In the hours between he swam for exercise and did office work. He was a goateed, barrel-chested man with a serious and penetrating gaze.
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He had much to contemplate. His older half brother, King Fahd, had been incapacitated by a stroke in 1995. The Saudi royal family was too decorous and divided to remove Fahd from power formally, despite his incapacitation, so Abdullah ran the country as de facto king, but he was constrained by shifting family and ministerial factions. Abdullah felt that his kingdom needed to modernize its economy and its education system. Saudi Arabia imported too much of its skilled labor from Asia and Europe while employing its native sons in do-nothing government bureaucracies and religious institutions. The state oil company, Saudi Aramco, which had been owned in part by Exxon and Mobil before nationalization during the 1970s, was so bloated that it employed about three quarters as many people to operate within the kingdom as ExxonMobil did to operate worldwide. The Saudi regime needed to create jobs for its restless population of young men, but even with the inefficiencies that resulted, Saudi Aramco was a rare bright spot in the Saudi economy in that many of its homegrown employees and engineers were professionals who could work to international standards. In many other bureaucracies in the kingdom, too many Saudis lacked the skills and leadership to compete in the global economy. If the royal family did not do something to change this before its oil was depleted, then a common fatalistic aphorism among the Saudi elite—We started on camels; we acquired jets; we will return to camels—might well be borne out.

By 1998, seeing what Qatar had undertaken with its massive gas-fed industrial complexes, Abdullah decided to leapfrog beyond Saudi Arabia’s dependence on oil sales into a more sustainable, job-creating future. The key to his thinking was natural gas.

That year, in the autumn, while on his first state visit to America as regent, Abdullah invited the chief executives of the seven largest American and European oil companies to the McLean, Virginia, mansion of the cigar-chomping Saudi ambassador to Washington, Prince Bandar Bin Sultan. Lee Raymond and Lou Noto attended. It was awkward for them because at the time they were in the advanced stages of merger discussions known only to them and a few dozen others involved in the talks. They agreed to act as if nothing unusual was going on.

It was extraordinary for all of the executives of the largest oil corporations to gather in one place with the head of state of an oil-rich country. In an Arabian-style
diwan
setting of cushioned chairs and couches, overlooking the Potomac River, the meeting began stiffly; it suggested the formal, tensely competitive atmosphere of a meeting of the heads of competitive crime families trying to divide up casino building rights. Abdullah invited the oil chiefs to speak about how they might work with Saudi Arabia’s natural gas resources if they were invited back to the kingdom as investors for the first time in more than two decades. This was an enormous opportunity for all of the executives present—Abdullah’s gas initiative could not make up for the economic pain of oil nationalization, but it offered a rare chance to reenter the kingdom with a big play, and who knew where that might lead.

Raymond began. He talked about the size of Saudi Arabia’s presumed gas reserves and outlined how Exxon might be able to exploit them. Each of the other executives spoke similarly until the circle came around to Noto: Little had changed since Mobil was the smallest partner in Aramco, he joked. He was still the last in line.

Saudi foreign minister Saud Al-Faisal, an enthusiast of Abdullah’s plan, sat quietly in the room; he was a favorite of Raymond’s and other American oil executives because he was pragmatic, competent, comfortable in the West, and interested in forging new pathways to industrial modernization at home. Also present was the kingdom’s oil minster, Ali Al-Naimi, a nonroyal who had ascended through Saudi Aramco’s ranks. Al-Naimi looked on Abdullah’s outreach to international corporations with suspicion; the initiative could encroach on the prerogatives of Aramco, which Al-Naimi oversaw. As Raymond, Noto, and other chief executives spoke, Al-Naimi “looked like he had eaten a sour lemon,” one person who attended recalled.
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To Raymond, there appeared to be very few places on the planet with enough oil and gas resources to make a material difference to the revenue and profit picture of Exxon. Chad was a welcome play, but it was hardly an “elephant,” as exploration and production geologists called huge oil and gas fields. Raymond could count on one hand the countries with enough proven oil and gas reserves to lift Exxon’s equity holdings and address its reserve replacement challenges in a serious way: Russia, Iran, Iraq, and Saudi Arabia. Two of them—Iran and Iraq—were entirely closed off to Western investors. If Saudi Arabia was even hinting at the possibility of reopening its reserves—even if it involved only natural gas, for now—Exxon had to try to make it work, Raymond believed. The loss of Saudi oil when the royal family nationalized Aramco in 1975 had been a blow to Exxon’s oil and gas production volumes from which it had never recovered. The expropriation had followed repeated and phlegmatic negotiations in which Exxon’s Clifton C. Garvin Jr. had played a leading role. Not for the first or last time, the Saudis had exasperated an American negotiator with their opaqueness, delays, and changing terms: “I have to say I can’t figure out what they want,” Garvin declared at one stage. “We keep leaving pieces of paper detailing how we can work with them, and they keep asking for more talks.” Raymond felt there was little choice, however, but to try again.
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Abdullah’s vision was to allow foreign corporations such as Exxon to develop freestanding gas fields in exchange for their commitment to use the gas to fuel industrial projects such as water desalination plants, electricity generation, and petrochemical manufacturing. These multibillion-dollar projects would create skilled jobs for Saudis while addressing chronic infrastructure and electricity problems in the kingdom. The projects would also allow Saudi Arabia to stop wasting its oil on electricity generation. Most of the world’s economies had stopped burning fuel oil to make electricity decades earlier; it was a dirty method and economically irrational, because the oil fetched greater sums at refineries where it could be made into gasoline or jet fuel. Saudi Arabia still burned off an astounding 200,000 to 300,000 barrels of oil a day to power its heavily air-conditioned cities, a figure that would soon rise toward 800,000 barrels a day—and that production counted against the kingdom’s quota as a member of the Organization of the Petroleum Exporting Countries cartel.
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By using natural gas instead, the kingdom would earn more revenue overall. ExxonMobil already operated large, profitable refining and chemical plants in the kingdom that it had agreed years earlier to construct and operate in exchange for preferential access to Saudi crude. With this new natural gas opportunity Lee Raymond could expand and diversify Exxon’s position in Saudi industry.

