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Oil: A Profitable Business

In 2008 ExxonMobil announced that had beat its own record for the highest profit ever recorded by a U.S. company, making US$40.6 billion in 2007; and that its sales, were over US$404 billion, which “exceeded the gross domestic product of all but the 24 richest countries in the world”.[1]  Royal Dutch Shell was not too far behind, it made US$27.56bn annual profits in 2007.  ExxonMobil Chairman Rex Tillerson (February 1, 2017, he was appointed as the United States Secretary of State) commented, “Our long-term investment program in projects, often far from major consuming nations, continued to provide resources essential to the increasingly interdependent global energy supply network”.[2]  As the Rockefeller family have pointed out ExxonMobil does not yet have major investments in alternative energy.  In the first three months of 2008 BP increased its profits 48% to US$6.588bn, from US$4.4bn.[3]  In a private conversation with a senior oil company executive he told me, this is a very profitable business, the cost of production of oil in the Middle East is still very low, as little as a dollar or two a barrel in established onshore fields. At prices in excess of US$100 a barrel most of this is pure profit to the producer.  Between May 2007 and May 2008 the spot price of oil doubled, to around US$130 a barrel, but the cost of production remained essentially the same.  There is an old saying that when looking for the explanation for people’s actions, “follow the money”, the money in the first decade of the 21st century comes out of an oil well.

It is not sufficient to brand oil companies as evil corporations out to ruin the planet, the danger is that they are acting from the best intentions, because they find it convenient to believe that the climate change issue is the creation of scientists who know nothing of the real world, and that technology will develop solutions to the problems that burning fossil fuels have created.  Someone called carbon capture a “get out of jail” card for the coal industry, the danger is that it becomes a justification for the entire fossil fuel industry, even before it becomes an effective solution (and opinion is divided over whether it can be an effective solution).  The same could be said about carbon-trading schemes, which appear to be a way in which the developed world can acquire the right to burn carbon fuels from the developing world, too often an excuse not to reduce fossil fuel use, and something that is open to wide-scale corruption and abuse.  I believe that most oil company executives are doing their best, by their own standards, to make profits and to serve the community; it’s their assumptions we should argue about, not the integrity of the individuals.  The most difficult thing that anyone can do is to change their beliefs, especially when those beliefs are associated with a large and regular income.

Litigation

In this photo released by the Coast Guard, the community of Kivalina, Alaska is shown. Coast Guard and military personnel in an outreach program to foster understanding and relations, as well as provide essential medical and veterinary services visited Kivalina a community of 400, with half of the community under the age of 18. (Coast Guard photo/ Lt. Cdr. Micheal McNeil)

There may however be an unplanned cost for the oil companies; the New York Times reported in February 2008 that lawyers for the Alaska Native coastal village of Kivalina, which is being forced to relocate because of flooding caused by the changing Arctic climate, filed suit in a federal court, the suit alleges that BP America, Chevron, Peabody Energy, Duke Energy and the Southern Company were responsible for the impact of global warming because they emit millions of tons of greenhouse gases and created a public nuisance.  These five companies and three other defendants — the Exxon Mobil Corporation, American Electric Power and the Conoco Phillips Company — were also accused of conspiracy.[4]  If the situation does not change expect a flood of lawsuits from property owners in Florida, and the Netherlands, as the sea rises, and all those billions of people affected by drought, hurricanes, floods and other extreme weather events that are, and will be, related to climate change.  The insurance companies have already indicated their concerns about the levels of possible corporate responsibility.

(c) Andrew Palmer, 2016, Please do not reproduce without permission.

[1] Jad Mouawad – “Exxon Mobil delivers record profit”, International Herald Tribune, February 1, 2008

[2] “Exxon Mobil reports record profit”, 1st February 2008, The BBC.

[3] The BBC – “Rising prices boost Shell and BP”, 29 April 2008

[4] Felicity Barringer – “Flooded Village Files Suit, Citing Corporate Link to Climate Change”, The New York Times, February 27, 2008

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