Oil's No Fossil Yet, Actually

FOSSIL FUELS:The future will be all about managing fossil fuel efficiency along with exploration of alternatives, says Dublin-born Chevron boss David O'Reilly

DAVID O’REILLY (62), a chemical engineering graduate of UCD and son of an Arnotts menswear salesman, arrives in the meeting room on Clyde Road, Dublin with the demeanour of your typical south Dublin accountant or doctor. He grew up in this part of the city.

It’s only the soft American lilt to his accent that would make him stand out from a host of other mild-mannered businessmen in Ballsbridge. There is little in the way of an entourage, no airs or graces. Smartly dressed and softly spoken, with a genial air, his first talk is of the recent fortunes of Irish rugby and watching the recent Grand Slam victory on Setanta back at his home in San Francisco.

Despite the modest demeanour, he is one of the most successful Irish émigrésfor generations: O'Reilly is chief executive and chairman of Chevron-Texaco. For the last nine years he has been at its helm, one of the longest serving "Big Oil" bosses in the US.

Rising through the ranks of Chevron , he is now boss of a global goliath that earlier this month reported net income for 2008 of $23 billion (€17.3 billion) on revenues of $265 billion. O’Reilly is credited with pushing through the Chevron merger with Texaco in the early years of his tenure, rooting the firm’s position firmly as number two in the US oil industry.

Given the length of his tenure in the top echelon of the oil industry, he has sometimes become the public face of the US oil business as rising pump prices seemed like turning industry leaders into pariahs.

For now consumer ire has abated as prices fall, but given the finite quantity of fossil fuel commodities, it’s only a matter of time before the oil giants come under attack again.

The issue is, oil is still the fuel behind our economy and, O’Reilly says, it will remain so for decades. “During the next 20 years it seems that energy consumption will grow by about 25 to 30 per cent, so there is a seeming inevitability about the need for energy because we can’t have economies without energy. What’s the role of oil and gas in that? big.

“Even though all these alternatives are coming in, they are so small. For example, today the US is the biggest wind energy producer in the world: we went past Germany last year. It’s less than 1 per cent of our electricity supply. We still have 50 per cent of our electricity supplied by coal and 20 per cent from nuclear power. The scale of the system is so big that to dramatically shift it isn’t going to happen in the short to medium term.”

Increased demand for oil invariably raises questions of energy security. This is a term that has resonated in the public’s lexicon since the oil crises of the 1970s, and it has been recognised as a major issue by the Obama administration.

Cynics find the fingerprints of “energy security” on several major foreign policy agendas. Yet, if energy security carries with it enormous implications for the global political arena, it also carries with it the increasing risk of ecological damage, as many of the remaining oil reserves require greater sacrifices of the environment.

For example, the US is currently tapping reserves in ecologically important regions of Alaska and creating an environmental mess by extracting oil from the tar fields of Canada. Chevron has operations in both regions.

For O’Reilly, it’s a matter of balancing priorities. “Even allowing for incredible advances in technology, it gets harder over time to access and extract the oil. A good deal of it lies under the ground in unstable areas of the world. And even absent these concerns, there is still the challenge that using these fuels – such as oil, gas and coal – can carry a cost to the world, including the climate.

“The whole idea is how do we get the right balance between energy, environment and economy: the three Es. You have to get them all right. At the end of the day you have to have energy to support the economy, you need to use energy efficiently and wisely to protect the environment, but you have to get the right balance between all these.

“To assume that there is no environmental impact from a growing economy is unrealistic. There are going to be environmental impacts: you have to move dirt to build a house, you have to cut down a tree somewhere to build a table. The economy is going to affect the environment, it always has. I’ve heard people suggest that we need to return the environment to the condition it was in before the industrial revolution. I wouldn’t want to be there.

“We are an energy provider, but the majority of our business is oil and gas. Now we’re the biggest geothermal producer in the world by far. It’s big and it makes good money. We’re in Indonesia and the Philippines in what’s known as the ‘ring of fire’ . . . Even though we’re the biggest, it’s 2 per cent of the energy we produce. Most of our energy is oil and gas, with a little bit of coal. Again, it’s the scale.”

O’Reilly sees his role – and Chevron-Texaco’s – as an energy supplier, not simply as an oil giant. He plays up the firm’s investments in renewables, though they remain minute in comparison to its oil and gas operations. So what future hope is there for renewables? “I think there will be a transition. First of all I think we’re going to see energy being used more efficiently. We have to be more efficient – otherwise we’re going to run out.

“These alternatives are coming in, but they are going to take a lot of time. I think the computer industry is a very good example. It was invented 60 years ago, but it’s taken 50 years or more to get it down to the current scale and make it ubiquitous. I think you have to look at energy in the context of decades and almost a generation or two to make a dramatic shift.”

Later, in his address to an Engineers Ireland event, O’Reilly spells out further his vision of energy’s future. “In the long sweep of time, alternatives will meet a far bigger share of global demand. But it’s not realistic to suppose that they can replace conventional energy in the short term, as we are asked to believe by many who do not check the facts.”

Yet it’s clear that even with his acceptance that we need to balance energy needs with environmental consequences, he doesn’t see the story of oil as simply a resource that has been taken and used (or as some would suggest, abused). Instead, fossil fuels have been a conduit for shaking off poverty. Developing states, for instance, are now “getting their first big chance at the material comforts and possibilities for self-betterment that we in Europe and America often take for granted”.

“Developing countries require a certain amount of energy to live, just as we do. Now a good part of the rest of the world is on its way to a similar standard of living – with better jobs, higher incomes, and the opportunities for health, education, and the other things that prosperity offers.

“This is a good thing. And this great progress for billions of people hinges on a growing supply of affordable energy used efficiently – from sources that can be drawn upon right now. And my best advice to policymakers is never to take economic growth for granted – or to forget that right now, the economies of the world are powered largely by fossil fuels. Many wish it were otherwise, but it’s a fact. And the danger is to let energy promises get ahead of energy realities. To the extent that oil and gas fuel economic growth, they can actually serve the great goal of getting us beyond a carbon-based society.

“It is no coincidence that the greatest advances in alternative fuels have come in this past quarter-century – a time of incredible economic expansion.”