JUNE 1999 · VOLUME 20· NUMBER 6

This story is based on a report, "The Kingpins of Carbon," issued by the Natural Resources Defense Council, the Union of Concerned Scientists and the U.S. Public Interest Research Group.

by the Natural Resources Defense Council,
the Union of Concerned Scientists and
the U.S. Public Interest Research Group

In 1997, the world fossil fuel industry produced 5.2 billion tons of coal, 26.4 billion barrels of petroleum and 81.7 trillion cubic feet of natural gas. The combustion of these carbon-based fuels resulted in the emission of 6.2 billion metric tons of carbon into the atmosphere.

These emissions constitute a leading contributing cause of global warming.

Government agencies, academic institutions and private think tanks usually report this record amount as carbon dioxide emissions by country or by sector (electric utility, industrial, commercial, transportation and residential). In other words, when reporting carbon dioxide emissions, governments, international agencies and other institutions generally portray the problem solely in terms of consumption (the combustion of fossil fuels) rather than the production of those fuels.

But there are equally good reasons to analyze and report carbon emissions in terms of producers. Such a list highlights perpetrators and draws attention to the size and political power of the Carbon Kings.

To appreciate how much carbon-based pollution the largest energy companies produce, consider the following:

• Saudi Aramco's carbon production exceeds the combined carbon emissions of India, Pakistan, Bangladesh and South Korea.
  
  
• Gazprom's carbon production exceeds the carbon emissions of the entire continent of Africa.
  
  
• Exxon and Mobil's combined carbon production exceeds the combined carbon emissions of Indonesia, Malaysia, Thailand and the Philippines.
  
  
• Shell's carbon production exceeds the combined carbon emissions of Mexico, Argentina and Chile.
  
  
•  Peabody Coal's carbon production exceeds the carbon emissions of Brazil.

Overall, in 1997, the 20 largest producers of carbon accounted for nearly 45 percent of the world's energy production and nearly 47 percent of carbon emissions. Thirteen of the 20 were state-owned enterprises while 7 were investor or privately owned.

Since 1997, the privately owned energy sector has undergone a sharp consolidation. The acquisition of Amoco by BP and BP's subsequent effort to purchase ARCO catapults BP from seventeenth to fourth in 1997 energy and carbon production. Exxon's acquisition of Mobil, if approved by antitrust authorities, would move it up from tenth to eighth place. And the acquisition of Cyprus Amax, the second largest U.S. coal producer, by Germany's RAG (formerly Ruhrkohle AG) raises RAG from 47 to 17. With these mergers, the top 20 carbon producers would account for almost half of the world's total.

The top 20 privately owned companies, considered separately, accounted for more than one fifth of the world's fossil carbon production.

The top 20 state-owned companies accounted for almost two-fifths of global fossil carbon production.

Global Hypocrisy
In the continuing debate over how to counteract the warming effect of carbon dioxide emissions on the earth's climate, some large coal and oil producers argue, not surprisingly, that nothing should be done, claiming that there is no evidence linking emissions and climate change. Many other fossil fuel producers, recognizing the public support for action to combat the threat of global warming, now admit that there is a relationship, but oppose government intervention as a solution. They argue that the Kyoto Treaty will impose enormous economic and consumer costs on the United States and other industrial economies.

A few companies such as British Petroleum and Shell have acknowledged that the science is strong enough to justify binding emissions limits.

A key tactic of the hard-line opponents has been to argue that the United States should not agree to limit its carbon emissions until developing countries make a similar commitment.

In advancing this argument, the big companies have cynically ignored their own role in promoting fossil fuel production and consumption in developing countries.

For example, Lee Raymond, the chair and CEO of Exxon, while supporting the industry advertising campaign urging the United States not to sign the global warming treaty on the grounds that it did not require countries like China and India to reduce their emissions of greenhouse gases, told the World Petroleum Congress in Beijing in 1997 that fossil fuel use in China "is essential both for economic growth and for the elimination of poverty, which is the worst polluter."

"The most pressing environmental problems of the developing nations are related to poverty, not global climate change," Raymond said. "Addressing these problems will require economic growth, and that will necessitate increasing, not curtailing, the use of fossil fuels."

THE NEW OIL-IGARCHY
As the twentieth century draws to a close, major international corporations that produce coal, oil and natural gas are consolidating their operations and creating giant global companies. The major oil companies are joining together through mergers and joint venture arrangements, with both private and state-owned firms, to create vast oil and natural gas enterprises spanning the globe.

