Made In America: The Russians Are Coming!

Do you recall the 1969 Union Oil disaster that ruined the coastline of Santa Barbara, California? Or the 1989 oil spill by the Exxon Valdez that spoiled the pristine waters of Prince William Sound, Alaska? How about last year’s BP’s Deepwater Horizon “gusher” that stained the ecosystem of the Gulf of Mexico?

All of these crises — and smaller ones, too, such as this summer’s Yellowstone River pipeline rupture by Exxon Mobil in Montana — were expected to ruin the prospects of energy producers within the United States. The American public, some believed, would not tolerate any future ecological risks after experiencing such crises and witnessing such environmental damage.

A few weeks ago, though, the Democratic governor of a quintessentially liberal northeastern American state surprised the energy industry by deciding to approve a highly controversial extraction procedure. And just last week, Exxon Mobil unexpectedly agreed to grant a former political adversary the option to operate energy production fields on American soil.

If I Can Make It There …

Recently, as we entered the peak summer energy season in the United States, New York State Governor Andrew Cuomo approved the use of hydrofracking at natural gas production facilities. The technique is considered controversial because it involves the forcible injection of highly pressurized water into the deep ground to free up gas resources. Officials in Arkansas and other states suspect that the activity is responsible for causing or exacerbating earthquakes and damaging water tables; some regulators have thus suspended or prohibited the practice on environmental grounds.

New York State, of course, is one of the birthplaces of the modern environmental movement, having produced such statesmen as President Theodore Roosevelt, who greatly expanded the national parks system. Furthermore, Governor Cuomo is the scion of former New York Governor Mario Cuomo, himself a renowned leader of liberal causes. Thus, few thought that an environmentally controversial energy production technique would meet with Cuomo’s approval, but the Governor decided that the potential economic benefits of hydrofracking were simply too attractive to ignore any longer.

New York State has not yet authorized any specific energy producers to operate hydrofracking facilities within its borders. Such firms may find, though, that — to paraphrase Frank Sinatra — if hydrofracking can “make it” in New York, it can indeed “make it” in other regions of the United States as well. In addition, Governor Cuomo may find that many firms based outside of the United States may be interested in pursuing the business opportunity alongside domestic corporations.

Venezuela, China … and Now Russia

The American energy industry, of course, operates within a global marketplace. For instance, even though BP’s American marketing campaign insists that its initials stand for Beyond Petroleum, Americans understand that the firm is based in London and has traditionally used the name British Petroleum around the world. Likewise, it is no secret that retail gas stations on American roads that are emblazoned with the Shell insignia are affiliated with the European firm Royal Dutch Shell.

Other global firms that operate within the United States prefer to maintain a more subtle presence. For instance, it is difficult to tell from Citgo’s star spangled, all-American marketing material that it is actually owned by the national oil company of Venezuela. And although the Chinese oil company Cnooc does not sell gasoline directly to American consumers, it has now received the requisite approval to engage in a major American joint venture with Chesapeake Energy after having been rebuffed in its attempts to purchase Unocal several years ago.

Venezuela and China are generally not considered to be close diplomatic or economic allies of the United States; neither, of course, is Russia. Nevertheless, with their recent groundbreaking agreement, Exxon Mobil and the Russian energy colossus Rosneft have agreed to travel down the road of economic integration together.

From The Arctic To America

Last week, Exxon Mobil and Rosneft finalized a joint operating agreement that extends from the United States to Russia. Specifically, Exxon agreed to assist Rosneft in the development of several huge and technologically challenging oil fields in the remote stretches of the frozen Arctic Ocean; in return, Rosneft received the option to participate in the development of various energy fields on American soil.

The Russian Prime Minister Vladimir Putin personally attended the ceremony that marked the signing of the agreement. Because 75% of Rosneft is controlled by the Russian government, the corporate relationship makes America’s former adversary an important ally of the United States in the development and implementation of its national energy policy.

Which event is the more surprising one: Governor Andrew Cuomo becoming an ally of hydrofracking companies, or the federal government of Russia becoming an energy production partner of Exxon Mobil on American soil through its ownership interest in Rosneft? Each situation may appear to be groundbreaking from an historical perspective, and yet each exemplifies the rapidly evolving set of political and economic alliances in the global energy industry.