The End of Big Energy?

on October 25, 2012 at 10:30 AM

The term “big oil” carries quasi-political connotations of a kind of shadow state that has often attracted sharp criticism. But if we look at the end of “big oil,” will we like what we see?

Energy companies are often called on to operate like states rather than private firms. They are held responsible for the safety, health and livelihoods of enormous numbers of people, they are entrusted with resources owned by the public and by virtue of their size and reach they are often as much partners as targets in tackling political problems at home and abroad.

This makes them the very model of a modern corporation, those entities that even as they often carefully steer around partisanship are by their nature political. They deliver political solutions to political problems, reflecting to an exemplary degree the trust that governments have put into private companies of all kinds to deliver services and goods that would have been handled by other kinds of institutions in the past.

Their nature as mini-states has been widely discussed and worried over in recent years, sometimes to exaggeration. Steve Coll’s book on ExxonMobil argues that the company runs its own foreign policy parallel to that of the country in which it is headquartered, and oil companies across the US are returning to a paternalistic industry tradition of centralized housing and provision through “man-camps” as they move to access energy resource supply in ever-more remote and labor-intensive locations.

But at the very moment that it appears to be reaching a kind of apex, the model of corporate paternalism for delivering employment, goods and identity is under strain. Shareholder capitalism dealt it early blows as corporate raiders broke up companies and redundant activities were relegated to outsourcing and external contractors, even as energy companies have paid the price sometimes in losing access to top engineering skill or even trusting vital safety functions to contractors.

What the body politic can expect from large companies, including energy companies, is starting to change in meaningful ways. The large projects that underpin the industry will always require a degree of social consensus beyond that required of an industry like retail, but those large projects are now originated, completed and operated in a multifaceted environment that defies allegiance to a single political entity.

Consider: How does a Chinese-backed project in Angola run by a major US oil company that in turn outsources almost every aspect of its operations guarantee the social goods like health care, retirement and cultural belonging that we have either expressly or inherently expected companies to provide? At one time that entire chain of that project would have been built by a single firm, and the employees of that company would have been adherents and nearly citizens of its global reach.

The political future for the decentralized energy company in an era of proliferating project complexity is not inherently one that no longer serves the same kinds of social functions it does today, but mechanisms for tracking and delivering those services will have to change and become more flexible to reflect the new operating reality.

The issue of who should pay for and provide social goods like healthcare and retirement are at the core of the 2012 presidential election race, with an acknowledgement that the current system is broken paired with unimaginative tinkering with projections presented as solutions. Energy companies have proven themselves adept at operating in changing political environments, in political crises and amid political complexity. They will need all their skill to navigate the coming changes prompted by a breaking social contract, whether they happen in 2013 or beyond.