Richard H. Matzke, president of Chevron Overseas Petroleum, sees a clear trend, "[I]n our industry today, top competitors are moving toward more cooperation," he told an energy conference in 1998.

The consequence of this consolidation trend will be to concentrate even more of the world's carbon production in fewer hands.

The cutting edge of industry consolidation is the merger of the oil giants.

BP, following its acquisition of Amoco, bid $28 billion for ARCO. After winning shareholder approval, the merger must still pass muster with U.S. antitrust authorities.

While Exxon and Mobil shareholders have approved Exxon's $82 billion bid, the largest corporate takeover in history, antitrust authorities in both the United States and Europe are still reviewing this giant consolidation.

Following French TOTAL's $12 billion purchase of Belgium's Petrofina, Spain's Repsol is offering to buy Argentina's YFP.

Completion of all of the major coal and oil mergers since 1997 (assuming U.S. and European antitrust approval for the Exxon-Mobil merger and U.S. approval of the BP Amoco-ARCO merger), will mark a dramatic change in the composition of the world's largest carbon producers. Companies that accounted for 6.5 percent of carbon in 1997 would through those mergers account for 11.8 percent.

While these private shareholder-owned corporations are expanding by acquiring competitors, a number of nations in Latin America and the states of the former Soviet Union have decided to privatize previously state-owned firms.

Major international oil companies are seizing the opportunity presented by privatization to purchase equity interests in or form joint ventures with privatized companies, especially those in Russia and other nations of the former Soviet Union. Where once the Soviet state owned and operated Russia's vast coal, oil and natural gas wealth, now much of Russia's oil and gas operations are in private hands. And newly privatized or quasi-privatized Russian companies have sold equity interests to Western oil companies and have formed joint exploration, production and transportation ventures.

 In 1997, Shell invested $1 billion in Gazprom, the world's largest gas producer.

 In 1997, BP formed a "strategic partnership" with and bought an initial 10 percent equity interest in Russia's fifth largest major oil and gas company, AO Sidanco. In April 1999, as Sidanco was faced with mounting debt, BP Amoco effectively took control of its board and may increase its ownership stake in the ailing company.

In 1998, Elf Aquitaine spent $528 million for a 5 percent interest in AO Yuksi to help form a long-term strategic alliance.

Even seemingly hard-line nationalist members of the Organization of Petroleum Exporting Countries (OPEC) have invited private companies to explore for and develop oil and gas resources.

Venezuela, which helped organize OPEC in 1960, has been wooing major energy companies to invest in various energy projects. Saudi Arabia, which joined Texaco and Shell in a refining-marketing joint venture on the U.S. East Coast, is now inviting companies to participate in developing the kingdom's natural gas resources.

Concentrating on Core Business
Perhaps recognizing the relatively greater long-term environmental costs associated with the production of coal, most major oil companies have divested some or all of their coal production assets to concentrate on the production of oil and natural gas and the refining and marketing of petroleum products.

Among oil companies that have sold or announced that they intend to sell their coal operations are: BP Amoco (in the United States, Australia and South Africa, but not in Indonesia), Shell (in South Africa, but not Australia), Exxon (in the United States, but not in Columbia), Mobil, ARCO, DuPont (Conoco), Chevron, Kerr McGee, Coastal and Mapco.

At the same time, major international coal producers have purchased many of those assets, creating large, global coal producing and trading companies.

Although oil companies began selling off their coal operations in 1989, the trend has accelerated in the last few years.

In 1996 the Williams Company, which had previously acquired Mapco, sold Mapco's coal assets for $230 million to Alliance Coal Corporation, a subsidiary of the Beacon Group Energy Investment Fund, a privately held equity limited partnership that invests in energy assets.

In 1998, Kerr McGee sold its Jacobs Ranch Mine in the Powder River Basin in Wyoming to Kennecott Energy and Coal Company (owned by Rio Tinto Ltd.) and its Galatia Mine in the Illinois Basin to The American Coal Company for a total of $600 million. DuPont announced that it was selling its 50 percent interest in the joint venture, Consol Energy, to its co-owner, Rheinbraun AG, a subsidiary of RWE AG of Germany. AEI Resources announced that it had acquired Zeigler Coal Holding Company for $560 million, also in 1998. The same year, Chevron announced that it would exit the coal business by putting its Pittsburgh & Midway Coal Mining Co. subsidiary up for sale.

