Tag Archives: oil industry

Oil and Water: The Spoils of the Libyan War

The real battle over Libya’s future has less to do with opposing political factions than with which foreign players will gain control of the country’s natural resources–oil, natural gas, and water. Europe’s leading oil firms are busy jockeying for position in the impending division of the spoils, while insiders watch for China to make its move.Overlooking it all is a growing US  network of drones which could well be the forerunner of a new,aggressive American military presence on the African continent.

A decision on Friday by the UN Security Council frees  the Libyan national oil company of restraints on its financial operations, which  opens up Libya’s ability to pay for reconstruction. That process ought to get a  further lift from Obama’s meeting on Tuesday with the interim government leader Mustafa Abdul Jalil and his decision to reopen the US embassy in Tripoli

Libya currently produces 2 percent of the world’s oil, but two  things make it a more formidable player in the world market than the numbers  would indicate. One is its location, a short trip across the Mediterranean from  Italy, France, and Spain, with ready access to European energy markets. The  other is the fact that Libya has substantial known reserves–the largest in  Africa, and ninth largest in the world–yet most of the country remains “underexplored” and unmapped, offering the possibility of  even greater supplies in the future.

To date, Italy has been the largest beneficiary of Libyan oil  supplies, for a number of reasons. The Italians invaded and colonized Libya in 1911, left it in tatters following the big tank battles of World War II, and in recent years has emerged as a major force in its oil economy and foreign policy. Before the revolt, Berlusconi enjoyed warm relations with Qadaffi. Italy and Libya worked hand in hand in an effort to slow the flow of immigrants from the Red Sea and northern Africa into Europe with the Italian coast guard intercepting boatloads crossing the Mediterranean through the Italian island of Lampedusa, which lies off the Libyan coast below Sicily. Italy also drew one third of its entire oil supply from this former colony.  ENI, the Italian oil giant, is the largest foreign oil company in Libya. Recently Russia’s Gazprom joined ENI in a joint venture to drill for oil under the desert.

The giant international oil companies are socked into Libya and they all have been vying for oil and gas throughout the fighting. According to a report in the Guardian, the London oil trading firm Vitol was in close touch with the rebels, arranging fuel supplies. The new interim government has said France, Britain, and Italy will get favorable treatment compared to China and Russia. Liberation, the French newspaper, reported that Sarkozy cut a deal with the rebels in which France would get 35 percent of the country’s oil in return for military assistance—on the face of it, a pretty wild claim.

ENI’s chief executive officer, Paolo Scaroni, told the Wall Street Journal  earlier this month that the new Libyan government insists it will honor existing contracts. The AP reported executives from Repsol, the Spanish oil firm, were in Benghazi discussing restoring existing operations. Total, the French firm, is preparing to re-enter as well.

Actually the key factor in this game could turn out to be not so much oil, but natural gas. Right now Russia has a near monopoly on gas going into Europe and at an exorbitant price, but its reliability in winter months is questioned. Libyan exports of gas through the Greenstream pipeline to Sicily, also run by ENI, have been increasing. Some industry commentators suggest that natural gas exports might dramatically expand so that Libya acts as a counterweight to the Russians. That, at least, seems to be how the Russians, who stayed well clear of the NATO air attacks, see the situation. According to the AP:

Dmitry Rogozin, Russia’s ambassador to NATO, described its former Cold War rival’s intervention in Libya as legitimate because it was aimed at protecting civilians, but he said Russia believes the underlying reason was access to Libyan oil.

“For Russia, NATO’s operation in Libya indicated that the major interests of the alliance now lay not in Europe’s East — where its adversaries the Warsaw Treaty Pact and the Soviet Union used to be — but in oil-rich lands of Northern Africa and the Middle East,” Rogozin said in an email.

It seems hard to believe existing oil arrangements—some 50 companies have been engaged in the Libyan oil business–will be seriously affected by Quadaffi’s exit, but the sleeper here is China, which already is ensconced in the Libyan economy, and according to Toronto’s Globe and Mail, offered Quadaffi armaments during the war. These included shoulder-held rockets similar to the U.S. Stinger. They were to be shipped through Algeria or South Africa.

Libya now is China’s eleventh largest source of imports. And before the revolt, 36,000 Chinese were working on 50 different projects within the country. China played both sides during the revolt. While it was peddling arms to Quadaffi, Ma Zhaouxu, spokesman for the Chinese Ministry of Foreign Affairs, issued a statement saying, “The Chinese side respects the choice of the Libyan people.
The Chinese side is willing to work with the international community to play a
positive role in the reconstruction process of Libya in the future.’’

