On January 31, 2006, President George W. Bush delivered a State of the Union address in which he declared that the United States was, unfortunately, “addicted” to oil. A generation after President Jimmy Carter had declared America’s oil dependency to be the “moral equivalent of war,” and as casualties in Bush’s Iraq War accumulated, the president laid out a timetable for greater American energy independence, driven above all by his exhaustion with radical suppliers such as Venezuela and Iran:
Keeping America competitive requires affordable energy. And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology. . . . And we are on the threshold of incredible advances. So tonight I announce the Advanced Energy Initiative—a 22 percent increase in clean-energy research. . . .
We must also change how we power our automobiles. We will increase our research in better batteries for hybrid and electric cars and in pollution-free cars that run on hydrogen.
We will also fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips and stalks or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years.
Breakthroughs on this and other new technologies will help us reach another great goal: to replace more than 75 percent of our oil imports from the Middle East by 2025. By applying the talent and technology of America, this country can dramatically improve our environment, move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past.
For the president, a recovering alcohol abuser and the scion of a political family whose fortune came from the oil patch, to choose the metaphor of addiction for the country’s oil economy was a striking and even radical rhetorical decision. His announcement of a national goal to free the United States from Middle Eastern oil imports was more familiar, but striking nonetheless. As with most political speeches, however, the gap between word and practical policy was vast. Since 2001, the Bush administration had regularly advertised its willingness to invest federal funds in alternative energy technology research as a means to deflect calls for more immediate policies to combat climate change, such as a national limit on total carbon dioxide emissions or a carbon tax. In that sense, Bush’s new technology investment plans in 2006 were nothing new and were correctly seen by environmentalists as another effort to finesse the climate issue. Even so, there was no reason to doubt the sincerity of the president’s wish that capitalism and technological innovation might quickly produce breakthroughs that would make America’s oil dependency obsolete.
Like many Americans, Bush seemed to receive the September 11 attacks as a message that reliance on unstable oil-producing Muslim regimes such as those in Saudi Arabia, Iran, and Iraq was in some generalized or intuitive sense debilitating and unsustainable for the United States. America consumed roughly 20 million barrels of oil each day, of which up to 12 million were imported. Of the total, more than two thirds was used to fuel cars, trucks, and airplanes. To change oil import dependency would almost certainly require changing transport fuels. Bush called one of his first alternative energy technology research programs—an effort at the Department of Energy to develop hydrogen fuel cell technology as an alternative to the gasoline combustion engine—the FreedomCAR and Fuel Partnership. The implication of the “freedom” mantra seemed to be that if Americans could find a way to drive their open highways and shop in their sprawling suburbs without purchasing oil from the Middle East or Venezuela, the nation’s liberties would be strengthened. Yet it was the policy of the United States not to ask American households to make sacrifices to achieve this outcome. Much of America’s need to import oil resulted from the country’s gas-guzzling habits—per capita and per highway mile driven, Americans in their S.U.V.s and six-cylinder sedans consumed much more gasoline than any other people on earth. This relative overconsumption was, for many conservatives, including ExxonMobil’s Lee Raymond and Rex Tillerson, simply another manifestation of American freedom. A European or Asian authoritarian government might have attacked the problem of overconsumption of gasoline by taxing, planning, regulating, or otherwise mandating change. Yet Bush and Republican leaders in Congress made no serious effort to require Americans to drive more fuel-efficient cars. The president’s only initiative was to pursue a technological leap away from oil dependency by investing in basic research. This placed his thinking firmly in the tradition of emotionally declared, inadequately engineered American energy policies dating back to Richard Nixon.
