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The Captain May Be Sober Now, but Big Oil Is Still on a Binge

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Prince William Sound, AK -- Twenty years ago, the Exxon Valdez demonstrated forever the hollowness of the oil industry's promise that it could be trusted (because they were good guys) to produce and transport the viscous, dirty black substance that gets most of us to work.

Exxon blamed the Valdez's captain, Joseph Hazelwood, and his drinking for the disaster. Over the course of twenty years, the company spent what anyone else would consider a fortune on lawyers -- repeatedly beating back and eventually decimating the compensation it would pay the fishing communities of Prince William Sound. It even managed to convince the Supreme Court that a modern supertanker was more like an 1830s sailing vessel than it was like an oil refinery -- and therefore that obscure case rulings from that era should trump more modern findings about liability and responsibility. As a result, a $5 billion damage award away was whittled down to $500 million -- one-tenth of what a jury and common sense suggested that the company owed to the fishermen.

And even when the courts did find liability -- as with $92 million the company owes the taxpayers for natural-resource damages -- neither the Bush administration nor the Palin administration in Alaska bothered to collect.

So the fortune on lawyers was well-spent. Sweet work if you can get it.

But if we really want to understand this story, we need to ask ourselves, "Why?"

Is the problem that the oil industry simply attracts people who are greedy, short-sighted, arrogant, immature, lawbreaking, and irresponsible?

Well, perhaps occasionally -- like any other industry. Certain kinds of "get-rich quick," overly testosteroned, and "only-the-present-matters" males probably were drawn to the oil patch. But so were long time-horizon geologists fascinated by the story of what happened millions of years ago beneath the earth's crust, precise accountants who reveled in getting a spreadsheet to accurately tell the financial story of a complex human institution, detail-oriented lawyers who took pride in avoiding lawsuits by managing risk, and ship's captains who loved keeping their vessels out of harm's way.

But the fact remains that the enterprise of finding, extracting, processing, and selling petroleum and its products has a sordid history: Bad government, corruption, violence, environmental devastation, dishonesty, and violence have plagued it for its entire history. "I drink your milkshake," indeed.

Long ago, development economists learned that when a poor and devastated country found itself suddenly in possession of a big oil field, the result was not prosperity but kleptocracy and despair. Almost everywhere, oil states are abysmal places to live., Even in the U.S., most of the states with the highest per capita oil wealth also have the lowest per capita economic indicators.

Why?

Well, oil is produced in a context -- and that context is a really bad neighborhood. Any weaknesses inherent in the people and systems of the industry will be amplified and eventually made predominant by this industrial ecology. Specifically:

1) Producing oil is technically challenging, and the product is toxic but it is not expensive, even at $4 per gallon. As a result, oil companies are forced to pump vast volumes and tightly control expenses so that they can make their money on volume -- not a good formula for such a toxic product.

2) Although an oil economy requires a reasonable number of highly skilled and trained people, it doesn't rely much on the surrounding society and economy. It doesn't require honest courts, a well-educated population, a free press, good housing, decent medical care, or any of the other attributes of a good society. It can be produced in hell -- as long as there are enough security guards to protect its facilities.

3) A relatively small number of people can control the production, processing, and distribution of oil -- so it's an ideal breeding ground for empire, kleptocracy, and criminality -- an oil state is easy to capture in a coup d'etat. And oil states have a tendency to sustain themselves by paying off their inhabitants, as Saudi Arabia does with its Wahhabi clerics and Alaska does with its residents -- rather than by investing in modern economies.

4) Oil is found in one set of places but is valued and consumed in another -- so those who use it don't have to pay the price for producing it. Transplant Levittown, PA, to the Niger Delta, and you'd have a civil war tomorrow.

5) Finally, a few places can produce oil much more cheaply than the rest -- and those places are even more remote from demand centers than the industry as a whole. Saudi Arabia will always be able to out-pump Oklahoma. So the price of oil is volatile because it is, normally, so cheap that consumers don't invest in alternatives. When demand surges, prices spike. When demand slumps, they collapse. This is a formula for discouraging investment in finding ways to produce oil that are better for the neighbors or in creating a sustainable market for alternatives like renewable energy or even natural gas vehicles.

6) Finally, while the extraction and processing of oil is a highly innovative industry, its consumption is technologically sluggish and carefully cartelized to suppress innovation. We don't pump oil with 1970s technology, but we burn it with technology that is at least that old. So while oil companies can, honestly, tell us how much they have innovated, we are still burning their product in internal combustion engines that have barely modernized at all. So even if we make the business of pumping oil clean, we have invested almost nothing to make burning it clean.

Until this industrial ecology changes, the idea of clean oil company will remain an oxymoron. Big Oil can invest in glossy newspaper ads and tell good stories of wonderful people. But at the end of the day, the imperatives of the industry mean that the first modernizing prime minister in Angola will be seen by oil companies as an enemy, global warming legislation will be fought tooth and nail, and the U.S. and Alaska will need to lawyer very, very hard to collect the debts that Exxon-Mobil owes them.

The solution?

Kick our addiction -- don't expect Big Oil to reform.

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