by Steve Coll
“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.”26
A 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.27 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.28
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.
In Washington, higher taxes on carbon-based fuels will inevitably come later than they might have due to the resistance campaigns funded by oil and coal corporations—particularly ExxonMobil’s uniquely aggressive influence campaign to undermine legitimate climate science during the late Clinton administration and the early Bush administration. With its ideological allies, ExxonMobil funded the promotion of public confusion about climate science by means that future employees and executives of the corporation are likely to look back on with regret.
The climate risks future generations will inherit will pass to them from many authors, of course, and hardly just from ExxonMobil. Even if ExxonMobil began immediately to invest all of its lobbying and public policy expenditures to help enact an aggressive carbon price in the United States, the West’s ability to persuade China, India, and other poor, industrializing countries to adopt and enforce adequate emission reductions would still appear doubtful.
Early in 2011, the research group Climate Central, worki
ng from BP forecasts about future energy demand, calculated that stabilizing carbon dioxide concentrations by 2050 at five hundred parts per million (about a quarter higher than current levels) would require reducing average emissions per unit of energy used in the world by 4.2 percent per year. The analysts noted, “The highest previously recorded rate of decarbonization in a country probably took place in France between 1975 and 1990, when that country’s nuclear power system expanded very rapidly,” and yet even in that extreme instance, France’s emissions fell by only 2.6 percent annually.29
The numbers argue that global warming on a scale scientists describe today as dangerous will occur.
On July 1, 2011, ExxonMobil’s Silvertip pipeline, running from Wyoming to the corporation’s refinery in Billings, Montana, sprang a leak and poured about 1,000 barrels of oil into the majestic Yellowstone River. The corporation estimated that cleanup and payments for damaged property would cost $42.6 million. “We deeply regret this incident has happened,” corporate spokesman Kevin Allexon said.30
On the same day, Baltimore County jurors deliberating in the second of two civil lawsuits filed over the massive leak of gasoline from the former Jacksonville, Maryland, Exxon station—the case filed by Peter Angelos, Stephen Snyder’s archrival in the Baltimore plaintiff’s bar—returned a verdict of actual and punitive damages of $1.5 billion, ten times greater than the award Snyder had won for his clients. ExxonMobil vowed to appeal; the corporation continued to appeal Snyder’s award of damages, too.31
A week later, on July 8, the United States Court of Appeals for the District of Columbia reinstated the lawsuit filed by villagers in Aceh, Indonesia, who alleged that ExxonMobil bore responsibility for torture and killings they had suffered at the hands of Indonesian soldiers guarding the corporation’s gas fields. ExxonMobil’s lawyers had challenged the case at every turn; the lawsuit had now been pending without trial or settlement for more than a decade. The corporation again filed an appeal. A month later, ExxonMobil announced that it was placing its interests in Aceh’s gas fields and liquefied natural gas operations up for sale. A spokesman said the sale had “nothing to do with the Aceh lawsuit,” but was the result of routine reviews of worldwide holdings.32
In Russia, later that summer, Rex Tillerson flew to the Black Sea resort of Sochi to meet with Vladimir Putin. Before television cameras, the two men sat on opposite sides of a horseshoe-shaped table and announced a new partnership between ExxonMobil and Rosneft, the Russian oil company. The oil firms agreed to invest at least $3.2 billion to develop oil beneath the Arctic Kara Sea; if the deal survived the backtracking and disputes that disrupted so many other Russian oil deals, the total investment in the project could reach $500 billion. The United States Geological Survey estimated that the Arctic held about 90 billion barrels of recoverable but undiscovered oil and about as much natural gas as Russia’s onshore supplies, which were the world’s largest.33 Most of the Arctic’s oil and gas is believed to lie in areas controlled by Russia. In the Kara Sea, where ExxonMobil agreed to drill, oil development has become easier because of the rapid retreat of Arctic sea ice, most likely due to global warming. In 2011, on a typical August day, the amount of Arctic sea ice was about 40 percent less than had been present on an average August day between 1979 and 2000.34 At the announcement in Sochi, Vladimir Putin spoke approvingly of ExxonMobil’s “unique technology” and the corporation’s ability to operate in the Arctic’s “difficult conditions.” As to the scale of the investment planned, Putin added, “It’s scary to utter such huge figures.”35
Mikhail Khodorkovsky, the oil and banking tycoon who had drawn Lee Raymond into negotiations designed to transform the U.S.-Russian energy partnership during the first term of the Bush administration, languished in a remote Russian prison, under sentence until at least 2017.
