Fundamental issues for the oil and gas industry came into focus last week in the announcement of international financial support for the Chad-Cameroon oil-development and pipeline project. The World Bank called the agreement "an unprecedented framework to transform oil wealth into direct benefits for the poor, the vulnerable, and the environment." Cynics will dismiss those words as press-release hype. But the oil industry should make them the foundation for its operations everywhere.
As this space has argued frequently in recent weeks, the wealth benefits of resource development need greater status in energy politics. A two-front assault on oil and gas has consolidated into an effective environmental siege. Exploration, development, and transportation activities disturb Earth's surface, the assailants say. And combustion of hydrocarbons disturbs Earth's atmosphere. Therefore, avoid oil and gas, especially oil.
Insufficient defense
To this, the industry typically offers a two-pronged defense, arguing that: 1) the environmental threats of its surface operations are overstated and in any case manageable, and 2) the economic advantages of energy from hydrocarbons compensate for atmospheric drawbacks, which also tend to be exaggerated. These arguments are valid. They just aren't enough to counter a strengthening prejudice against fossil energy.
It is for that reason that the industry needs to work wealth effects back into debates about its activities. Resource development is the world's best cure for poverty. It is an effective remedy for government fiscal problems. And it is fundamental to the oil and gas industry.
In too many instances, however, wealth created by resource development dissipates through corruption and other chicanery before it can do anything for general welfare. The consequent image is that only oil companies, which legally cannot do much about these problems, benefit economically from the work.
That's what makes the World Bank's role in the Chad-Cameroon project important and its statement about oil wealth deserving of industry applause. The direct financial role will, in fact, be small. Of the $3.7 billion needed for the drilling of 300 wells in the Doba area of southern Chad, 633 miles of pipeline to the Cameroon coast, and related facilities, the World Bank and its affiliates will provide loans of $93 million to the two countries' governments and $100 million to the joint-venture pipeline companies. They also will arrange for as much as $300 million in financing from commercial banks. The rest will come from a consortium comprising operator ExxonMobil Corp., 40%, Petronas, 35%; and Chevron Corp., 25%.
By financing the governments' equity stakes, the World Bank gains political influence unattainable by the private companies and important to the disposition of the state share of project proceeds. The government of Chad, where net economic development value will total $2.5-8.5 billion over the project's life, has agreed to an unprecedented World Bank plan for assuring that the wealth flows to public programs. In Cameroon, where the development benefit is estimated at $900 million, project revenues are covered by a World Bank disclosure program already in place.
Subject to these controls and absent nasty surprises, the project will demonstrate the wealth advantages of resource development. Effects will be most dramatic in Chad, where 56 million people-80% of the population-live on less than $1/day. The government can't afford to provide public services at even minimal levels. Yet within 4 years, the World Bank says, oil production rising toward 233,000 b/d will raise government revenues by 45-50%/year above current levels.
Unique opportunity
"This project provides Chad with a unique opportunity to lift itself out of its extreme poverty," the bank says. "The additional revenue could remove the bottlenecks that constrain growth and create opportunity for the next generation of Chadians."
All the industry has to do now-and not just in Chad-is fulfill the promise, make no mistakes, and demonstrate that humanity's interest in natural resources goes beyond the environmentalist ambition of assuring that nothing ever happens.