By David Yager
Oilfield Services Executive Advisory – Energy Policy Analyst
“Lawsuit mania”, Cesare Lombroso opined, was “…a continual craving to go to law against others, while considering themselves the injured party”. Lombroso was an Italian criminologist who at the turn of the last century gained notoriety for the “Lombroso theory”, the concept that certain individuals were born criminals and could be identified as such by their physical characteristics. At the time Lombroso was considered the father of modern criminology.
Which begs the question, were Exxon-Mobil, Royal Dutch Shell, ConocoPhillips, BP and Chevron destined or intending to commit criminal acts when they were incorporated during Lombroso’s period of influence? (Exxon, 1870; Conoco Oil, 1875; Shell, 1907; British Petroleum, 1908; Mobil Oil, 1911; Chevron, 1911; Phillips Petroleum, 1917;) Or were they merely selling fuel and lubricants to eager customers as they provided the hydrocarbon energy to power an industrial and economic revolution that changed the world? People have depended upon these products – supplied at the lowest possible cost of course – for generations.
It will be up to the courts to determine if Big Oil is guilty of crimes against the Big Apple and the global environment when the lawsuit filed January 10 by the government of New York City against these five companies is concluded. NYC blames these specific companies for past, present and future damage caused by climate change. Notably absent are big and often larger producers including Saudi Aramco, Gazprom, Rosneft, PetroChina, Petrobras, Lukoil, Statoil or ENI.
The statement of claim reads, “In this litigation, the City seeks to shift the cost of protecting the City from climate change impacts back onto the companies that have done nearly all they could to create this existential threat”. NYC claims it will be “spending billions of dollars” to protect itself from rising oceans. “To deal with what the future will inevitably bring, the City must build sea walls, levees, dunes and other coastal armament, and elevate and harden…structures, properties, and parks along its coastline”.
Announcing the legal action NYC mayor Bill de Blasio called Hurricane Sandy in 2012, “a tragedy wrought by the actions of the fossil fuel companies”. Expanding on the damages he added, “That is the face of climate change. The city of New York is taking on these five giants because they are the central actors, they are the first ones responsible for this crisis and they should not get away with it anymore. We’re going after those who have profited. And what a horrible, disgusting way to profit – the way it puts so many people’s lives in danger”.
Further, the mayor announced NYC’s pension plans would be divesting ownership of shares in oil companies. This is an increasingly popular activity by various public and private investing entities. But thanks to the collapse in crude prices three years ago, those which have done so haven’t necessarily harmed returns.
The legitimacy of this court action is allegedly enhanced by news articles revealing Exxon-Mobil knew its products affected the climate in the 1980s but suppressed the information, choosing instead to question climate science. Exxon-Mobil rejects this allegation. But the premise is part of the NYC litigation which claims the industry has long known the impact its products have on the environment. The mayor said, “We’re bringing the fight against climate change straight to the fossil fuel companies that knew about its effects and intentionally misled the public to protect their profits”.
Some commentators have linked current litigation against oil companies to the historical tobacco lawsuits, where the courts agreed cigarette producers knew their product was harming peoples’ health but conspired to conceal the information. This is a long shot. If you quit smoking everyone agrees you will live longer. Depending on where and how you live, if you quit consuming hydrocarbon energy and the massive array of by-products derived from petroleum, the outcome may be the exact opposite. Not having access to hydrocarbon fuel on demand during this very cold winter in North America would be every bit as devastating to people and assets as Hurricane Sandy.
Then there’s the numbers. The Washington Post reported, “The suit…claims the companies together produced 11 per cent of all of global warming gases through they oil and gas products they have sold over the years.” The 10K SEC filings for the five companies indicated in 2016 they produced 7.6 million combined barrels of oil daily, not quite 8% of that year’s consumption of 96 million b/d. Add in natural gas and refining of oil from other producers and this figure would increase somewhat. But GHGs caused by carbon-based fuels also includes coal. The International Energy Agency reports that in 2015 45% of all carbon dioxide emissions from fossil fuels came from coal, not oil and gas.
An interesting article in The Guardian from 2011 reported 5% of total emissions said to cause climate change are from the manufacture of cement. A research paper from the CICERO Centre for International Climate Research in 2017 cited previous scholarly work that indicated the chemical process to create cement accounted for 5% of all emissions except changes in land use, a figure that rises to 8% when carbon-based fuel is considered. The IPCC comes in at only 2.5% of total emissions. Regardless, there cannot be a greater concentration of cement anywhere than New York City.
Hey, math is hard. Never let the facts ruin a good story.
That carbon-based fuels are destroying the planet is gospel. In explaining the federal carbon tax rollout on January 15 Canada’s Environment Minister Catherine McKenna said, “Canadians know pollution isn’t free and last year we saw that extreme weather events are costing us billions of dollars – trillions if you look at what is happening around the world. And we know a price on pollution is the best way to fight climate change and also get clean innovation.”
Today’s media dutifully reports whatever is said on this subject. There is no longer any other cause of severe storms even though they occurred long before mankind burned all this fossil fuel.
Hurricane Sandy did indeed have a devastating impact on New York and seven other coastal states. While it was a level 1 hurricane when it touched land at Atlantic City, it was at the low range of hurricane wind velocity at 80 mph (129 km/h). Sandy resulted in 149 fatalities and property damage estimated at nearly US$20 billion. The greatest destruction was caused by the storm surge of oncoming water, exacerbated by high tides 20% greater than normal because of a full moon. The water flooded Lower Manhattan causing extensive damage to tunnels, subway stations and the electric grid.