In West Africa, ExxonMobil’s managers continued to bring oil to market despite the coup plots, kidnapping raids, corruption, and factionalism menacing the corporation’s host regimes in Nigeria, Chad, and Equatorial Guinea. After millions of dollars in expenditures on Washington lobbyists, Equatorial Guinea’s president, Teodoro Obiang, managed for the first time to have his photograph taken at the side of an American counterpart: Barack Obama, who agreed to pose with Obiang at a museum reception in New York. Obama’s administration continued to license military and police trainers to support Obiang’s regime, although the White House, cautioned by human rights activists and congressional critics of Equatorial Guinea, held back from partnership. Obama’s Justice Department filed a civil lawsuit against Obiang’s free-spending son, Teodoro, seeking forfeiture of his Malibu mansion and other assets on the grounds that Obiang’s money came from “foreign official corruption.” ExxonMobil produced more than 600,000 barrels of oil and gas liquids per day from West Africa; the corporation produced roughly the same amount of oil from the Gulf of Guinea as it produced from the United States and Canada. In 2011, Walter Kansteiner, the assistant secretary of state for African affairs during the first term of the George W. Bush administration, joined ExxonMobil as a senior adviser on the corporation’s Africa strategies.
In Iraq, ExxonMobil followed adventurous Hunt Oil into Kurdistan, in defiance of Baghdad’s government and despite discouragement from the Obama administration, which feared, as the Bush administration had, that oil deals struck independently with the Kurds would worsen Iraq’s ethnic conflicts. ExxonMobil’s decision risked stirring the ire of Iraq’s Shia-led national government, which had awarded the corporation a contract to raise production in its massive West Qurna field in the south of the country. Tillerson undertook his gambit without informing the Obama administration in advance. After ExxonMobil signed agreements concerning six Kurdish oil fields, Tillerson arranged a conference call with senior State Department officials, and told them, “I had to do what was best for my shareholders.”
The Obama administration announced plans in the summer of 2011 for the first sale of oil leases in the deep waters of the Gulf of Mexico since the Deepwater Horizon blowout. Interior secretary Ken Salazar said twenty million acres would be put up for lease—all in the Gulf’s western waters, nearest to Texas, Louisiana, Alabama, and Mississippi. “We have strengthened oversight at every stage of the oil and gas development process,” Salazar said. The sales were an “important step toward a secure energy future.”36 The administration also considered proposals for a pipeline that would transport oil from Canadian sands to refineries in the United States. Obama initially rejected the arguments of environmentalists and climate scientists who fear the pipeline will lock in energy-intensive oil production, and by doing so exacerbate global warming. The president later put the decision on hold.
It remained arguable how “American” ExxonMobil’s private empire was, given its global reach. Yet in its strategies and systems the corporation remained recognizably a descendant of the American icon John D. Rockefeller and his Standard Oil. And of all the banking, industrial, and transportation giants birthed by America’s Gilded Age, none could look back on a winning streak and a record of durability comparable to those of ExxonMobil’s.
The more recent heights of ExxonMobil’s profitability and political influence during the Raymond and Tillerson eras reflected in part the growing relative power of corporations in the American political and economic system. Corporate profits in 2011 made up a larger share of American national income, when compared to workers’ wages and small business income, than at any time since 1929, when such statistics were first recorded. The United States Supreme Court, in its landmark decision in Citizens United vs. Federal Election Commission, reaffirmed in 2010 the freedom of corporations to fund political advocacy. In the years after the Mobil merger, Raymond and Tillerson oversaw more spending on direct lobbying in Washington than all but two other American companies, General Electric and Pacific Gas & Electric. ExxonMobil had evolved into the most profitable corporation headquartered in the United States—and one of the most politically active—in an era of corporate ascend
ancy.
On July 28, 2011, ExxonMobil announced its profits for the first half of the year. The total came in at $21.3 billion, a whisker under the amount the corporation reported during the same period in 2008, when it set a record for the most nominal profit earned by any corporation in American history.
Eight days later, on August 5, 2011, Standard & Poor’s announced the first-ever ratings downgrade of the bonds issued by the United States Treasury, marking them down from a AAA rating to AA-plus. The Standard & Poor’s downgrade meant that ExxonMobil, one of only four American corporations to maintain the AAA mark, now possessed a credit rating superior to that of the United States.
Standard & Poor’s received intense criticism for its judgment that the American government’s ability to repay its lenders might be in any doubt. Yet the fiscal trajectories of the United States Treasury and ExxonMobil had certainly diverged. In 1999, the year that Exxon’s acquisition of Mobil closed, the federal government and the corporation each took in more money annually than was required to meet expenses. Their paths then divided. In an era of terrorism, expeditionary wars, and upheaval abroad, coupled with tax cutting and reckless financial speculation at home, one navigated confidently, while the other foundered. From the day of the Mobil merger closing until the day of the S&P downgrade, the net cash flow of the United States—receipts minus expenditures—was approximately negative $5.7 trillion. ExxonMobil’s net cash flow from operations and asset sales during the same period was a positive $493 billion.37
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Acknowledgments