Water presents an equally controversial subject in Libya. Quadaffi’s ambitious Great Man Made River, a 2,333 mile network of irrigation pipes drawing water from acquifers beneath the southern desert and turning the arid wastes into lush farmlands. It sounds like a project imported straight from the Colorado river whose diversion has transformed much of the US desert west into into green farmlands and pleasing suburban front lawns. And, in fact, it was Armand Hammer’s Occidental Petroleum that seems to have introduced earlier and smaller versions of this irrigation scheme.

There is one big hitch to this water project. The desert aquifers, as Sandra Postel of Worldwatch, points out in her book Last Oasis, were filled with water 30,000 years ago when there was considerably more rainfall than there is today. In examining this project, engineers now predict the desert aquifers will be sucked dry within 40-60 years. The water will all have been pumped up to the Mediterranean coast for agriculture.The original coastal water sources have been exhausted. So, by then the food and water purchased with oil money will be gone and the whole thing will go down in history as folly.

To defend against such an eventuality Quadaffi looked further afield to line up more water. He hit on Mali a poor country, which up to the present time, was made self sustainable by prudent use of shallow ground water wells. Fred Pearce in Environment 360, a Yale publication, describes the sorry story of what happened when Quadaffi fixed his gaze on Mali:

Libya’s wholesale move into Malian irrigation and agriculture is the result of a secret deal between Mali’s president, Amadou Toumani Toure, and Libya’s Colonel Gadaffi. Paid for by Gadaffi’s sovereign investment fund, the Libya Africa Portfolio Fund for Investment, the deal hands the land to a Libyan-controlled organization called Malibya for 50 years and gives the Libyans undisclosed rights to the region’s water. Why would the Mali president sign up to this?

Local campaigners say their government is in thrall — and hock — to Libya because it has become dependent on Libya for aid and investment. Many of its civil servants work in offices built by Libya, and international visitors stay at Libyan-built hotels. And, says Lamine Coulibaly, head of communications for the Mali small farmers’ union, CNOP, the government is so obsessed with getting investment for its agriculture that it cannot see when that investment will do more harm than good to its people.

The infrastructure for agribusiness is in place, and if Libya manages to siphon off water from sub-Saharan Africa into growing crops for Europe and likely the United States, it will be a major player in food as well as fossil fuel supplies. All this will provide the money for the new government, which may or may not provide some form of limited democratic rule.ilitary

There is another aspect to the future of Libya and that has to do with US military ambitions in Africa. These are driven by determination  to root out terrorrists;\ over the long term,they may well be intended to check China which sees Africa as a fuels bin and already has built up an  expansive economic network on the continent.The Washington Post’s report Wednesday morning of growing US drone operations in Africa suggests an expanded US military presence on the continent where heretofore it has been minimal.

The U.S. Government, Brought to You By Big Oil

Long may she wave: The flag of the United States of Oil

Oil companies have begun to “weigh strategies to fight off tougher regulations” in the wake of BP’s spill to end all spills, the New York Times reported earlier this week. Supposedly, the companies are nervous because of President Obama’s angry takedown of the oil industry last week, as well as rumblings in Congress, where there are now efforts “to extend bans on new offshore drilling, strengthen safety and environmental safeguards and raise to $10 billion or more the cap on civil liability for an oil producer in a spill.”

Frankly, I don’t buy it. I’m quite willing to believe, as the Times story says, that the petroleum industry’s lobbyists have kicked into high gear. But I can’t believe the companies are really all that worried. Ever since John D. Rockefeller founded Standard Oil in 1870, the federal government has pretty much given the oil men exactly what they wanted, when and where they wanted it–from oil depletion allowances to tariff protection to cheap leases on the federal public domain (which includes the outer-continental shelf in the Gulf of Mexico, site of the Deepwater Horizon disaster). Periodic government attempts to contain or regulate the industry have been little more than temporary annoyances, rather than major obstacles to Big Oil’s power or profits. This is hardly surprising, considering the kind of influence the oil companies wield at all levels of the U.S. government.

In 1911, for example, the U. S. Supreme Court found that Standard Oil, which was then controlling 85 percent of the industry, had violated anti-trust laws and conspired against the public good. “For the safety of the Republic,” the Court declared, “we now decree that this dangerous conspiracy must be ended” within six months. Standard Oil was broken up into a few dozen closely related smaller companies–the only result being that the nation’s energy lifeline was controlled by a cartel instead of a monopoly.

Another serious stab at regulation began in 1938 with the passage of the Natural Gas Act, which again tried to combat monopolistic pricing by giving the Federal Power Commission (predecessor to Federal Energy Regulatory Commission) the authority to set “just and reasonable rates” for the transmission or sale of natural gas in interstate commerce. In 1954, in the Phillips decision, the Supreme Court held that the federal government should also regulate the price of natural gas at the wellhead–that is, at the point where the gas comes out of the ground. For the better part of a decade, the government fiddled around doing nothing, but then in the early Kennedy administration, the FPC came up with an area pricing plan. Although the focus here was on gas, everyone knew it was a warning shot at the oil industry, which owned and controlled most of the natural gas. To price gas, it would be necessary to get at the oil industry internal documents, revealing such things as the amounts of reserves, costs, and the like.

Immediately, the big oil and gas companies warned we would run out of gas if prices were not raised to stimulate greater production. In 1974, during the (largely manufactured) energy “crisis,” the FPC took the first steps to undercut its own proposed regulations by giving in to industry and hiking prices. Under Jimmy Carter, the government began the formal process of deregulating gas, a policy which carried forward under Reagan and both Bush’s as part of the Republican right wing’s drive against regulation. Once the government gave in, the gas shortage disappeared and today we are supposedly awash with gas. All this was accomplished by industry manipulation of production and reserve figures—the same thing that has happened during all oil “shortages.”

In the wake of the BP disaster, it’s become abundantly clear that the oil industry itself has been writing the rules for offshore drilling, and not federal regulators at the Interior Department’s Minerals Management Service. “Nearly 100 industry standards set by the American Petroleum Industry are included in the nation’s offshore operating regulations,” McClatchy reported last month. “The API asserts that its standards are better for the industry’s bottom line and make it easier to operate offshore than if the Minerals Management Service set the rules.”  

The Washington Post reported on Thursday that the MMS approved “categorical exclusions’’ from environmental review for BP’s offshore wells in the Gulf, including the Deepwater Horizon. Congressional probes already suggest Minerals Management worked in collusion with BP and other oil firms to increase offshore production without regard to safety or environmental standards. Over the last month, the litany of MMS’s failures, and its more than “cozy” relationship with the oil industry, has been extensively documented by the press (including MJ’s Kate Sheppard, here and here).  With government oversight of this caliber, we ought to stop wondering how a disaster like the Deepwater Horizon spill could happen, and start wondering where it’s going to happen next.

Failure to devise any sort of meaningful regulation of the oil and gas business means that we really don’t know what the industry does, or where or how. Information on the country’s reserves are left in the hands of the companies, not the federal government. Since the US Geological Survey, which is supposed to map the public domain never had the money to do the job right, large parts of the public lands have not been thoroughly mapped by anyone but the companies that exploit it. Relying on industry data has resulted time after time in false information–as in the case of gas in the 1970s energy crisis–to inflate or deflate the amounts of oil and gas reserves.

Beyond failing at its own oversight function, the workings of the MMS also make it difficult for independent analysts to assess what is really going on. Earlier this week, a coalition of scientific societies underlined the problems in a letter to Interior Secretary Ken Salazar:  

Without a transparent and ethical process for dealing with scientific research and scientific conduct, the science that is performed at DOI may be called into question. This will not only harm the reputation of DOI, but will threaten the conservation of the nation’s treasured natural resources.  To ensure that science is being used properly to implement natural resource decisions, science should not be suppressed, scientific misconduct should be punished, and scientists who report suppression or other scientific misconduct should be afforded whistleblower protections.  Additionally, the science that informs natural resource decisions must be clear, transparent, and subject to independent peer review.

Such changes are unlikely to be implemented even in the wake of the BP spill. The secrecy surrounding federal energy policy was underscored by the confidential meetings organized by Dick Cheney with the oil and gas industry, as part of the Vice President’s “task force” to design a new national energy policy in the early years of the Bush Administration. Those meetings, the details of which remain hidden from the public—their confidentiality supported by the courts—are the most glaring recent example of energy policy formed in secret, and in collusion with the energy industry. In other words, in America, the oil companies not only write their own regulations and perform their own oversight; they also set energy policy and draft laws.