Sandy was not, however, the east coast’s first nor worst hurricane/cyclone/tropical storm. The U.S. has been keeping hurricane records since 1851. In the past 167 years there have been 294 North Atlantic weather broadly classified as hurricanes because of wind velocity affecting 19 coastal states. America’s National Hurricane Centre has five categories ranked by wind velocity. A level 1 hurricane has sustained winds of 74 to 95 mph (119 – 153 km/h) while a level 5 is 157 mph (252 km/h) or higher. The decade of the 1880s was the most active with 25 hurricanes and the 1970s the quietest with only 12. Thirty-three years passed without any. The worst on record, classified by its characteristics, struck the Florida Keys in 1935. The deadliest, killing as many as 8,000, hit Galveston in 1900. About 2,500 were killed in 1928 in a Hurricane called Okeechobee. Hurricane Katrina in 2005, also level 5, caused some 1,500 deaths as it flooded New Orleans.
Nor was Sandy New York’s first big storm. Records indicate 84 tropical or subtropical cyclones have touched or struck New York state since 1851 including a category 3 hurricane (sustained winds of 111 to 129 mph) in 1938 that killed 600. Twenty-nine offshore-to-land storms have been recorded this century but most are more accurately classified as bad weather. Only four, including Sandy, caused severe weather and extensive damage.
Exactly how NYC Major de Blasio and his lawyers determined five oil companies were the primary cause of Hurricane Sandy is unknown. While not wanting to second guess the American legal system, this writer believes it highly unlikely this linkage will be proven in court.
This is not the first time a U.S. political jurisdiction has sued oil companies for this reason. Several lawsuits have been filed in California by cities and counties, but they haven’t gotten anywhere. They include San Francisco, San Mateo County and Imperial Beach, all claiming rising sea levels caused by global warming and/or climate change are causing or will cause future physical and economic damage. San Mateo, for example, claims to be “particularly vulnerable to sea level rise” and that by 2050 there is a 93% likelihood this will cause a devastating flood.
Exxon-Mobil, in a legal counter-maneuver, recently fought back claiming if this future damage is as certain as the litigants claim, where is the risk disclosure in their public bond issues? These same jurisdictions recently sold municipal debt without mentioning any risk to investors from impending weather damage. San Francisco did not use the words global warming or climate change. San Mateo wrote the county “is unable to predict whether sea-level rise or other impacts of climate change or flooding from a major storm will occur”. Imperial Beach, claiming in its lawsuits it has $106 million at risk, also failed to warn investors about this looming problem.
Meanwhile, California is facing challenges balancing political commitments with political reality. While it is easy to attract votes suing faceless big oil companies (which have never had any friends), delivering tough love to citizens to save the earth is harder. In a Bloomberg Businessweek article November 20, 2017, the challenge was explained in an article titled, “California’s Climate Ambitions Get Stuck On the Freeway”. High housing costs in major centres where high-paying jobs exist are forcing citizens to relocate further away to communities not serviced by public transit. This means more people are driving further and longer causing a 3.1% increase in tailpipe emissions in 2015 from the prior year from cars, buses and trucks.
The article stated, “Census data shows more than 635,000 California workers had commutes of 90 minutes or more in 2015, a 40 percent jump from 2010. Transportation accounts for almost 40 percent of greenhouse emissions in California, more than any other sector, compared with 27 percent nationwide”. The stated solution is more high-density housing closer to jobs, but this will require government support. Meanwhile, Bloomberg reported, “When the cost of living is accounted for, census data show the state has the nation’s highest poverty rate, at 20.6 percent”.
Solution? Sue the oil companies.
In Canada, decisions made by politicians are perplexing as they lead the charge to protect the environment and battle climate change. In March 2016 Quebec Premier Phillipe Couillard publicly supported his province’s legal challenge against TransCanada’s Energy East pipeline citing the need for environmental protection because the pipe would cross or be close to many bodies of water. When TransCanada cancelled Energy East on October 5, 2017 the decision was cheered by provincial and municipal politicians.
Meanwhile, Quebec is proceeding with a $1.45 billion cement plant in the Gaspe region. A CBC News report September 25, 2017 wrote that while the plant is designed to produce greener cement it will be the worst industrial polluter in the province measured by GHG emissions. Even though it uses biofuels for heat instead of coal, “…the cement plant will produce 1.8 million tonnes of greenhouse gases per year, making it the largest single emitter in the province. That will increase greenhouse gas emissions in the province by an estimated two per cent – and emissions in Quebec’s industrial sector will rise by six per cent”.
CBC reported the project was not subject to the usual environmental reviews. “In 2015, the Couillard government passed a law reaffirming that the…project would not be required to undergo an environment review”. The Quebec government and provincial public pension funds have also provided $575 million in financial subsidies through loan guarantees and direct investment.
Cement has high GHG emissions not only from the heat required but from the chemical process that converts limestone into construction materials.
The industry has given up publicly questioning that carbon fuels are the primary cause of climate change and extreme weather events, no matter what people think individually or say privately. After all, “the science is settled”. Any politician or activist can say just about anything on this subject and it will be dutifully reported by the mainstream media. Rarely is it suggested the motives of climate crusading politicians might in any way be opportunistic.
Over the years governments have introduced or championed numerous policies and regulations which have made the air, water and land cleaner and have created, at least in North America, a better place to live. Because they usually affect profits, industry has not always been supportive and has often predicted dire consequences ultimately prevented by necessity, ingenuity and technology.
This lawsuit is not one of them.
About David Yager – Yager Management Ltd.
David Yager is a former oilfield services executive and the principal of Yager Management Ltd. Yager Management provides management consultancy services to the oilfield services industry in a number of areas including M&A, Strategic Planning, Restructuring and Marketing. He has been writing about the upstream oil and gas industry and energy policy and issues since 1979.