ExxonMobil’s executives regarded the president’s romanticism about energy “independence” and alternative technologies as misguided. Describing the United States as addicted to oil was “an unfortunate choice of words, quite frankly,” Tillerson said. “To say that you’re addicted to oil and natural gas seems to me to say you’re addicted to economic growth.” ExxonMobil executives privately traded theories of psychological analysis about Bush—perhaps the president felt compelled to distance himself from his family’s history in the oil business or he feared his legacy as president would be “oiled” if he did not forcefully endorse alternative energy investments. On the big policy issues that mattered most to ExxonMobil—taxation, climate, domestic drilling—Bush had delivered, or had made a valiant effort in Congress. Yet the president also returned again and again to what senior ExxonMobil executives in Irving and Washington believed were fantasies about alternative energy breakthroughs that might lead to some Valhalla of energy independence.
“Cheney didn’t have that problem,” an ExxonMobil executive recalled. “Cheney was well-grounded. . . . ‘Don’t screw with the facts and let’s deal with it’ kind of thing. And Bush just was always afraid he was being associated with the oil industry.” That analysis of the president was perhaps too easy. Bush genuinely wished to remake the world that had led to the September 11 attacks—radicalism stoked by Saudi clerics, generations of young Arab men coming of age in stultifying societies. It was obvious even to a free-market traditionalist like Bush that America did its share to enable such dysfunction by importing so much oil and assuring the wealth of anti-American exporters. There was no reason to doubt that Bush would be pleased if research investments in alternative energy that he directed were one day remembered as the catalyst that ended the oil age. Like presidents of both parties before him, however, he lacked the depth of conviction, the political coalitions, and the scientific vision to do more than toss relative pennies into a wishing fountain.
At the ExxonMobil K Street office, Dan Nelson and his colleagues worked the phones to track what might emerge in the energy policy sections of the annual State of the Union, but in the case of the “addicted to oil” speech in 2006, they failed to intervene successfully. Drafts of the president’s address were very closely held. They learned that a push toward ethanol would receive heavy play, but they received no preview of the language repudiating oil and gas. Inside the White House that winter, economists and National Security Council senior directors who believed that global oil markets were liquid and interdependent—and who believed that “independence” from oil imports was an unnecessary and illusory goal—failed, too, to persuade the Bush speechwriters to remove the talk’s reference to ending Middle East dependency. They argued about the liquidity of the oil market and whether a particular importing nation could determine which barrel of oil was “foreign” versus “domestic.” But if one of the White House economists raised a question challenging the call for energy independence, the president’s politically attuned speechwriters would respond, “The president has seen this language in ten previous drafts and obviously likes it—do you really want to get in his way?”
After the speech was delivered, Saudi officials and diplomats from other oil producers aligned with the United States, who felt they had been insulted, protested formally to the White House. “It upset the Saudis,” the senior official recalled. “Démarches followed that speech.”
In Irving, Rex Tillerson sided with the Saudis. He believed, as did ExxonMobil’s Management Committee, that “energy independence is not attainable, not any time in the foreseeable future,” and that its pursuit was not desirable because it would set the United States on “misguided courses” that might raise the cost of energy in the American economy, destroy jobs, and disrupt trade alliances around the world. As for Middle Eastern oil, in particular, it represented less than a quarter of American oil imports, and the percentage seemed likely to decline in the future, as African, Canadian, and other sources of supply grew. Most Middle Eastern oil went to Asia, and more would head east in the future.
What, specifically, would be the benefits of American energy independence? For each argument put forth by alternative energy and import-independence advocates, ExxonMobil’s executives and lobbyists developed a response, which they delivered, particularly in the period that followed the “addicted to oil” declaration, in their own speeches at universities and economic forums, and on PowerPoint slides that ExxonMobil lobbyists handed out on Capitol Hill. These arguments addressed the main tenets of the “import-independence” advocates.
Energy independence would strengthen the American economy by reducing costly oil imports and thereby dramatically improving the country’s trade and balance-of-payment deficits, about half of which were due to oil imports. But there was no proven or obvious correlation between a nation’s trade balances and its per capita income or gross domestic product growth, ExxonMobil’s economists argued. Japan, Singapore, Thailand, and other Asian economies relied more, proportionately, on imported energy than the United States, and yet their economies had thrived overall and had produced trade surpluses. Yes, reducing oil imports could meaningfully and helpfully reduce America’s trade deficit, and thereby its total debts, but to blame oil for America’s unbalanced economy and its struggles in global economic competition was specious.
