Private Empire: ExxonMobil and American Power (82 page)

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s the oil poured into the Gulf, Tillerson pushed ExxonMobil’s talking points into Washington’s political ecosystem. He characterized the accident as a “dramatic departure from the industry norm in deep-water drilling.” ExxonMobil would never have made the mistakes BP made, he said. Moreover, the recklessness of BP’s operation should not catalyze intensive new regulation because BP’s failure was so unusual. Tillerson spoke so forcefully about BP’s apparent errors that he sounded as if he might be auditioning to appear as an expert witness at BP’s liability trials. “It appears clear to me that a number of design standards were—that I would consider to be the industry norm—were not followed,” Tillerson declared. “We would not have drilled the well the way they did.”
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Tillerson arrived one evening that summer at the Metropolitan Club, near the White House, for a private dinner with influential editors and writers sponsored by the Center for Strategic and International Studies. Over roast beef and Yorkshire pudding, Tillerson went after BP’s management. There were many warning signs during the Macondo operation, but BP suffered from a “culture” of looseness and rule bending, Tillerson said. BP had fine engineers and was technologically impressive, Tillerson added, but the corporation did not emphasize safety or individual accountability. “They’ve always been an outlier,” he said. “We work with them all over the world and we’ve seen this.”

Tillerson spoke blithely about the potential ecological damage that might result from the accident. Because Americans reacted so skittishly to the possibility that seafood might be poisoned, commercial fishing in Gulf waters slowed sharply during 2010, even outside of areas restricted by the government, so fish populations would flourish. “You like to fish? The best fishing in the world’s going to be in the Gulf next year,” he predicted.

If Washington now overreacted to the
Deepwater Horizon
and limited offshore drilling for many years, this would be bad policy, he said, but it would pose no strategic threat to ExxonMobil’s business. “We’ve got opportunities all over the world.”
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he swagger was vintage Exxon, but the public policy at issue was the corporation’s philosophy of risk management. Just ten days after the
Deepwater Horizon
exploded, a ruptured ExxonMobil pipeline dumped about a million gallons of oil in coastal areas of eastern Nigeria, soiling shorelines dotted by impoverished seaside villages. The affected area lay far from American television news bureaus, and its kidnapping gangs made it a risky place to travel in any event. The spill barely registered. Not all accidents can be prevented, Tillerson and ExxonMobil’s lobbyists acknowledged. Even if one accepted that ExxonMobil’s own safety and self-regulatory record was exemplary, relative to peers, and even if one assumed that the corporation’s relatively vigilant internal practices would endure indefinitely, without ever deteriorating again, how did Exxon propose to ensure that every other corporation in the oil industry adopted its standards, if not by government regulation? Tillerson volunteered that ExxonMobil’s safety systems were “not proprietary” and he would share them with other companies, but it was neither practical nor appropriate for the corporation to police its competitors.

In comparison with other regulatory schemes, supervision of oil drilling and transport involved an unusual challenge: The incentive to find new oil in a constrained world drove all of the major companies to risky frontiers. Resource nationalism, the rise of global state-owned companies with favored positions in their home countries, and the struggle for annual reserve replacement at gigantic corporations like ExxonMobil had led them to deep water, to weak and conflict-ridden states with vulnerable populations, and increasingly to the Arctic ice, where cold temperatures might render conventional spill cleanup techniques inoperable. The national commission concluded that BP’s blowout drilling in pioneering conditions in the Gulf of Mexico was not a “statistical inevitability” because sound management and regulation could have prevented the accident. Yet the record of oil accidents worldwide over thirty years was one of repetitive spills and failures, even at the best practitioners, such as ExxonMobil after the
Valdez
. In commercial aviation, idiot-proof safety systems and close regulatory inspection had reduced accidents to an overall nuisance level, although they were obviously devastating when they occurred. Marketplace incentives played a crucial role in commercial aviation. The public demanded protection from reckless airplane operators and pushed airline companies into compliance—crashes repelled customers. By comparison, in oil’s case, the environmental consequences of a single accident could be very severe, but they did not threaten the lives of oil customers or change their purchasing behavior. The damage was typically remote, and for consumers gasoline remained a necessity. Marketplace incentives did work constructively in one respect—the high financial and reputational costs of the
Exxon Valdez
and the
Deepwater Horizon
served as a powerful deterrent to corporate recklessness at drilling sites—but an occasional catastrophic error could be managed and survived, as ExxonMobil had demonstrated and BP probably would. And because the need to find oil in hard places pushed corporations into greater risk taking, the overall effect was very different from aviation: It was as if United Airlines, to remain profitable and viable in the long run, had to fly faster and higher each year, while managing all the risks that came along with that stretching of its capabilities.

