Review – Oil: Money, Politics, and Power in the 21st Century – By Tom Bower

Posted: March 22nd, 2011 by: h2

I like to keep up on the latest major books written on crude oil in order to get a sense of how the industry actually is evolving over time as we surf the bumpy plateau that was promised by so called peak oil theorists like Colin Campbell (official ASPO website). One noteworthy thing about guys like Campbell and Kenneth Deffeyes is that they are being proved disturbingly right in their longer term predictions, as is, sadly, M. King Hubbert.

The first really significant book released, right on the dawn of the current production plateau first reached in about 2005 was Matt Simmon’s Twilight in the Desert, which was essentially the first real shot across the bows of prevailing cornucopian (the belief that finite raw materials are in fact infinite) views held by both insiders and outsiders of the oil industry. While Simmons appeared to suffer a decline in the last year of his life, don’t be fooled, Twilight was a very well researched book on Saudi oil production, probably one of the best ever written, if not the best.

However, it’s also good to read some of the major works dealing with oil that don’t come from exactly the slightly outsider, critical, peak oil perspective, but which also contain a wealth of information about various aspects of the oil industry that might generally go less considered, such as speculation, refinery utilization and tuning for different oil types, and the role of public relations, as well as general styles of corporate governance among the Western majors.

Oil: Money, Politics, and Power in the 21st Century (OMPP) goes a long way towards explaining some of the more technical intracies of how and why oil speculation can work, how big Western oil companies work from the inside, how PR is handled, and a wealth of specifics on topics such as refinery tunings towards various oil grades and sources. These specifics can help us understand how intertwined the entire process of modern oil, extraction, finance, governments, and corporate power, truly are.

For example, we learn that it is not simply how much raw oil in barrels there is on the market any given day, but how much per refinery per type of oil there is (heavy/light, sweet/sour, and a variety of combinations of these different grades). This is why, for example, you might hear Saudi Arabia claim it is producing extra, but then also complain that there are no buyers.

Since Saudi Arabia’s new production is now almost all what is called sour crude, that’s sometimes why more per day is not purchased even when it’s been extracted and is ready for shipment, it can’t be used, since there are no contracted refineries for that specific type of crude oil. I didn’t realize the requirements of matching refinery tuning to crude type was so specific. This book made me stop thinking of oil as one thing, just what they call petroleum liquids, like butane, propane, etc are also not properly assigned to that one thing, oil (plus liquids).

While the information the author got from his various sources is sometimes very eye-opening, I have to also warn any potential readers of a drawback: the author clearly used Western Oil company insiders as a primary source, so the general peak oil issue is of course slanted towards the words they used, and the message they internalize as officers of such corporations. In other words, the official view that given the right price and technology, production will be met.

As an aside, a growing number of oil company CEOs are beginning to admit that they will not in fact be able to meet supply by 2020. The US Army funded a study that puts the date close to 2015. So that view is generally now only promoted in order to continue to maximize shareholder value. Oil companies value depends on their reserves, and on the belief/bias of the market in terms of what they believe the company can achieve in terms of new reserves and production in the future. Because of this, the executives when interviewed almost always state an overly optimistic scenario, which reality proves wrong time and time again.

One such correction is very well covered by this book, the Shell oil reserve correction, which resulted in a huge downward revision of their total global reserve estimates. OMPP gives an excellent view of how that came about, from the insider’s perspective.

Oil: Money, Politics, and Power in the 21st Century also covers quite in depth the John Browne years at BP, how Oil PR works, and what they have targeted. Any doubts you might have entertained about BP’s entrenched corporate cultural culpability re the BP gulf oil spill will probably be removed after you read those chapters on Browne’s aggressive share boost via expense cuts, safety, which is an expensive component of any oil drilling and extractio operation, yet one that only pays when the system fails, was first to be downgraded in priority, of course. The author goes into this story quite decently, and you’ll have a much better understanding of why some corporations really are in fact bad, and some are less bad.

I found one of the bigger flaws of the book the fact that the author appears to have had virtually no ins to NOCs (National Oil Companies), and that he depends too much on Western oil company sources that are biased. Another subtle bias is a tendency among Western oil majors to believe they could get more oil out than NOCs, which tends to simply not be true. In some cases, like Mexico’s Pemex, it’s probably accurate, but in cases like Norway’s Statoil, Brazil’s Petrobras, or Saudi Arabia’s Aramco, these companies are already absolutely top level oil extraction firms, second to none in terms of skill and technical ability.

I think many of you will find the refinery/speculation parts of OMPP especially educational, since they show ways that in fact prices really can be manipulated, and why one barrel in fact is not the same as another. In other words, despite popular beliefs to the contrary, oil is not fungible to the degree people like to think. Fungible basically means any one barrel can be replaced by any other barrel, no matter where it comes from or what type of crude oil it is.

Oil: Money, Politics, and Power in the 21st Century is well worth the read, despite its varied flaws. You should be able to find it at better bookstores and libraries in your area today.

Other Material by Tom Bower

Tom Bower is a prolific investigative reporter and journalist, here are a few samples of his work:

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