In addition to having their way with the executive and legislative branches of government, the oil companies have largely triumphed over the judicial system as well. Government policy plays into oil company interests not only by letting them do as they please, but also in limiting their liability when things inevitably go wrong. On “Meet the Press” last Sunday, White House energy advisor (and former Clinton EPA head) Carol Browner repeated the pledge that BP would pay all cleanup costs for the spill. This is true, as far as it goes, and BP too has promised to pay for the cleanup. But you can just see lawyers haggling in court over what constitutes a cleanup cost.

In addition to the outright cleanup costs, BP also  faces cost of  up to a total of  $75 million for damages not associated with the oil spill itself—such things as fishing and tourism. That amount would be woefully insufficient in this case. Finally, some of the $1.6 billion stashed in Oil Spill Liability Trust Fund could be spent in a cleanup. This fund is made up of industry taxes of 8 cents per barrel, and there is a cap of $1 billion on how much of that can be withdrawn. The House  recently undertook efforts to raise the cap and increase the industry taxes going into  the Oil Spill Liability Trust Fund. But since this Trust Fund is created by taxing oil, you can be sure that one way or another, the cost will be passed on to consumers, rather than coming out of oil company profits.  

Finally, the Supreme Court could decide to give a special parting gift to BP, as they did to Exxon following the Valdez spill. In that case, an Anchorage jury brought in a verdict of $5 billion in punitive damages against Exxon. In 2008, after nearly two decades of litigation, the Supreme Court reduced the damages to $500 million–a tenth of the original verdict. The decision, written by Justice Souter, cited ”the need to protect against the possibility…of awards that are unpredictable and unnecessary, either for deterrence or for measured retribution.” It’s hard to believe five Supreme Court Justices believed that $5 billion wouldn’t be a more effective “deterrent” to future negligence than $500 million. But apparently, the highest court in the land wanted to make sure that a jury of citizens didn’t go overboard in demanding responsible behavior from America’s favorite industry.

Obama’s “Revelations” and the Oil Industry’s Slimy History

“What’s been made clear from this disaster is that for years the oil and gas industry has leveraged such power that they have effectively been allowed to regulate themselves,” President Obama said last week in his press conference on the BP oil spill. “I was wrong,” he declared,  “in my belief that the oil companies had their act together when it came to worst-case scenarios.”

Ya think? If this isn’t a textbook example of closing the barn door after the horse is out, I don’t know what is. In fact, it isn’t even closing the door so much as acknowledging that the barn actually has a door, which we might want to consider using once in a while if we don’t want the horses running wild. What the President’s statement reminds me of most is Alan Greenspan’s admission, after the economic meltdown took place, that there just might be a tiny “flaw” in his approach to financial regulation. “I made a mistake,” Greenspan told Congress in October 2008, “in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”

In the aftermath of his press conference, political pundits seem to be focused on whether Obama–and by implication the federal government–was taking too much responsibility for the spill, or not enough. Only a few have pointed out the patent absurdity of believing in the first place that the oil companies could be trusted to “have their act together” when it came to either preventing or dealing with massive spills. The history of global oil spills over the last half-century shows a pattern of carelessness and ineptitude on the part of the industry–and of failure on the part of governments who tried to intervene after the fact.

When the tanker Torrey Canyon drove straight into the rocks off Land’s End in Britain in 1967, spilling its 31-million-gallon cargo, chemical dispersants were spread on the expanding slick with no result. According to the “Report to the Committee of Scientists on the Scientific and Technological Aspects of the Torrey Canyon Disaster,” the British Air Force was called in to set the oil afire by bombing it. Some of it eventually caught fire; most of it did not. A Dutch salvage team  thought they could fix things by pulling the ship off the rocks, but the tow cable broke. The spill ended up killing marine life and spreading glop all over the beaches of Southern England and some in France as well.

In 1969, a well on the outercontinental shelf six miles off Santa Barbara, California, went out of control. All initial efforts to control the spilling oil were as futile. When the flow was finally stopped after 11 days, 3 million gallons had escaped and coated the pristine beaches of Santa Barbara channel. (At the time it was considered a devastating disaster, and helped fuel the fledgling environmental movement in California–though the numbers sound almost quaint compared with the current BP spill.) After the Santa Barbara spill, the U.S. government came up with a plan to keep teams of experts from different parts of government on standby, so they could fly in and assess damage in the event of a spill.

In 1969 alone, the Coast Guard was reporting 1,007 oil spills in U.S. coastal waters. Many others were not reported. (It was standard practice for ships to pump waste oil into the water on approaching port.) That same year, a Woods Hole Oceangraphic research project in the Sargasso Sea, reported “quantities of oil-tar lumps up to 3 inches in diameter were caught in the nets…It was estimated that there was three times as much tar-like material as Sargasso weed. Similar occurrences have been reported worldwide by observers from this as well as other institutions.’’

