Private Empire: ExxonMobil and American Power

by Steve Coll

  They commissioned fresh assessments from ExxonMobil’s own scientists, but also pushed the scientists to develop analysis from outside the corporation. The review produced proprietary, inch-thick white papers from outside scientists and technologists, papers designed to double-check or challenge in-house findings and assumptions.

  By 2007, Irving’s planners felt they had a solid grip on the state of solar and wind power technologies. While the corporation forecasted rapid growth in those industries, aided by government subsidies, ExxonMobil did not regard solar or wind as a meaningful threat to its business. For one thing, solar and wind systems generated electric power and had little direct impact on transportation fuels, the heart of the oil industry. Natural gas, ExxonMobil’s principal contribution to power generation, promised to be price competitive with solar and wind for many years to come, and because of the relatively low carbon content in gas, that fuel would likely benefit from more intensive climate regulation, if such regulation emerged.

  ExxonMobil now considered such regulation more likely than not: Although the corporation’s Washington office still lobbied vigorously against a price on carbon, Strategic Planning in Irving now assumed, for purposes of its annual forecasting, that carbon taxation or limitations would be enacted in the United States in the future. There was inevitable tension between Tillerson’s leadership group and Dan Nelson’s Washington shop—in effect, the corporation’s forecasters were betting against Nelson’s ability to ward off climate bills. There was a risk that Irving’s analysis would become self-fulfilling prophecy, if it led ExxonMobil to change its lobbying position on climate policy to appease rising Democrats. Nelson argued, in the manner of the former marine that he was, that capitulation would be premature and that ExxonMobil should stick to its guns.7

  Only technology—not Washington policymakers—was likely to ambush ExxonMobil. The only area where a breakthrough might be deeply consequential would be in transportation—some leap that suddenly changed how most cars and trucks were powered. As of 2007, the most oft-discussed scenarios for such a revolution in transportation fueling involved the possible emergence of hydrogen fuel cells, biofuels derived from plants, and the growth of battery-powered vehicles. The team Colton helped to coordinate examined all of these possibilities in depth.

  Hydrogen is the most abundant element in the universe, but it does not typically present itself in isolation; it promiscuously gloms onto other elements to form compounds such as water. Once separated, however, hydrogen can be burned to create energy while releasing relatively few harmful emissions. Hydrogen optimists have fantasized about its potential as an abundant, environmentally sound, affordable car and truck fuel since the 1960s, when the technology emerged from research to support the U.S. space program. After September 11, hydrogen advocates reached President Bush and prompted his decision to fund new research at the Department of Energy. However, a sober 2004 National Academy of Sciences study soon listed the “major hurdles” that stood in the way of a hydrogen miracle, noting, “The path will not be simple or straightforward.”8

  ExxonMobil’s corporate planning analysts had monitored hydrogen research for many years; they were well familiar with the element’s industrial uses and difficulties, and they felt confident that the United States was not on the verge of any sudden, transformational turn into a hydrogen-based-energy economy. Sally Benson, the scientist who ran the ExxonMobil-funded research partnership at Stanford University, believed that “three or four near-miracles” were required before hydrogen could threaten gasoline, although she pledged her program to pursue them.9 After Bush launched his FreedomCAR initiative, ExxonMobil appointed one of its transportation fuels specialists, Buford Lewis, to travel and speak worldwide about hydrogen’s potential, but also, pointedly, about its limitations—Lewis traveled with carefully composed PowerPoint slides, derived from Irving’s public policy issues binder. The slides acknowledged hydrogen’s theoretical potential as a car and truck power source but laid out in detail the practical challenges. These involved the expense and risk of building a national hydrogen infrastructure, the problem that much dirty energy was often required to separate hydrogen from other compounds in order to burn it cleanly, and the difficulties of engineering viable fuel cells that could fit and operate inside vehicles economically.10 Lewis was eventually recruited to serve as ExxonMobil’s principal lobbyist in the United States Senate. He worked the Senate aisles alongside Dan Nelson by the time of Bush’s “addicted to oil” speech.

