Multinationals and the New World of Energy Development: A Corporate Perspective.

AuthorImle, John F. Jr.

As the century draws to a close, multinational energy companies have entered a new and challenging period in their relatively brief but dramatic history. Technical advances and the end of the Cold War have made it possible for these companies to develop and obtain access to energy resources virtually anywhere on the planet. They are poised to respond to the world's growing energy needs, providing the power that is essential to global economic development.

At the same time, these multinational companies face a series of unexpected and complex challenges for which the scientists and engineers who lead these enterprises have not been trained to manage. They work in a world of near instantaneous communication, where public scrutiny can be intense and business investments are sometimes seen as political acts. Today many of these companies stand accused of complicity in human rights violations, of supporting undesirable political regimes and of indifference to the environmental impacts of their operations. Hundreds of nongovernmental organizations (NGOs), representing newly articulated expectations of certain segments of society, are particularly critical of multinational activities and policies.

In truth, these global energy companies can be powerful instruments of change and modernization. Directly and indirectly, their actions can improve the lives of people and encourage the spread of democratic values. Often they are at the forefront of Western influence in developing nations. Their activities can be profoundly beneficial to both the countries in which they invest and to the people who live in them.

The challenge now is to find ways to maximize the positive impact of multinational energy companies in the developing world. Major energy projects create relatively high paying jobs, provide valuable education and training, and develop needed infrastructure--all of which support economic growth and industrial development. Some of these projects have begun to cross international boundaries, fostering cooperation on a business level that creates opportunities on political and social levels. If poorly managed, however, these activities can seriously disrupt local communities, degrade the environment and cause other problems. In some cases, multinational investments could also be viewed as providing financial support or "lending validity" to repressive governments. Public attention has helped senior executives of multinational energy companies to focus on the economic, social and political issues surrounding their foreign investments and operations.

Since their first overseas projects, many global energy companies have supported the outlying communities where they work. On the corporate level, this is good business. For those company employees working in-country, it is a natural and welcome opportunity to support their local communities. However, it is time to broaden and invigorate trans-societal dialogue about the changing role of multinational energy companies and how their activities can be further shaped and channeled for the benefit of people in all parts of the world. The goal of this article is to help stimulate that dialogue.

ENERGY INVESTMENT: ENGINE OF GROWTH

From 1990 to 1997 net long-term flow of private capital from industrial nations to developing countries grew by more than 600 percent, from $42 billion to $256 billion. Of the 1997 total, almost half--about $120 billion--represented investment by multinational corporations in their own overseas operations.(1)

Energy investment followed the same trend. In the late 1980s more than half of all exploration and production (E&P) spending by the 82 largest oil companies (not state-owned) was in North America.(2) By 1995 nearly two-thirds of all E&-P spending--$33 billion--was focused outside of this region.(3)

There are several reasons why North American energy companies have concentrated their operations outside of the continent. One of the most important is the existence of new and potentially profitable exploration prospects overseas. This has dovetailed with continuing public opposition to--and U.S. government bans on--new oil and gas exploration in parts of Alaska, offshore California and other promising areas.

The extraction of energy resources requires immense amounts of capital. Success also requires a long-term commitment. It takes huge amounts of money to find new oil and gas resources, as they are usually located in remote areas. Finding the resources is only the beginning; sites cannot be developed unless there is a market for the new supply--and developing and moving the resource to market requires large additional investments in offshore platforms, roads, ports and pipelines, as well as the ongoing expense of daily operations.

Multinationals are attracted to emerging markets because energy demand grows slowly in industrial societies (typically, less than 2 percent per year) but much more quickly in the developing world. This creates a natural link between newly-developed energy resources and relatively fast growing markets. Even the current economic turmoil in Asia does not significantly alter this picture. Currently totaling 6 billion, world population is projected to reach nearly 7 billion over the next 10 years, with more than 95 percent of this growth occurring in developing nations.(4)

These additional people will strive for more than survival. They will hope for, and deserve, a decent quality of life. At a minimum, this means clean water, nutritious food, adequate shelter and clothing, improved health and education facilities and transportation. All of these basic needs will require energy. In fact, to provide each of the additional 1 billion people with enough energy just to power a pair of 100-watt light bulbs every day would require the energy equivalent of about 7 million barrels of crude oil per day (b/d)--more than 13 percent of current world production!

Today half of the world's population uses wood as their primary energy source. In China, the world's most populous nation, coal is the primary fuel. Yet the developing world will need more than wood and coal to meet its energy needs. Oil will be important, particularly for transportation, but demand will grow fastest for natural gas. In most respects, natural gas is the ideal energy source for the developing world in the 21st century. It is relatively abundant, relatively inexpensive and the cleanest burning fossil fuel, with virtually no sulfur emissions, very low particulate emissions and fewer than half the carbon dioxide emissions of coal.

The U.S. Energy Information Administration (EIA) projects world energy demand to grow at 2.3 percent annually to the year 2020, with natural gas demand more than doubling to 172 trillion cubic feet per year.(5) Gas demand will grow fastest in the developing world--at 5.6 percent per year--to about 53 trillion cubic feet in 2020, more than the total demand in 1995 for the United States, Canada and Western Europe combined.(6)

EIA estimates crude oil demand to exceed 115 million b/d by 2020, of which about 60 million b/d will be consumed by countries now part of the non-industrialized world.(7) Coal demand will increase from 5.1 billion tons in 1995 to 8.6 billion tons by 2020, with China and India accounting for about 85 percent of new consumption.(8)

ENERGY COMPANIES: LONG-TERM PARTNERS OF HOST COUNTRIES

Global energy companies tend to be among the first foreign investors in a country or region. They seek access to the most promising exploration and development opportunities as well as to long-term markets. U.S. companies, because of the nature and longevity of their investments, must avoid even the appearance of favoritism with respect to host country politics. U.S. law, specifically the Foreign Corrupt Practices Act (FCPA), requires this of American companies, though it was the logical way for these companies to do business long before the law was enacted. It is in their best interest to build lasting relationships and develop long-term markets, rather than align themselves with a particular party or political leader. This has sometimes put U.S. companies at a disadvantage with their foreign competitors, but recently there has been a significant move toward broader international acceptance of the principles embodied in the FCPA.

Unlike clothing, shoe and toy manufacturers, who can open and close a facility on short notice and with relatively little capital expenditure, global energy companies must go where the resources are and stay for as long as production is economical. They cannot move an oil field from Nigeria to the Netherlands to avoid political volatility in the host country or pressure from activists. It takes many years to recover their initial investment and provide a fair return for the risk and effort involved. In short, multinational energy companies are compelled to take the long view and build relationships with the country as a whole, rather than with one faction or regime.

As early entrants in remote areas, global energy companies often manage projects in poor, sparsely populated regions where national governments are able to provide few, if any, services. To develop the projects, energy companies build roads and communication systems. To protect their workers, they provide clean water, as well as health and sanitation services, and extend many of these services to employees' families and others in the local community.

All these...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT