BusinessWeek
04-19-07
Conoco's Own Inconvenient Truth
CEO Mulva says the oil company is taking its role in global warming seriously
and plans to be more proactive
by Christopher Palmeri
James Mulva says he's recognizing an inconvenient truth. The chairman and
chief executive of ConocoPhillips (COP), the nation's third-largest oil company,
acknowledged this month that fossil fuels—his company's core product—are
permanently warming the Earth. "The science has become quite compelling,"
Mulva said in an interview with BusinessWeek.com. "We've been studying this
for quite a number of years. That is happening."
Energy executives, of course, have taken mixed positions on the climate change
debate. Exxon Mobil (XOM) has long been one of the most outspoken skeptics
on global warming. Although the position has softened somewhat recently,
Chairman and CEO Rex Tillerson told an industry gathering in February that he
still doubted burning fossil fuels were causing polar ice caps to melt and
temperatures to rise (see BusinessWeek.com, 2/14/07, "Exxon's Boss Is Cool on
Green Policies").
Learning Experience
BP (BP) Group Chief Executive John Browne may be at the other extreme. The
company recently unveiled a "green" gas station in Los Angeles with solar panels
and low-flush toilets, and Browne has long said that oil companies need to look
"beyond petroleum" for solutions to environmental concerns. "It would be unwise
and potentially dangerous to ignore the mounting concern," he said back in 1997.
Mulva's global warming announcement came amid a flurry of environmental
initiatives at the Houston-based company. On Apr. 10, ConocoPhillips pledged
$22 million to help Iowa State University develop fuels out of corn and
switchgrass. Six days later the company unveiled a joint venture with Tyson
Foods (TSN) to produce diesel fuel out of animal fat. Mulva says that venture will
operate on a break-even basis and only then as a result of a $1-a-gallon federal
subsidy.
The 175 million gallons per year of production is a drop in the bucket compared
to the 375 million gallons of gasoline Americans consume every day. Still, Mulva
says he hopes the project will be a learning experience leading to other
alternative fuel initiatives down the road (see BusinessWeek.com, 4/23/07,
"Climate Wars: Episode Two").
Self-Serving Pragmatism?
To die-hard environmentalists there is something self-serving in oil companies
jumping on the green wagon. Are they truly trying to save the planet or merely
attempting to ward off environmental legislation that could cost them money and
reduce gasoline consumption? "We appreciate their corporate citizenship, but is
there something we're not seeing here?" asks Tyson Slocum, director of the
energy program at the consumer group Public Citizen. "They want to maximize
the benefits for their industries and shareholders. With that you don't get very
effective environmental policy."
Mulva acknowledges there is an element of pragmatism in his approach. While
applauding states such as California that have passed their own requirements to
reduce greenhouse gas emissions, Mulva says he'd prefer a national approach
that balances environmental concerns with economic ones (see
BusinessWeek.com, 4/2/07, "Court Turns Up the Heat on Global Warming").
Mulva was short on specific policy recommendations, but he did indicate he
might embrace a carbon trading system that would give companies the flexibility
to meet emissions caps by purchasing credits from greener producers.
Adaptation
Mulva did have a specific recommendation on the subject of ethanol, the fuel
typically made from corn that burns cleaner than gasoline and is used as a smogreducing additive in many parts of the country. Environmental activists have
talked up the prospects of producing much more corn-based ethanol and
adopting as a primary fuel something called E85, a blend of 85% ethanol and
15% gasoline. But Mulva said that rather than try to install an entirely new system
of pumps and trucks for distributing E85, the industry would do better with a more
gradual approach. While now there's usually not more than 5% ethanol used at
gas stations across the country, there could be a shift toward a fuel blend that
was 10% ethanol across the board. "That's about 15 to 16 billion gallons, which
is about the maximum that can be made from corn production," he said. "All of
our current vehicles could use it."
There have been a growing number of groups skeptical of the prospects for corn
ethanol (see BusinessWeek.com, 3/19/07, "Ethanol's Growing List of Enemies").
Mulva, 60, worked his way through the ranks of Phillips Petroleum, which merged
with Conoco in 2002. He says he can remember the dark days of 1986, when to
fight off corporate raids from T. Boone Pickens and Carl Icahn, Phillips had to
buy back half its stock. It took on $9 billion in debt, a huge burden for a company
with a stock market value of just $3 billion. Then oil prices collapsed, from $27 a
barrel to $10, after a big production increase from Saudi Arabia. "We learned
how to adapt," Mulva says.
Oil isn't $10 a barrel anymore, but Mulva is still figuring out ways to adapt.