Saud Al-Faisal led the gas negotiations for Abdullah. They proved, unsurprisingly, to be long and complicated. As they dragged on, September 11 became a factor. The attack and its aftermath sowed U.S.-Saudi relations with mutual resentments and mistrust; at night, in their palaces, Faisal and other senior Saudis tuned in to American satellite news programming, whose presenters and commentators increasingly seemed to them to be engaged in anti-Saudi race baiting. When Al-Faisal visited the White House, Bush administration officials, including Raymond’s friend Cheney, urged the foreign minister to take stronger action in response to evidence that Saudi clerics and businessmen were financing Al Qaeda. Al-Faisal had attended Princeton University; it pained and angered him to be spoken to as if he were some sort of double-dealing international criminal.

Raymond sympathized with Al-Faisal. The ExxonMobil chairman had been visiting Saudi Arabia since the early 1970s and had come to know Al-Faisal well. He shared the Bush administration’s outrage over the September 11 attacks, but increasingly, he felt uneasy about the hard line taken by Cheney. Raymond told colleagues he feared that an American overreaction could destabilize the Persian Gulf region. The Bush administration seemed not to understand, in particular, the importance of the Sunni-Shia sectarian divide, Raymond said. Saudi Arabia’s Sunni royal family lived in deep anxiety about the expansionary ambitions of Iran’s Shia-led revolutionary government. There was a restive Shia population within Saudi Arabia, and Iraq’s people were mostly Shia; if the region were destabilized, Iran might emerge stronger. In any event, after September 11, there seemed to be a widening gap between how the Saudis analyzed the region’s challenges—they placed a strong emphasis on the sectarian issue and Iran—and the way the Bush administration saw them, intently focused as it was on Al Qaeda and global terrorism. As Raymond and his colleagues negotiated for access to Saudi Arabian gas reserves, ExxonMobil found itself straddling the chasm that opened between Washington and the Saudi regime. Its executives believed Al-Faisal to be a reliable friend and partner of the West, but also a realist about the Middle East. As it became clear that the Bush administration intended to invade Iraq, against Saudi advice, Al-Faisal told his anxious ExxonMobil colleagues, “It’s inevitable. There’s nothing I can do.”

Abdullah appointed ExxonMobil as the lead partner in two of the three gas projects he initially approved. Abdullah staged a ceremony in Jeddah for about three hundred people at which the crown prince, resplendent in robes, held court to congratulate the ExxonMobil team: “
Mabruk!
”

Raymond selected Ralph Daniel Nelson, a longtime Mobil executive with extensive experience in the Middle East, as his point man—lead country manager, in the ExxonMobil vernacular—in Riyadh. Nelson was a Naval Academy graduate and former U.S. Marine infantry officer who had served in Vietnam during the late phases of the war. He was a tall, silver-haired, broad-shouldered man. He could handle Raymond’s intimidations and he conformed to Saudi expectations—born of
Dallas
and other prime-time soap operas relayed by satellite—of what American oil executives should look and sound like. Nelson had years of experience in Qatar and the Gulf region and he knew the natural gas industry from previous work for Mobil. With Raymond behind him, Nelson pressed for deal terms that would produce returns for ExxonMobil of more than 16 percent on capital invested. A successful deal would deliver as much as $15 billion in investment to the kingdom.
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Nelson dined monthly with Saud Al-Faisal at the foreign minister’s relatively modest (by the standards of Saudi princes) Riyadh home. Five or six days a week, Nelson and Raymond conferred by telephone about the Saudi project, punctuated by face-to-face meetings in Irving. Nelson grew into a mysterious and somewhat feared figure in ExxonMobil’s executive ranks, by virtue of his unusual access to the chairman; he was the only lead country manager who worked directly for Raymond.