AMOCO: SLOW MIDEAST DEPENDENCE, LOOK TO U.S.S.R., EASTERN EUROPE

The U.S. should take firm steps to slow its growing dependence on Middle East oil, including consideration of a Western Hemisphere energy alliance, says the chairman of Amoco Corp. If such an alliance were formed, U.S. problems with energy supply security could be well on their way to solution early in the next century, H. Laurance Fuller told an Institute of Internal Auditors seminar last week in Chicago.

March 11, 1991

5 min read

The U.S. should take firm steps to slow its growing dependence on Middle East oil, including consideration of a Western Hemisphere energy alliance, says the chairman of Amoco Corp.

If such an alliance were formed, U.S. problems with energy supply security could be well on their way to solution early in the next century, H. Laurance Fuller told an Institute of Internal Auditors seminar last week in Chicago.

Meantime, Middle East upheavals and declining oil production at home make the Soviet Union and eastern Europe attractive investment opportunities for U.S. oil companies, the president of Amoco Production Co. says.

Patrick J. Early last week expressed optimism about the future level of exploration and production, "particularly outside the U.S.," in remarks to a Petroleum Finance Co./Petroleum Intelligence Weekly conference in Washington.

"In particular," he said, "I believe the Soviet Union and eastern Europe may become an increasingly powerful magnet for investments by U.S. and other western oil companies."

FREE TRADE ALLIANCE

Fuller said there is significant support in Congress and negotiations are expected to begin this spring on a North American free trade zone among the U.S., Mexico, and Canada, while trade talks with countries such as Venezuela have intensified.

In the area of energy, a hemispheric alliance would face formidable obstacles, Fuller said, including political and constitutional roadblocks in Mexico and Venezuela.

"Nevertheless," he said, oil producers in these nations are eager for U.S. investment and willing to compete in the U.S. market with other producers."

Such an alliance would not result in total hemispheric energy independence in the near term, Fuller cautioned, "But its implementation would certainly alleviate much of the national concern caused by our overreliance on unstable Middle East sources of energy supplies."

While a viable energy trade relationship already exists in the Western Hemisphere, Fuller said, the global arena has never in his lifetime been more volatile, more uncertain, and more replete with opportunity. "And never, at every level of human endeavor, has the subject of planning been more central or more important."

AMOCO STRATEGY

Amoco's plans include finding and developing more U.S. gas and increased emphasis on international exploration and development.

"Natural gas, found and developed within our national borders, represents a secure supply of vital energy for this country," Fuller said.

Recoverable U.S. resources of natural gas and natural gas liquids could be substantially higher than recoverable volumes of U.S. oil, he said.

"Besides a greater measure of security, natural gas provides environmental advantages," Fuller said. "it is the cleanest burning fossil fuel. It is becoming the fuel of choice for electrical power generation as more environmental obstacles appear to block the burning of coal, while difficult economics and excessive emotionalism prevent increased use of nuclear power."

Fuller said supply and demand factors point to an enhanced role for gas in future U.S. energy mix.

Worldwide, Fuller said, prospects for finding oil are considered better in many countries of Asia, Africa, and Latin America than in the U.S. As a result, Amoco, like many other oil companies, is moving a growing share of its exploration and production program outside the U.S.

SOVIET UNION, EASTERN EUROPE

Early said opportunities for exploration and production by outside interests in the Middle East are likely to remain limited. So industry interest may be expected to turn to areas that have not been associated with development by private companies in the past.

The Soviet Union, Early noted, is the world's largest oil producer with oil reserves of about 80 billion bbl-largest outside the Persian Gulf-and gas reserves equal to 40% of the world's total.

And the country may contain an additional 100 billion bbl of oil.

"The political and economic structure of the Soviet Union is evolving in ways that encourage investment by Westerners," Early said. "Many problems remain before these investments take place. Not the least of these difficulties is the uncertainty over the future course of political changes in the Soviet Union."

Early pointed out that Amoco has had a number of years experience in attempting to launch an investment in the Soviet Union.

"I can testify that the process is arduous and requires a degree of patience beyond that needed for more traditional investment areas," he said.

Early noted that while eastern Europe does not possess the huge resources contained in the Soviet Union, several countries have established production and are developing a commercial environment that is amenable to outside investment.

He said, "Impetus has been added for western oil company participation since these countries may be forced to become more reliant on indigenous sources of oil and natural gas if supplies from the Soviet Union become scarcer or more expensive. "

There are other compelling factors encouraging oil company interest in the Soviet Union and eastern Europe, Early said.

"The established production in these countries increases the likelihood of successful future development. Similarly, we would expect the successful companies to center their activities where the resources are, whether in the Soviet Union and eastern Europe or in other areas of established production."

Early said as the industry moves more aggressively into areas of nontraditional investment, the desire to spread risk through strategic alliances may grow.

"By pooling capital, management resources, and technological capability, alliances between private firms and among private and state owned entities may realize more effective development programs at more acceptable levels of risk than independent programs could ever achieve," Early said.