By Syed Rashid Husain
BIG Oil is poised to take over Washington. After enduring ‘eight hostile Obama years’ - oil industry leaders are marching back into Washington - with confidence and zeal.
A major coup for the industry has been the nomination of the oil industry prodigy, Exxon Mobil Corp. Chief Executive Officer Rex Tillerson as President-elect Donald Trump’s secretary of state.
The announcement was a surprise in some ways. After his election victory, as Trump sat down, putting in place his administration, the names of ex-New York City mayor Rudi Giuliani, a prominent Trump surrogate during the campaign was cited as a possible candidate for the top diplomatic slot in Washington. Then 2012 Republican presidential nominee Mitt Romney was also interviewed by Trump, for the position. The names of Sen. Bob Corker, R-Tenn., who chairs the Senate Foreign Relations Committee, and retired general and ex-CIA director David Petraeus, besides others, were also cited as the possible candidate for the position.
But finally, Tillerson was nominated. An engineering major at the University of Texas, in Austin, Tillerson has been an oilman all his career. He joined ExxonMobil in 1975, graduated through a process and finally took over ExxonMobil as the CEO on Jan.1, 2006.
“His tenacity, broad experience and deep understanding of geopolitics make him an excellent choice for Secretary of State,” Trump said in his nomination statement. “He will promote regional stability and focus on the core national security interests of the United States. Rex knows how to manage a global enterprise, which is crucial to running a successful State Department, and his relationships with leaders all over the world are second to none.”
Others too agreed. “There is a very thin line between oil, geopolitics, and diplomacy,” OPEC Secretary General Mohammad Barkindo said in Washington last week. Tillerson’s experience on that front makes him “more than qualified to occupy this very important office.”
But his credentials could also be an issue. Tillerson’s success within Exxon was attributable in part to the work he has done in Russia. While the State Department in Washington was often not comfortable with Moscow under Putin, Tillerson succeeded in forging closer relations with both President Vladimir Putin and his trusted lieutenant Igor Sechin, the man who runs the Russian industry giant Rosneft.
In 2011, Tillerson flew to the Black Sea resort of Sochi to sign a joint venture agreement with Putin under which ExxonMobil partnered with Rosneft to produce oil from the Arctic. In a sign of the close relationship, the Kremlin bestowed the country’s Order of Friendship decoration on him, after he struck the 2011 deal that gave Exxon access to prized Arctic resources and allowed Russian state oil company OAO Rosneft to invest in Exxon concessions around the world.
Economic sanctions imposed on Russia have though slowed this collaboration. And his induction could mean some real changes in US attitude toward Moscow. Since Trump too prefers better ties with Russia, Tillerson as Secretary of State could be of real help in this direction.
And it is not Tillerson alone from the industry, who is joining the incoming administration. Rick Perry, President-elect Donald Trump›s choice for Energy secretary, too has close ties to the oil industry. His current roles as a board director at Energy Transfer Partners LP and also at Sunoco Logistics Partners LP, which jointly developed the controversial Dakota Access Pipeline project, is a strong indicator of the pro-oil industry sentiment that will likely take root at the Energy Department under his oversight, AP reported.
Perry is broadly supportive of building out pipeline infrastructure. During his own short-lived presidential campaigns, he promised to green-light TransCanada Corp.’s Keystone XL pipeline, which is also a priority for both Trump and Tillerson.
Perry is close to Texas energy industry executives, and his political campaigns, including two aborted presidential campaigns, benefited substantially from their donations. Perry is hence expected to set an open-door policy for oil industry interests and possibly tear down the department altogether, as he suggested during his unsuccessful bid for the presidency in 2012.
Once confirmed, Perry would be involved in policy decisions on increasing the nation›s domestic supply of oil and investments in oil exploration research and technology.
Earlier, Oklahoma Attorney General Scott Pruitt, who billed himself to be the US Environmental Protection Agency’s chief antagonist, was nominated to run the agency, hinting the rules of the game in Washington have changed altogether.
With very little attention to climate issues, it seems the US output could see a surge over the next few years. The Trump team’s stated desire is to increase US oil production by expanding access to federal lands. The federal government estimates place total US oil resources, in addition to proven reserves (about 40 billion barrels at the end of 2014), at more than 120 billion barrels, including roughly 30 billion barrels onshore and 90 billion barrels offshore.
Two areas could be of particular interest. The first is the coastal plain region of the Arctic National Wildlife Refuge (ANWR). Federal estimates suggest that this tract of federal land, which represents just 8% of the total area of the Refuge, contains 7.7 billion barrels of oil.
This area remains off-limits to oil and gas activity today, but a Republican-controlled Congress and Presidency could move to open it, as pro-drilling members of Congress have recently suggested this could be a top priority in 2017.
A second area is the Eastern Gulf of Mexico, which has largely been off-limits for decades and remains so under current law through 2022. The federal government estimates the region to hold approximately 3.6 billion barrels of oil. While that might not sound like much, there are reasons to be optimistic that the Eastern Gulf could be a prolific oil region. Notably, some of the most attractive discoveries and highly sought-after acreage in the Gulf of Mexico in recent years have been located in the Central Gulf adjacent to the Eastern Gulf, and many in the industry believe geology extends across map boundaries.
While estimating the impact of opening new areas is inherently uncertain, some suggest that opening these two regions could add up substantially to the resource base. A 2011 study from Consultancy Wood Mackenzie found that oil production from ANWR’s coastal plain could top 1 million bpd within a decade from the date of initial access. Estimates for the Eastern Gulf were even larger.
With shale output also expected to get a boost following the production restraint by OPEC and Russia, are we going to witness a revitalized US industry? A billion dollar question - and - with major consequences.
