Six of the planet's largest corporations, once masters of the global oil market, now control a tiny fraction of world energy reserves. And as their stock prices stagnate, these so-called "supermajors" are shovelling billions of dollars into Alberta's oil sands.
Green observers fear industry expansions, those underway and projected, could shred Canada's climate change commitments and accelerate a global shift to higher-carbon fossil fuels. Still, aggressive oil sands development appears to be one of the few viable growth strategies left for ExxonMobil, BP, Royal Dutch Shell, Total, ConocoPhillips and Chevron. These six energy giants are among the top-earning private companies on Earth. Yet their continued corporate existence, at least in its current form, is far from assured.
National governments and state-owned fossil fuel firms such as China National Petroleum Corporation produce 93 per cent of the world's oil. The formerly dominant supermajors are now seeking out riskier and riskier reserves, drilling in the ultra-deep waters of the Gulf of Mexico and mapping the Arctic Ocean floor. In their continuing struggle to appease investors, they've also become increasingly reliant on major oil sands expansions, suggests groundbreaking new research detailed later in this story.
"The supermajors just don't have all that many options," said Alexandros Petersen, director of research for the London-based Henry Jackson Society, a global studies think tank. "And so if you get boxed out of places like Venezuela -- or Angola by the Chinese -- you go after whatever you can get. The oil sands are one of those 'whatever-you-can-get' places."
The Seven Sisters
Today's realities would have sounded like fantasy several generations ago. An informal oligopoly of Anglo-American oil companies ruled the global oil market throughout the mid-20th century. These "Seven Sisters" -- named by Italian oil diplomat Enrico Mattei in the 1950s -- gained huge concessions from weak, corrupt and colonial regimes across the Middle East and other developing countries. Until the early 1970s, they enjoyed a virtual monopoly, controlling 85 per cent of global reserves and dictating oil prices to Arab producers.
"The whole style of the corporations, grown smoother and more confident over the decades, suggested a lofty superiority to all governments," wrote Anthony Sampson in a seminal 1975 history of the Sisters.
Yet increasingly nationalistic oil-producing countries soon began to rebel against the onerous price controls imposed on them by western multinationals.
Venezuela and Iran led the formation of the Organization of Petroleum Exporting Countries (OPEC) in the early 1960s, now a powerful cartel of 12 developing countries. The group's Arab members sent tremors through the western world with their 1973-74 oil embargo. And a wave of nationalizations over the next decade cut production controlled by the Seven Sisters and other private players in half.
That continuing power shift now leaves Sister-descendants ExxonMobil, BP, Chevron and Shell -- alongside fellow supermajors ConocoPhillips and Total -- with unrestricted access to only seven per cent of global oil reserves.
"Certainly," PFC Energy analyst Claire Wong-Low told The Tyee, "I think the current picture is not going to change."
Running out of options
That leaves the former masters of the global energy sector in a vulnerable position. The supermajors are still considered some of the planet's biggest private corporations (Royal Dutch Shell was named second largest last year by Fortune Magazine, losing out only to Walmart). But many analysts argue their international influence peaked decades ago -- and is fast declining.
With the exception of Chevron, supermajor share prices have not gained any value over the past five years. "It would tend to indicate that these companies are not growing," said Robert Walsh, an energy consultant who spent 26 years with Royal Dutch Shell. Though all the supermajors hold top ten spots in Petroleum Intelligence Weekly's oil company rankings for 2010, they're still placed lower than Saudi Arabia's Saudi Aramco and Iran's NIOC.
And the Financial Times in 2007 handed the "Seven Sisters" mantle to a new generation of energy firms, all state-owned. Much of that is a function of the reality that supermajors actually control very little of the world's oil and gas. Resource figures from 2008 place ExxonMobil in a distant 17th among all energy firms, the highest even, of the western-owned private players.
With global oil demand expected to slope upwards over coming decades, there's more pressure than ever to expand reserves and production. But lacking the resource access of their state-owned competitors, the supermajors are running out of options.
"The big challenge is replacing reserves every year," Walsh told The Tyee. "And it keeps getting more challenging for them because a lot of the big oil fields are off limits."
The oil sands factor
It should come as no surprise then, that all the supermajors own -- or plan to develop -- huge operations in Alberta's oil sands. Canada is one of the few countries left on Earth offering unbridled private sector access to major known oil reserves (in this case, the planet's second-largest).
The supermajors increasingly rely on oil sands expansions to help maintain their stock prices, a new report prepared by Washington-based Oil Change International suggests. One of several measures used by analysts and investors to assess an oil company's performance is the reserve replacement ratio. If the ratio is 100 per cent, it means the company found exactly as much as oil as it produced in a year. Any lower, and investors start to worry.
The report estimates that of all new liquids reserves added to ConocoPhillips' resource base over the past five years, 71 per cent came from the oil sands. The breakdown for the other supermajors is as follows: ExxonMobil (51 per cent), Shell (34 per cent), Total (26 per cent) and Chevron (7 per cent).
BP has not yet developed any oil sands operations, but intends to invest at least $2.5 billion.
Overall spending in Alberta's oil patch over the next decade is projected to hit $180 billion, peaking a full 20 per cent higher than at the height of the last boom. That sort of rapid expansion is being driven by high oil prices, soaring U.S. demand and relatively low royalty rates. But supermajor growth strategies are also a factor. "At the end of the day, the fiduciary duty of all of these oil company managers is to maximize profits for their shareholders," Oil Change International executive director Steve Kretzmann told The Tyee.
Old measures inhibit clean energy
Observers fear that the environmental repercussions of unrestrained oil sands development could be shattering. The industry is Canada's fastest growing source of greenhouse gas emissions. And with no real reductions plan in the works, it could by 2020 be releasing more than double the carbon now emitted by New York City. That estimate comes from the Calgary-based Pembina Institute, which last year predicted oil patch growth would scuttle Canada's medium-term climate change commitments.
The oil sands, meanwhile, are serving as a model for other countries eager to exploit their own unconventional reserves. Several supermajors, capitalizing on expertise gained in northern Alberta, have signed extraction agreements with governments in Russia, Madagascar and Jordan. They're also eyeing hungrily the potentially massive oil shale deposits spread across Utah, Colorado and Wyoming.
The International Energy Agency predicts such high-carbon fuel sources -- including oil sands from Alberta -- will comprise 11 per cent of global oil production by 2030. This could complicate efforts to reduce greenhouse gases to a level deemed safe by scientists.
Oil Change's Kretzmann argues that "anachronistic" value measures such as the reserve replacement ratio inhibit the kind of thinking necessary to avert climate catastrophe. They instead drive the supermajors and others to environmentally risky plays in deep waters, frozen seas and sludgy oil sands deposits.
"We're probably going to need to find new (valuation) measures," Kretzmann said. "You can't continue to simply reward companies for the amount of new oil found and then expect them to go into clean energy."