Tillerson rejected the national commission’s finding that the BP blowout placed “in doubt the safety culture of the entire industry.” He argued that the commission “did not investigate the entire industry,” and so their finding “seems to ignore years of record of good performance.”
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And yet the commission reached its conclusion in part because “the record shows” that in the absence of effective federal regulation, “the offshore oil and gas industry will not adequately reduce the risk of accidents, nor prepare effectively to respond in emergencies.”

Tillerson could hardly reject the criticism about preparedness. Under his leadership, ExxonMobil had not invested in accident response capabilities in proportion to the new risks created by deep-water drilling. The corporation was not especially active in the Gulf, but it was moving to increase its presence, and it pledged preparedness in regulatory filings. The costs of preparing aggressively for a rare blowout such as the
Deepwater Horizon
’s—acquiring and positioning adequate equipment, rehearsing and planning to the same level of precision that the corporation brought to drilling operations—might be high, but they were far from prohibitive. The record showed that ExxonMobil had not made these investments nor urged that others in the industry do so.

“Your [accident response] plan is written by the same contractor that BP’s is,” Bart Stupak, a Michigan congressman, reminded Tillerson at a hearing that summer, as oil continued to pour into the Gulf. “So if you can’t handle 40,000 [barrels of spilled oil a day], how will you handle 166,000 per day,” as ExxonMobil’s plan claimed could be managed?

“The answer is that when these things happen, we are not well equipped to deal with them,” Tillerson admitted.

“So when these things happen, the worst-case scenarios, we can’t handle them, correct?”

“We are not well equipped to handle them. There will be impacts, as we are seeing. And we’ve never represented anything different than that. . . . That’s just a fact of the enormity of what we’re dealing with.”

“But they do happen.”

“It just happened.”
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containment dome fitted onto the Gulf’s floor above the spewing Macondo wellhead capped the blowout on July 15, 2010, just under three months after it began. The crisis faded rapidly. Americans had other problems on their minds. Voters angry about public debt, busted mortgages, Wall Street greed, and high unemployment went to the polls less than four months later and replaced the Democratic majority in the House of Representatives with Tea Party–influenced conservative Republicans devoted to smaller, less intrusive government. The
Deepwater Horizon
blowout reinforced popular anger toward Big Oil, but would produce no new politics to threaten the status quo in American energy policy. The accident’s economic victims—commercial fishermen in Louisiana, coastal hotel owners, offshore oil workers—lived mainly in the states whose citizens voted repeatedly to accept the ecological risks of deep-water drilling.

Eighty-five percent of the world’s energy—to fuel cars and trucks, to run air conditioners, to keep iPhone-tapping legions fully charged—still came from taking fossil fuels out of the ground and burning them. The likelihood that this would change anytime soon appeared slight.

ExxonMobil faced serious trials as a business in the years ahead—annual reserve replacement, maintaining its share price by extracting full value from XTO’s unconventional gas holdings, and global competition—but its place at the heart of America’s energy economy, as a bastion of fossil fuel optimism, remained unchallenged.