  Bush also pledged to redouble the federal government’s investments in ethanol, a form of alcohol. Might that be the “black swan” fuel that upended ExxonMobil’s oil and gasoline business? The chemical processes by which ethanol could be extracted from sugar and grain had been known to mankind for centuries—mainly because they produced an alcohol that made people drunk and happy, or at least temporarily distracted them from their miseries. Ethanol had also been burned as a fuel in the industrializing West since the early nineteenth century, but it was not as efficient as oil-derived fuels such as kerosene. It first emerged as a subject of possible federal regulation and mandates for use in the United States after the oil shocks of the 1970s. In that era’s search for freedom from Middle Eastern oil, ethanol distilled from corn surfaced as a possible solution. The fuel’s advocates—primarily in the agricultural Midwest—also promoted ethanol blends as a way to reduce air-polluting carbon monoxide emissions from burned gasoline. Initially, gasoline blenders added MTBE to their fuels to reduce carbon monoxide pollution. When concerns about MTBE’s impact on human health surfaced, ethanol reemerged as a potentially safer alternative.

  Ethanol refiners and corn growers around Chicago and other midwestern population centers organized themselves into a Washington advocacy group, the Renewable Fuels Association; hired lobbyists; and pushed Congress to adopt a mandatory national production level of ethanol—a forced march to freedom from oil. Ethanol mandates would also raise corn prices and enrich farmers. Like other farm subsidies, the push for ethanol in Washington was enabled by the constitutional makeup of the United States Senate, where sparsely inhabited farm states enjoyed disproportionate clout because each state elects two senators no matter its population base.

  Many late-model American cars could burn fuels with up to 85 percent ethanol, mixed with gasoline, without being modified. The potential benefits of ethanol included the ability to grow corn for transportation fuel within the United States, substituting this for foreign oil, and the fact that ethanol blends produce fewer global warming emissions than pure gasoline. The drawbacks were substantial, however—primarily the lack of enough arable land, even in the vast United States, to produce the tons and tons of corn needed to manufacture ethanol in the volumes required to support American driving habits. Brazil, straddling the equator, produced ethanol efficiently from its abundant sugar crop, but the United States could not match that feat with corn. By directing so much corn production into ethanol manufacturing, the United States risked raising food prices at home and abroad. Nonetheless, in 2004, lobbied by farm-state politicians such as South Dakota’s Tom Daschle, then the majority leader of the Senate, Congress passed a fifty-one-cent-per-gallon subsidy for ethanol. The next year, Congress enacted an Energy Policy Act that mandated an annual minimum use of ethanol, rising from 4 billion gallons in 2006 to 7.5 billion gallons in 2012. Lee Raymond refused to support the bill, given its webs of complexity and subsidy; he found it a “totally politically driven process.” It requires about 1.5 gallons of ethanol to power a car as far as 1 gallon of gasoline would. Between this gap and the federal price subsidy, the true cost of ethanol ranged as high as six dollars per gallon in noncorn states by 2006, according to the calculations of Harvard University environmental studies professor Michael B. McElroy.11 Two years later, Congress extended the ethanol mandate even more dramatically, setting a target of 36 billion gallons of annual biofuel use by 2022, or about 20 percent of total transportation fuel. That might not destroy ExxonMobil’s
gasoline-based business model, but it was a large number. Was it realistic? That was the fundamental question that the ExxonMobil team conducting internal technology reviews sought to answer.

  Most of this hoped-for Congress-mandated biofuel would have to come from as-yet-unproven technological innovations that might allow “cellulosic” ethanol to be derived efficiently from dense plants—specially engineered stalks, wood chips, or switchgrass. The emergence of such a fuel might address the problem with existing ethanol technologies: that all the corn on all the land could not make enough ethanol to power 20 percent of American cars and trucks.

  Fundamentally, ExxonMobil’s executives doubted the transformational potential of ethanol; as with wind and solar, executives knew the technologies and chemistry well enough, from past work with them, to have earned their skepticism. Tillerson derisively referred to ethanol in public as “moonshine.”12

  ExxonMobil’s downstream gasoline refining and retail division had produced and sold ethanol for years, and its technicians scoffed at the idea that it would be possible to produce anything like 36 billion gallons commercially by 2022. The corporation’s strategic research partners at Stanford University noted, too, that all of the energy in all of the biomass on Earth is only six times greater than the total energy used worldwide; it would be hard, therefore, for plant-derived fuels to produce a dramatic change in energy production patterns, no matter how great the technological leaps forward. Still, plants did produce liquid fuels, which were convenient for transportation use, and humankind had already learned how to farm, so there was at least the potential for a transformational surprise.

  In Irving, Strategic Planning turned to the corporation’s Biomedical Sciences laboratories in Clinton, New Jersey, to head the review. Its scientists were asked to start with the most basic questions, familiar though some of them might seem: What is the science? What are the relevant technologies? Who are the leaders in the field? “We pulled together a pretty high-powered team to look at . . . literally all of the biofuel options,” recalled Emil Jacobs, the vice president of research and development at ExxonMobil’s engineering division. They evaluated four factors: One was the ability to scale a fuel, that is, to produce enough volume to have a meaningful impact on American or global fuel markets. Second, they dug into specific technical challenges facing innovators in each fuel type. Third, they reviewed environmental impacts, such as land use, water use, carbon dioxide emissions, and other by-products. Finally, they analyzed cost and economic factors.13

  They concluded that Congress’s ethanol mandates were a fantasy. Globally, because of the efficiencies available to sugar-producing countries such as Brazil, ExxonMobil forecasted production of 40 or 50 billion gallons of biofuels annually within two decades; even so, that would amount to no more than about 3 percent of total oil production. In the United States, “the 35 billion gallons [the approximate federal mandate]—you can’t do it—and there is no technology that can get you there” in the time frame ordered by the government, Ken Cohen, the corporation’s public affairs chief, declared. Another Irving executive was equally blunt: “We just ignored it because we don’t think it can be done.” Only government subsidies and mandates made ethanol competitive in the United States. ExxonMobil refused to enter subsidized businesses because the subsidies might not prove to be durable, and also because any subsidy known to benefit ExxonMobil would almost certainly fall to political assault. Nonetheless, ExxonMobil was routinely accused of biofuel denial and obstructionism. Cohen replied, “It’s strange for some to want ExxonMobil to get into businesses that would require a government subsidy.”14

  Battery technology interested ExxonMobil’s corporate strategists most of all. If there was one emerging energy technology that seemed to have the practical potential to disrupt the oil industry’s assumptions about the transportation economy, this was it. “I always put batteries in the category of game changers,” an ExxonMobil executive involved in the strategic technology review recalled. The most important questions involved the potential for breakthroughs in the “energy intensity” of batteries, which referred to the ability of a car battery to store and release large amounts of power at a competitive cost.

  ExxonMobil’s corporate planners had already concluded by 2007 and 2008 that gasoline hybrid vehicles—those that combined existing battery technology with a traditional combustion engine—would be very successful in the marketplace, although the growth of sales of these vehicles, they believed, would be gradual and would not threaten the fundamentals of the oil business in the United States or abroad. A more disruptive scenario might involve the rapid adoption of all-electric or plug-in cars. That was a focus of ExxonMobil’s white-paper research.

  “In the case of batteries, we felt we had to bring in some outsiders,” the executive involved recalled. “And they spent a considerable amount—I’m talking many, many months—looking at this. . . . ‘Here’s the technology, here’s where they are, here’s the likely breakthroughs or possible breakthroughs.’”15

  ExxonMobil conducted its own in-house battery research, in its chemicals division, and so it also employed scientists who were familiar with the core issues. The corporation also maintained research partnerships not only with Stanford and M.I.T., but with car manufacturers in Detroit and Japan; during the technology review, corporate planners reached out to all these sources to help study the technical questions about a prospective battery revolution.