Energy independence would reduce or eliminate the need for American military intervention and defense spending in the unstable Middle East. America’s Middle East policies were constructed to defend Israel, check radical regimes such as Iran’s and Saddam Hussein’s Iraq, and keep global sea-lanes open for all commerce, to strengthen the world economy; in any event, U.S. defense spending as a percentage of national wealth was not badly out of line, by historical standards.
Energy independence would break the resource curse cycle by which American dollars financed hostile regimes in Venezuela, Iran, and elsewhere, and by which it encouraged the formation of corrupt authoritarian regimes in poor countries such as Chad, Nigeria, and Equatorial Guinea. The future of the world’s energy economy lies in rising consumption in China, India, and other developing economies; their purchases would only replace America’s. A technological revolution in which all oil consumption was rapidly displaced worldwide was unrealistic, given the pace of economic growth taking place in poorer countries and their thirst for energy.
Energy independence would free the United States from the threat of coercive supply disruption by hostile countries, such as occurred twice during the 1970s. ExxonMobil’s own private war-gaming scenarios showed that such threats were not realistic, particularly given the security of supply to the United States from Canada, Mexico, and Africa; in any event, the strategic petroleum reserve had been constructed to manage any short-term dislocations, to buy time for more decisive military interventions, if needed.
Rapid adoption of clean energy would reduce the threat of climate change. Even if global warming threatened the United States—and ExxonMobil remained unconvinced about the certainty and magnitude of the threat—it did not warrant costly government intervention, which would impede economic growth and threaten jobs, particularly if the policy response did not include rising economies such as China and India, whose emissions were greater than those of the United States.
To Tillerson and other ExxonMobil executives, Bush’s speech signaled how flawed and politicized American energy policy had become. If Tillerson and his Management Committee could write their own foreign and energy policy for the United States, it would involve, first, an acceptance of the interconnectedness of global oil markets—and an end to fantasies about national “independence” from those markets; and second, a recognition that carbon-based fuels would be central to the energy economy for decades, even if a significant tax on carbon was imposed eventually to address the risks of global warming. From those premises, ExxonMobil’s executives would construct a deliberate, country-by-country strategy to maximize oil and gas supply through free-market competition and to enforce the sanctity of commercial contracts to support that effort. Such a strategy, if carried out with discipline and pragmatism, might ultimately provide the United States with adequate “energy security,” as Tillerson put it, as opposed to “energy independence.” This was ExxonMobil’s corporate foreign policy; it frustrated Tillerson that he could not persuade even the relatively oil-educated Bush administration to adopt it wholeheartedly, and worse, that the president, during his second term, worn down by Iraq, seemed to be drifting away from ExxonMobil’s policy vision altogether.
ExxonMobil had amply proved that it could profit in the midst of weak American energy policies; indeed, the corporation’s central role in the American energy economy was in many respects a function of Washington’s inability or unwillingness to challenge assumptions about oil that had prevailed during most of the previous century. Confused and inconsistent American energy policy, then, was hardly a threat to the corporation; it was built into ExxonMobil’s business model. The question that mattered more in Irving around the time of Bush’s speech was whether the rapid, disruptive emergence of alternative energy technologies might upend the oil and gas industry. Could the pennies Bush tossed in the wishing fountain pay off unexpectedly?
Technological revolutions regularly overthrew incumbent industries and their corporate leaders; Moore’s Law, which described how computing power was becoming ever greater and cheaper as the years passed, suggested that technology-driven upheavals in the American economy would likely occur more frequently than ever before. Since 2000, the Internet and related digital technology had radically disrupted the assumptions of retailers, publishers, and broadcasters in a very short time period. Was it conceivable that ExxonMobil might face a similar disruption from the sudden rise of a transformational alternative energy source?
Lee Raymond’s view had been that it would be impossible to predict all technological change, but if ExxonMobil maintained a tightly disciplined process of planning and review, its executives might spot new technical trends early, as they started to make market impact. Tillerson proceeded from similar assumptions. Nothing in the oil industry happened overnight: Disciplined planning could catch innovation in its takeoff phases.
The Management Committee reviewed the possibilities for technology surprise each year as part of its Corporate Strategic Planning exercise. At Irving, William Colton, a chemical engineer, finance specialist, and ExxonMobil lifer, led the reviews; he reported directly to Rex Tillerson. Colton was a sharp analyst with a slight smirk; he was not an economist, but his tours as an apprentice executive and later as treasurer of the company’s upstream division had educated him about the corporation’s financial model and its strategic challenges. Rosemarie Forsythe, the former National Security Council analyst who ran ExxonMobil’s political risk department, participated in the reviews, along with a team of economists and business analysts. The corporation’s 2030 “Outlook for Energy,” which confidently predicted continuity in global oil and gas markets and foresaw only limited penetration by solar and wind technologies, reflected the main thrusts of the group’s long-range forecasting.
What if they were wrong? Scores of competent economists predicted rising housing prices for decades ahead. Their inability to perceive a speculative bubble and to imagine a radical departure from historical trend lines would soon destroy some large banks and humble many others. ExxonMobil’s own history of strategic prognostication could hardly provide its executives full confidence. Its planners had failed in the past to accurately forecast fundamental questions about the future of oil and gas prices. They had failed to predict some big changes in the American transportation economy, such as the popularity of S.U.V.s. Their basic analysis of the global energy mix had proven sound, although where it was a little off, it tended to suffer from intellectual conservatism—a failure to credit the possibility of more rapid change than conventional wisdom would typically credit. As part of their annual technological review, Tillerson and Colton decided to take a deeper look at some of the emerging new energy technologies just to be sure that ExxonMobil was not missing something that could be suddenly disruptive to the corporation’s basic businesses.
They commissioned fresh assessments from ExxonMobil’s own scientists, but also pushed the scientists to develop analysis from outside the corporation. The review produced proprietary, inch-thick white papers from outside scientists and technologists, papers designed to double-check or challenge in-house findings and assumptions.
By 2007, Irving’s planners felt they had a solid grip on the state of solar and wind power technologies. While the corporation forecasted rapid growth in those industries, aided by government subsidies, ExxonMobil did not regard solar or wind as a meaningful threat to its business. For one thing, solar and wind systems generated electric power and had little direct impact on transportation fuels, the heart of the oil industry. Natural gas, ExxonMobil’s principal contribution to power generation, promised to be price competitive with solar and wind for many years to come, and because of the relatively low carbon content in gas, that fuel would likely benefit from more intensive climate regulation, if such regulation emerged.
ExxonMobil now considered such regulation more likely than not: Although the corporation’s Washington office still lobbied vigorously against a price on carbon, Strategic Planning in Irving now assumed, for purposes of its annual forecasting, that carbon taxation or limitations would be enacted in the United States in the future. There was inevitable tension between Tillerson’s leadership group and Dan Nelson’s Washington shop—in effect, the corporation’s forecasters were betting against Nelson’s ability to ward off climate bills. There was a risk that Irving’s analysis would become self-fulfilling prophecy, if it led ExxonMobil to change its lobbying position on climate policy to appease rising Democrats. Nelson argued, in the manner of the former marine that he was, that capitulation would be premature and that ExxonMobil should stick to its guns.
Only technology—not Washington policymakers—was likely to ambush ExxonMobil. The only area where a breakthrough might be deeply consequential would be in transportation—some leap that suddenly changed how most cars and trucks were powered. As of 2007, the most oft-discussed scenarios for such a revolution in transportation fueling involved the possible emergence of hydrogen fuel cells, biofuels derived from plants, and the growth of battery-powered vehicles. The team Colton helped to coordinate examined all of these possibilities in depth.