Forecasting “peak oil,” the moment when world supply will reach its height and begin to decline, is a fool’s errand, the long record of inaccurate past forecasts would suggest. At a minimum, there appears to be enough oil left in the world to meet projected rates of demand for several decades, and likely longer. Gas and coal supplies are even more abundant. Mongolia alone reports probable coal reserves of 152 billion tons, enough to fire every smoke-spewing power plant in China for half a century. Russian, Qatari, and Iranian natural gas deposits should last many decades, and the United States may be able to meet its own gas demand from domestic supply, if unconventional reserves fulfill their promise. Fossil fuels that emit carbon dioxide when burned are therefore likely to remain embedded in the world economy for at least half a century longer, barring a radical scientific breakthrough that allows a renewable energy source to compete economically at gargantuan scale.

It seems just as likely that the costs imposed on American society by fossil fuel dependency will remain high for an indefinite time. Between 2004 and 2009, the United States ran a deeper trade deficit—between $186 billion and $414 billion each year—to import oil and gas than it did to import goods from China.
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The regimes in receipt of these outbound dollars—Saudi Arabia, Russia, Iran, and Venezuela, to name four—were chronically unfriendly. Rising global oil prices, usually caused by wars, strikes, or other upheavals overseas, have preceded ten of the last eleven American economic recessions, including the Great Recession that began in 2008. (That downturn was caused by a financial and housing bubble that would have burst disastrously even if every American drove a magical self-powering wind mobile, but the spike in fuel prices on the eve of the bubble’s reckoning weakened confidence and household balance sheets at a turning point.) Rising oil demand from two-car families in the world’s rising economies such as China and India, combined with the chronic instability of oil exporters from the Middle East to West Africa to Venezuela, means that oil supply and price shocks are likely to recur more frequently, adding to the multiple sources of American economic insecurity.

All of these economic costs of oil dependency have been evident since the 1970s, yet American democracy has produced no politics to reduce them. The lobbying power of oil corporations is hardly the only factor. Oil prices gyrated during the 1980s and 1990s; at the bottom of these cycles, gasoline was often a trivial segment of many household budgets. During the late 1990s, gasoline expenses averaged as little as 2 percent of American pretax household income. That made it relatively painless for American voters to ignore oil dependency’s indirect costs and to reject the higher gasoline or carbon taxes that would be required to incent change. By the summer of 2011, gasoline expenses approached 10 percent of household income at a time of widespread economic pain. The opposite kind of policy paralysis now took hold: To change the gasoline pricing system would impose heavy new costs on working- and middle-class families suffering the most in the aftermath of the Wall Street–primed housing bust.

The threat of climate change presents the most serious danger yet to arise in the long age of fossil fuels. But global warming’s victims—future generations—do not vote. Durable political majorities in advanced democracies have often been willing to impose economic costs on themselves to address current pollution that endangers living generations—smog, acid rain, poisoned water, and toxic runoff from manufacturing. Persuading those same voters to impose costs now to protect their grandchildren from climate risks that can be described only in outline has proved much more difficult.

The British economist Nicholas Stern credibly forecasted that reducing carbon dioxide emissions enough to avert potentially catastrophic global warming would cost 1 to 2 percent of global gross domestic product now, while failing to act may eventually cost five to twenty times that amount. That seemed a more politically plausible trade-off in the economic boom year of 2006, when Stern announced his findings, than it did in 2011, in the maw of stock market panics, European sovereign debt crises, flat growth across many industrialized democracies, and rising income inequality.
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Britain and continental European democracies have already taxed themselves to ease the climate risk faced by future generations. Coal-dependent Australia, after long resistance, has adopted a carbon price. In the United States, most of the major oil corporations that had earlier undermined the findings of climate science, including ExxonMobil, now accept, if reluctantly, that a price on carbon is coming, and that it might be justified. The near-bipartisan deal on climate policy in Congress during 2009 suggests that America will likely enact some carbon price, but only a relatively modest one, and only after the American economy recovers from recession and stagnation, which may take five or more years.