In 1999, ARCO announced the sale of its 80 percent interest in the Gordonstone coal mine in Australia to a subsidiary of Rio Tinto for $150 million. Previously, Arco had sold its U.S. coal assets to Arch Coal for $1.14 billion and its interest in the Blair Athol Joint Venture in Australia to Rio Tinto. Rio Tinto's acquisitions boosted its 1998 coal production by 37 percent over 1997 levels. Duiker Mining, majority owned by Lonmin (formerly Lonrho), acquired JCI's Tavistock coal division (a large portion of which was previously obtained from Shell), which boosted Lonmin's production to 13.5 million tons in 1998 from 9.7 million in 1997.

In 1999, Cyprus Amax announced that it had agreed to sell its coal holdings to the German firm RAG International Mining GmbH for $1.1 billion. RAG will also become Germany's only national deep mine coal producing company once it has acquired Saarbergwerke and Preussag Anthrazit. And Peabody announced that it had increased its ownership from 43.4 to 81.7 percent of the Black Beauty Coal Company of Indiana.

Not all oil companies sold their coal holdings. In Indonesia, BP Amoco operates a 50/50 joint venture with Rio Tinto: PT Kaltim Prima Coal, which produced 14.3 million tons of coal in 1997. Exxon's mines in Columbia and Australia produced 16.3 million tons in 1997, while Shell's mines in Australia and Venezuela produced 13.5 million tons. The French multinational oil company TOTAL, which announced its intention to acquire Belgium-based PetroFina, also acquired 50 percent of South Africa's Forzando coal mine in 1998 and increased its ownership stake to 100 percent in 1999. Shell sold its coal mines in South Africa to JCI but retains coal mining assets in Venezuela and Australia through Shell Coal Holdings (Australia) Ltd.

Coal: From Local Mines to Big Business
Coal producers supply 25 percent of the world's primary energy demand, and coal accounts for more than 37 percent of world carbon emissions. While much of the world's coal is still produced for local use by suppliers of varying sizes, these operations are being replaced by huge mines owned by giant mining houses. The world's 39 largest coal producers in 1997 accounted for almost three-fifths of the carbon represented by world coal production.

With respect to U.S. coal production, the chair of the World Coal Institute, John Slater, predicted last year that "the top 10 producers may hold 75 percent of U.S. output in 10 years time." These international companies range across the globe in their search for and development of large, low-cost coal reserves and mining investments. From Australia to Indonesia and from Venezuela to Columbia, these companies are making multi-billion dollar investments in coal.

These companies are also a major force behind efforts to stymie international action to limit or reduce carbon dioxide emissions.

The World Coal Institute (WCI), which was formed by the chief executive officers of 28 of the world's largest coal producers, stated in a recent policy paper that it "shares current concerns about possible climate change caused by human activity through increased production of greenhouse gases and the contribution to this from the combustion of fossil fuels."

But when it comes to a solution, the WCI says "policy responses should encourage voluntary actions and 'no regrets' measures on the part of the industry."

Not only does the WCI make clear that it has no interest in overseeing the decline of the coal industry, it insists that world coal production and consumption will and should continue "to increase."

In other words, while coal and other carbon-based fuel producers have abandoned their criticism of the science on global warming, they now rest their case on the assumed catastrophic impacts on the economy if strong measures are taken to reduce carbon emissions. The Global Climate Coalition and other business groups are carrying the banner for this new claim.

Critics say the fossil fuel industry has "switched from promoting junk science to pitching junk economics." They point to existing technological alternatives to fossil fuels, and emphasize the potentially vast economic gains from an emphasis on efficiency and renewable energy.

Powering Political Interests
The hundreds of billions of dollars invested in coal mines, onshore and offshore oil and natural gas production facilities, pipelines and tankers, and other facilities not only provide a vast physical infrastructure, but enormous economic and political power that supports and reinforces the expansion of carbon-based fuel production. The break-up of the Soviet Union, the rise of the Asian economies, privatization of former state-owned companies, globalization and deregulation of energy markets have resulted in dramatic structural and ownership changes in the world's energy assets. These changes are enabling already powerful global giants like Exxon, BP, Shell, Peabody Coal, Rio Tinto, Anglo American and Rheinbraun to become even stronger.

As these companies merge with their competitors, engage in joint ventures with or obtain a minority interest in newly privatized companies, and thus expand their economic power, their political ability to affect the direction of climate change policies will be even greater -- a disturbing prospect given the laggardly pace with which international policymakers have begun to address the problem.