  The internal study’s conclusion, the executive involved recalled, was that “there is just nothing there . . . no pathways we see to cracking that code.” The main obstacle was “the cost of batteries as a storage device.” Gasoline hybrids made “a lot of sense,” particularly when you combined batteries with combustion engines that could increase their fuel efficiency in the years ahead, through improved engine designs. But the “technology is just not there” for a step up to a radical new transportation economy dominated by all-electric vehicles, the study concluded.16 There might be some early adoption of all-electric plug-ins, particularly if the sale of such cars was encouraged by government subsidies. Hybrid growth would probably contribute to an overall 20 percent decline in oil use for transportation in the United States within two decades, but that reduction would be more than offset by growth in car and truck consumption in China and other developing countries, and so the net effect to ExxonMobil, as a global oil producer, would be inconsequential. For the time being, the review found, ExxonMobil could rest easy: There would be adjustments ahead, but the gasoline and diesel industries were not about to be wiped out by a great leap forward in battery innovation.

  Rex Tillerson believed that transformational technological change would upend the oil business and global energy economy eventually. Breakthrough batteries might be the pathway, or breakthrough biofuels, or cheaper, more efficient solar technology, or some combination of those technologies, or perhaps something unimagined in the present. Not anytime soon, however. For two decades and probably much longer, Tillerson’s Management Committee concluded after its reviews were completed and digested in 2008, ExxonMobil could feel secure about its investments in oil and gas.

  The corporation nonetheless remained vulnerable to unexpected, game-changing disruptions, its senior executives in Irving believed. In their view, however, the most likely strategic surprises would not involve technology. “Geopolitics, by far, is the largest uncertainty in the entire world of energy,” one of the executives involved in the strategic technology review said afterward.17 As the review wound down, events proved the point. By then, the most material and volatile facts in the global oil business arose not from alternative energy technology labs. They involved extortion rackets, kidnapping, and maritime piracy carried out by militia cult leaders in the swampy deltas of Nigeria. Here, too, ExxonMobil and the Bush administration struggled to align their interests and their influence.

  Twenty-one

  “Can’t the C.I.A. and the Navy Solve This Problem?”

  Around 9
p.m. on October 3, 2006, seven ExxonMobil contract workers—four Scotsmen, a Romanian, a Malaysian, and an Indonesian—sat drinking in Nancy’s Bar, a bush-hut pub inside the oil corporation’s walled compound in Eket, Nigeria, in Akwa Ibom State, on the eastern side of the Niger River Delta. The compound sat on a rise beside the wide, muddy Qua River in downtown Eket, a tumbledown town of market stalls, flophouses, water-streaked concrete buildings, and shacks with rusting corrugated metal roofs. Billboards, cell phone towers, palm trees, and church steeples protruded into the low skyline. Motorcycles and scooters poured out smoky exhaust as they swarmed like schools of fish through streets flanked by open drains. The stenciled names of small contracting businesses and places of worship (sometimes colocated) suggested the striving ambition of a faith-influenced oil hamlet: “Divine Hands Ventures,” “Mount Zion Lighthouse,” and “Success World.”

  Nancy, the pub owner, was upstairs cooking. She was the Nigerian wife of George McLean, one of the Scotsmen at the bar, a British army veteran who had been settled in Eket for a dozen years, employed by the ExxonMobil contractor Oceaneering International. The three other Britons—Paul Smith, Sandy Cruden, and Graeme Buchan—were relative newcomers. They maintained cranes for Sparrows Offshore, which is based in Aberdeen, Scotland. About three hundred expatriates lived on the Eket compound, of whom about fifty were Americans. Their work supported one of the larger and more profitable oil and gas production operations in ExxonMobil’s global portfolio. In recent months, the corporation had brought on line two large, floating offshore production platforms in Nigerian deep water. These platforms lifted ExxonMobil’s production in Nigeria to a record 850,000 barrels per day, more than 15 percent of the corporation’s worldwide total. High royalties and taxes limited profits but Nigerian crude was of high, sweet quality and commanded premium prices. The country’s deep water beckoned with additional discoveries that might add to ExxonMobil’s booked reserves. In a global oil system constrained by rising nationalism in Venezuela, Russia, and the Middle East, West Africa appeared to be a locus of abundant supplies available for the most part on free-market terms.