In 1970 an Onassis tanker called the Arrow hit Cerberus Rock off Nova Scotia.  It was the Torrey Canyon all over again. Detergents were sprayed with no effect. The U.S. Army dispatched teams armed with  flame throwers to burn it up, which didn’t work. Chemists from Pittsburgh Corning Glass arrived with bags of little glass balls intended to act as wicks for burning the oil, but these did not ignite. Fiberglass collars set up to keep the spreading oil out of a fish processing plant also failed. Attempts to pull the ship off the rocks were futile. Eventually a gale broke the tanker’s back and the stern sank in one hundred feet of water with one million gallons of congealed crude oil aboard. In this case, by pure luck, the remaining oil stayed inside the tanker until a salvage team pumped it out a few months later.

In 1979, Pemex’s Ixtac oil well, in the Gulf off of Campeche, Mexico, suffered a blowout. Through various measures–some of them similar to those currently being used on the Deepwater Horizon spill–the flow of oil from the blown well was slowed from 30,000 to 10,000 barrels a day, but it took nearly ten months for it to be stopped completely. By that time, an estimated 3 million barrels had reached the U.S. Gulf coast. 

The 1970s through the 1990s saw more than a dozen spills larger than the Exxon Valdez, pouring oil into the waters off Trinidad, Uzbekistan, Iran, Angola, South Africa, France, Italy, Greece, Spain, Portugal, Turkey, Ireland, Scotland, Wales, Mozambique, Chile, and Sweden.

As for the Valdez disaster itself, its effects still linger nearly two decades after the 1989 spill. During that time, suits against Exxon made their way through courts, resulting in a $5.5 billion jury trial settlement. But the Supreme Court later thought this was too much money, and cut the settlement to $1 billion. No fine ever levied against the oil industry has seriously inhibited its ability to keep doing business as usual–or employing lobbyists, or making campaign contributions. And to my knowledge, no oil company executives have ever gone to jail for the environmental devastation caused by their negligence or greed.

This, perhaps, is the real lesson of history when it comes to oil spills: It isn’t enough, even, to close the barn door, if you allow the horses to keep making hay.

Obama/Nixon

Most people old enough to remember the intricate details of the Watergate scandal are rapidly approaching geezerhood, if they aren’t established geezers already. (If you were an adult when Nixon resigned, you’re over 50 now.) So readers of Unsilent Generation may be interested in a story posted recently by my colleague at Mother Jones, David Corn.

The Rose Mary Stretch

The Rose Mary Stretch

It seems that a former NSA staffer and amateur historian thinks he has found a way to recover some of the infamous 18-minute gap in the Watergate tapes, in which the president and his chief of staff, Bob Haldeman, discuss the recent break-in by their team of dirty tricksters at the Democratic National Committee’s Watergate offices.  This gap was discovered when Nixon finally released the tapes, after resisting for months (and firing half of his own Justice Department over the issue in the Saturday Night Massacre). Nixon’s loyal secretary, Rose Mary Woods, later said that she had inadvertantly erased part of the tape by stepping on a pedal while she reached over to answer the phone–a move so unwieldy and implausible that it came to be know as the “Rose Mary Stretch.”

All this cloak-and-daggering in the Oval Office might seem pretty amusing, 35 years after Nixon boarded his plane back to San Clemente–if only history hadn’t repeated itself so many times. There’s a reason why the recent film Frost/Nixon wasn’t seen as simply an overblown tale of two has-beens trying to redeem themselves. When Nixon says, in one of his interviews, “When the president does it, that means that it is not illegal,” he could be expressing the credo of the Bush/Cheney White House.  In fact, some of Tricky Dick Cheney’s sinister machinations make Watergate look tame by comparison: Nixon, after all, was mostly just trying to get re-elected, not toss out the Constitution and take over the world.

Things may have gotten better since January 20, 2009. But as John Nichols pointed out in the Nation last week, we’re still a long, long way from the executive branch transparency Obama promised in his campaign. In particular, the Obama White House’s clandestine deals with Big Pharma and other health care industry representatives are starting to sound a lot like Dick Cheney’s secret sessions with oil companies to set energy policy–maybe not quite as bad, but bad enough. And as Nichols puts it, “bad-but-not-quite-Cheney-bad is an unacceptable standard.”