Hydrogen is the most abundant element in the universe, but it does not typically present itself in isolation; it promiscuously gloms onto other elements to form compounds such as water. Once separated, however, hydrogen can be burned to create energy while releasing relatively few harmful emissions. Hydrogen optimists have fantasized about its potential as an abundant, environmentally sound, affordable car and truck fuel since the 1960s, when the technology emerged from research to support the U.S. space program. After September 11, hydrogen advocates reached President Bush and prompted his decision to fund new research at the Department of Energy. However, a sober 2004 National Academy of Sciences study soon listed the “major hurdles” that stood in the way of a hydrogen miracle, noting, “The path will not be simple or straightforward.”
ExxonMobil’s corporate planning analysts had monitored hydrogen research for many years; they were well familiar with the element’s industrial uses and difficulties, and they felt confident that the United States was not on the verge of any sudden, transformational turn into a hydrogen-based-energy economy. Sally Benson, the scientist who ran the ExxonMobil-funded research partnership at Stanford University, believed that “three or four near-miracles” were required before hydrogen could threaten gasoline, although she pledged her program to pursue them. After Bush launched his FreedomCAR initiative, ExxonMobil appointed one of its transportation fuels specialists, Buford Lewis, to travel and speak worldwide about hydrogen’s potential, but also, pointedly, about its limitations—Lewis traveled with carefully composed PowerPoint slides, derived from Irving’s public policy issues binder. The slides acknowledged hydrogen’s theoretical potential as a car and truck power source but laid out in detail the practical challenges. These involved the expense and risk of building a national hydrogen infrastructure, the problem that much dirty energy was often required to separate hydrogen from other compounds in order to burn it cleanly, and the difficulties of engineering viable fuel cells that could fit and operate inside vehicles economically. Lewis was eventually recruited to serve as ExxonMobil’s principal lobbyist in the United States Senate. He worked the Senate aisles alongside Dan Nelson by the time of Bush’s “addicted to oil” speech.
Bush also pledged to redouble the federal government’s investments in ethanol, a form of alcohol. Might that be the “black swan” fuel that upended ExxonMobil’s oil and gasoline business? The chemical processes by which ethanol could be extracted from sugar and grain had been known to mankind for centuries—mainly because they produced an alcohol that made people drunk and happy, or at least temporarily distracted them from their miseries. Ethanol had also been burned as a fuel in the industrializing West since the early nineteenth century, but it was not as efficient as oil-derived fuels such as kerosene. It first emerged as a subject of possible federal regulation and mandates for use in the United States after the oil shocks of the 1970s. In that era’s search for freedom from Middle Eastern oil, ethanol distilled from corn surfaced as a possible solution. The fuel’s advocates—primarily in the agricultural Midwest—also promoted ethanol blends as a way to reduce air-polluting carbon monoxide emissions from burned gasoline. Initially, gasoline blenders added MTBE to their fuels to reduce carbon monoxide pollution. When concerns about MTBE’s impact on human health surfaced, ethanol reemerged as a potentially safer alternative.
Ethanol refiners and corn growers around Chicago and other midwestern population centers organized themselves into a Washington advocacy group, the Renewable Fuels Association; hired lobbyists; and pushed Congress to adopt a mandatory national production level of ethanol—a forced march to freedom from oil. Ethanol mandates would also raise corn prices and enrich farmers. Like other farm subsidies, the push for ethanol in Washington was enabled by the constitutional makeup of the United States Senate, where sparsely inhabited farm states enjoyed disproportionate clout because each state elects two senators no matter its population base.
Many late-model American cars could burn fuels with up to 85 percent ethanol, mixed with gasoline, without being modified. The potential benefits of ethanol included the ability to grow corn for transportation fuel within the United States, substituting this for foreign oil, and the fact that ethanol blends produce fewer global warming emissions than pure gasoline. The drawbacks were substantial, however—primarily the lack of enough arable land, even in the vast United States, to produce the tons and tons of corn needed to manufacture ethanol in the volumes required to support American driving habits. Brazil, straddling the equator, produced ethanol efficiently from its abundant sugar crop, but the United States could not match that feat with corn. By directing so much corn production into ethanol manufacturing, the United States risked raising food prices at home and abroad. Nonetheless, in 2004, lobbied by farm-state politicians such as South Dakota’s Tom Daschle, then the majority leader of the Senate, Congress passed a fifty-one-cent-per-gallon subsidy for ethanol. The next year, Congress enacted an Energy Policy Act that mandated an annual minimum use of ethanol, rising from 4 billion gallons in 2006 to 7.5 billion gallons in 2012. Lee Raymond refused to support the bill, given its webs of complexity and subsidy; he found it a “totally politically driven process.” It requires about 1.5 gallons of ethanol to power a car as far as 1 gallon of gasoline would. Between this gap and the federal price subsidy, the true cost of ethanol ranged as high as six dollars per gallon in noncorn states by 2006, according to the calculations of Harvard University environmental studies professor Michael B. McElroy. Two years later, Congress extended the ethanol mandate even more dramatically, setting a target of 36 billion gallons of annual biofuel use by 2022, or about 20 percent of total transportation fuel. That might not destroy ExxonMobil’s gasoline-based business model, but it was a large number. Was it realistic? That was the fundamental question that the ExxonMobil team conducting internal technology reviews sought to answer.
Most of this hoped-for Congress-mandated biofuel would have to come from as-yet-unproven technological innovations that might allow “cellulosic” ethanol to be derived efficiently from dense plants—specially engineered stalks, wood chips, or switchgrass. The emergence of such a fuel might address the problem with existing ethanol technologies: that all the corn on all the land could not make enough ethanol to power 20 percent of American cars and trucks.
Fundamentally, ExxonMobil’s executives doubted the transformational potential of ethanol; as with wind and solar, executives knew the technologies and chemistry well enough, from past work with them, to have earned their skepticism. Tillerson derisively referred to ethanol in public as “moonshine.”
ExxonMobil’s downstream gasoline refining and retail division had produced and sold ethanol for years, and its technicians scoffed at the idea that it would be possible to produce anything like 36 billion gallons commercially by 2022. The corporation’s strategic research partners at Stanford University noted, too, that all of the energy in all of the biomass on Earth is only six times greater than the total energy used worldwide; it would be hard, therefore, for plant-derived fuels to produce a dramatic change in energy production patterns, no matter how great the technological leaps forward. Still, plants did produce liquid fuels, which were convenient for transportation use, and humankind had already learned how to farm, so there was at least the potential for a transformational surprise.
In Irving, Strategic Planning turned to the corporation’s Biomedical Sciences laboratories in Clinton, New Jersey, to head the review. Its scientists were asked to start with the most basic questions, familiar though some of them might seem: What is the science? What are the relevant technologies? Who are the leaders in the field? “We pulled together a pretty high-powered team to look at . . . literally all of the biofuel options,” recalled Emil Jacobs, the vice president of research and development at ExxonMobil’s engineering division. They evaluated four factors: One was the ability to scale a fuel, that is, to produce enough volume to have a meaningful impact on American or global fuel markets. Second, they dug into specific technical challenges facing innovators in each fuel type. Third, they reviewed environmental impacts, such as land use, water use, carbon dioxide emissions, and other by-products. Finally, they analyzed cost and economic factors.
They concluded that Congress’s ethanol mandates were a fantasy. Globally, because of the efficiencies available to sugar-producing countries such as Brazil, ExxonMobil forecasted production of 40 or 50 billion gallons of biofuels annually within two decades; even so, that would amount to no more than about 3 percent of total oil production. In the United States, “the 35 billion gallons [the approximate federal mandate]—you can’t do it—and there is no technology that can get you there” in the time frame ordered by the government, Ken Cohen, the corporation’s public affairs chief, declared. Another Irving executive was equally blunt: “We just ignored it because we don’t think it can be done.” Only government subsidies and mandates made ethanol competitive in the United States. ExxonMobil refused to enter subsidized businesses because the subsidies might not prove to be durable, and also because any subsidy known to benefit ExxonMobil would almost certainly fall to political assault. Nonetheless, ExxonMobil was routinely accused of biofuel denial and obstructionism. Cohen replied, “It’s strange for some to want ExxonMobil to get into businesses that would require a government subsidy.”
Battery technology interested ExxonMobil’s corporate strategists most of all. If there was one emerging energy technology that seemed to have the practical potential to disrupt the oil industry’s assumptions about the transportation economy, this was it. “I always put batteries in the category of game changers,” an ExxonMobil executive involved in the strategic technology review recalled. The most important questions involved the potential for breakthroughs in the “energy intensity” of batteries, which referred to the ability of a car battery to store and release large amounts of power at a competitive cost.
ExxonMobil’s corporate planners had already concluded by 2007 and 2008 that gasoline hybrid vehicles—those that combined existing battery technology with a traditional combustion engine—would be very successful in the marketplace, although the growth of sales of these vehicles, they believed, would be gradual and would not threaten the fundamentals of the oil business in the United States or abroad. A more disruptive scenario might involve the rapid adoption of all-electric or plug-in cars. That was a focus of ExxonMobil’s white-paper research.
“In the case of batteries, we felt we had to bring in some outsiders,” the executive involved recalled. “And they spent a considerable amount—I’m talking many, many months—looking at this. . . . ‘Here’s the technology, here’s where they are, here’s the likely breakthroughs or possible breakthroughs.’”
ExxonMobil conducted its own in-house battery research, in its chemicals division, and so it also employed scientists who were familiar with the core issues. The corporation also maintained research partnerships not only with Stanford and M.I.T., but with car manufacturers in Detroit and Japan; during the technology review, corporate planners reached out to all these sources to help study the technical questions about a prospective battery revolution.
The internal study’s conclusion, the executive involved recalled, was that “there is just nothing there . . . no pathways we see to cracking that code.” The main obstacle was “the cost of batteries as a storage device.” Gasoline hybrids made “a lot of sense,” particularly when you combined batteries with combustion engines that could increase their fuel efficiency in the years ahead, through improved engine designs. But the “technology is just not there” for a step up to a radical new transportation economy dominated by all-electric vehicles, the study concluded. There might be some early adoption of all-electric plug-ins, particularly if the sale of such cars was encouraged by government subsidies. Hybrid growth would probably contribute to an overall 20 percent decline in oil use for transportation in the United States within two decades, but that reduction would be more than offset by growth in car and truck consumption in China and other developing countries, and so the net effect to ExxonMobil, as a global oil producer, would be inconsequential. For the time being, the review found, ExxonMobil could rest easy: There would be adjustments ahead, but the gasoline and diesel industries were not about to be wiped out by a great leap forward in battery innovation.
Rex Tillerson believed that transformational technological change would upend the oil business and global energy economy eventually. Breakthrough batteries might be the pathway, or breakthrough biofuels, or cheaper, more efficient solar technology, or some combination of those technologies, or perhaps something unimagined in the present. Not anytime soon, however. For two decades and probably much longer, Tillerson’s Management Committee concluded after its reviews were completed and digested in 2008, ExxonMobil could feel secure about its investments in oil and gas.
The corporation nonetheless remained vulnerable to unexpected, game-changing disruptions, its senior executives in Irving believed. In their view, however, the most likely strategic surprises would not involve technology. “Geopolitics, by far, is the largest uncertainty in the entire world of energy,” one of the executives involved in the strategic technology review said afterward. As the review wound down, events proved the point. By then, the most material and volatile facts in the global oil business arose not from alternative energy technology labs. They involved extortion rackets, kidnapping, and maritime piracy carried out by militia cult leaders in the swampy deltas of Nigeria. Here, too, ExxonMobil and the Bush administration struggled to align their interests and their influence.