After WPC 2000-1 Industry's spirit of compromise

June 26, 2000
A troubling coincidence this month maps out a difficult future for the oil and gas industry.

A troubling coincidence this month maps out a difficult future for the oil and gas industry. While speakers at the World Petroleum Conference in Calgary tip-toed around political issues under threat of physical protest, a genuine political riot was taking shape in the US. Gasoline prices there had pierced the limit of popular patience.

At the WPC, oil company executives extolled "corporate social responsibility" and "wider responsibilities than just to shareholders" as though the industry needed to be converted. In fact, no one disputes those values. So why the lectures?

In Calgary, with demonstrators held at a comfortable distance by Canadian security police, there were calls for "dialogue" and proclamations of support for the Kyoto protocol on climate change. There were the unchallenged exhortations of Jacqueline Aloisi de Larderel of the United Nations Environmental Program, to "listen to" activists who won't listen back and to participate in discussions about the Kyoto protocol-but not to lobby against it. From all this emerged the image of an industry eager to split differences forever with opponents who won't yield.

Proving commitment

The oil and gas industry doesn't have to compromise itself into oblivion in order to prove its commitment to health, safety, and the environment. Improvements of the latter decades of the 20th Century and continuing in the new century speak for themselves. An industry that, contrary to impressions at WPC, has embraced values once dismissed as "soft" now faces two difficult challenges. One is to keep its activities constructive in human terms wherever they occur-which in many places means outperforming local governments. The other is to counter an antipetroleum political agenda gathering momentum worldwide and given shrill expression in the US this month.

That means acknowledging that governments sometimes act irresponsibly and refusing to split differences when they do.

It is a riot of just such irresponsibility that has erupted in the US over the price of gasoline. The Clinton administration, oozing political sweat over Vice-Pres. Al Gore's bid for the presidency, proclaims not to understand why prices have leaped. Joe Lockhart, the White House press secretary, sees no "legitimate reason" for prices to exceed $2/gal in parts of the Midwest. Gore wants an investigation of oil company profits. Energy Sec. Bill Richardson calls industry explanations insufficient. The Environmental Protection Agency issues a statement ending with this: "The current prices in the Chicago/Milwaukee area are unreasonable and unfair."

These officials are sacrificing the oil industry's understandably strained relationships with its customers on the altar of their political ambitions. Who now can trust them?

Gasoline prices are high and uneven for reasons evident to anyone willing to examine numbers readily available from the government itself. The world, recovering from a period in which demand outran supply, remains short of oil.

In the US, buoyant demand is sopping up all the gasoline that refineries can make. Supplemental supply from Europe isn't available in normal quantity. With product inventories low and the delivery system operating at capacity just to meet immediate need, any operational upset will create big problems. Because neither distillate oil nor natural gas are moving into storage as they should this time of year, things look tight for the heating season. And a mosaic of environmentally related fuel specifications, themselves ever-tightening, annuls the advantage of fungibility from gasoline distribution; hence the mosaic of prices.

Preposterous questions

Given this set of facts, to which the people who buy and sell oil obviously have access, questions from officials paid to keep up with such matters are preposterous. Official concern should be focused on the energy shortage so clearly presenting itself. A government populated by officials turning instead to demagoguery is not one with which the oil and gas industry should expect to travel far along the cozy road of compromise. And Washington, DC, has no monopoly on demagoguery.

The industry needs a gut check. The self-flagellating spirit of political compromise on display in Calgary will lead to trouble. Compromise with absolutism-driver of the antioil political agenda-is capitulation. In no issue is this more evident or more threatening to industry interests than climate change, about which this space will have more to say next week.