America Has Oil on the Brain
Americans buy ten thousand gallons of gasoline a second, without giving it much of a thought. Where does it come from? How far does it travel? Why does it cost so much? Who's making money along the way?
Lisa Margonelli traveled thousands of miles from her local gas station to oil fields half a world away. Along the way she stopped at the Strategic Petroleum Reserve, the New York Mercantile Exchange's crude oil market, oil fields from Venezuela to Texas, to Chad, and even an Iranian oil platform. I jokingly call her book, Fast Fuel Nation. She calls it Oil on the Brain.
I spoke with Lisa about her book, the economy of gas stations, and how oil money can hurt a developing country like Chad.
Terry McNally: What kind of car do you drive? Where do you normally buy your gas? How many miles per gallon do you get?
Lisa Margonelli: I drive a 2000 Honda Civic hatchback that gets about 35 miles to the gallon. I actually buy my gas at a Shell station that is quite cheap and relatively near the freeway entrance near my house. But ideally, if it were convenient on my route, I would buy from an independent gas station.
Margonelli: Because the independents exert pressure to keep the prices down, and I support the struggling independent work ethic. But the Shell station is extremely convenient, and normally I never think about gas until my tank is almost empty.
McNally: Where do independents get their gas?
Margonelli: They get it from wholesalers called jobbers who buy it on the spot market. It comes from all the same refineries that are owned by the chains. They put their surplus each day on the spot market -- it's exactly the same gas.
McNally: There's a major right now running commercials warning about low quality gas...
Margonelli: -- Chevron.
McNally: Chevron with Tech-Ron and their little talking cars...
Margonelli: -- "Avoid the hazards of low quality gas."
McNally: What are the hazards of low quality gas -- lower prices?
Margonelli: Yup. Techron is apparently a special additive, but we'll never know because it's a trade secret.
McNally: Of course.
Margonelli: I don't know of any statistics on Techron. But the independents sell their gas with a standard detergent package that is perfectly adequate to clean the car.
You know there are nice looking independents and then there are super crappy ones. When I started the book, I had this impression that perhaps the very crappy looking independents were putting water in it or something. Of course water and gas don't mix, so that's a very naive idea. No, it's all the same gas, all the tanks are inspected by the same inspectors, it all comes from the same big pot.
McNally: How much was gas going for when you started the book?
Margonelli: Gas was really cheap in 2001. In 2003 I think it was $1.61 a gallon. It's been an amazing time to watch the market.
I got to see was how all the different economic wheels are pushing against each other and meshing. We tend to think of the oil industry as this big monolithic thing, but in fact it's made up of so many moving parts and so many different agendas, that you can't really predict where it's going.
McNally: You could predict that sometime it's going to run out, and before that it's going to get more expensive.
Margonelli: But we had big oil experts in 1998 lamenting the possibility that oil was soon going to be $7 a barrel.
McNally: I'm guessing you didn't set out to be an energy policy wonk. Tell me a little bit about the evolution -- of you and this book?
Margonelli: In the beginning, I was fascinated by the world at the other end of the pike, in Iraq or in Alaska. I just wanted to hang out along this supply chain. I also really wanted to get into places that were off limits, onto oil fields and into refineries.
I'm really curious too about how huge policies or huge historic trends actually impact individuals, because I think that's the way we understand them. So I thought the way for me to do oil, was to get to know individuals along the way and see how they understood their place in the supply chain.
What started as a project of understanding individuals turned into a project of trying to understand a large economy. And then as I was beginning the writing of the book, I got a fellowship from the New America Foundation, kind of a centrist think tank. For the first time I wasn't just standing outside shaking my finger. I was trying to do something constructive and that opened up a new world to me.
McNally: I've started calling the book to myself, Fast Fuel Nation.
Margonelli: That's a better title. Thank you.
McNally: Eric Schlosser did for a Happy Meal, how it got here, who and what got hurt along the way, connecting the dots... It seems to me you're doing the same thing for a gallon of gas at the pump.
Margonelli: I certainly hope to. I used to buy hamburgers without thinking about it. Then all of a sudden every time I picked up a fry, I was thinking about the man who changed the potato farming process in Idaho. I don't expect people to agonize about buying gas, but when people fill up, I hope that they have a sense of where it came from and what it cost along the way.
McNally: I want to go to what seems to be both your passion and your strength -- the stories.
Margonelli: When you hang out in a gas station, you realize what a strange place it is. It's familiar, a neighborhood spot for a lot of people. At the same time, it's also a slightly dangerous place, with a fair number of holdups and crime.
I hung out in my local gas station. There was a man named DJ who had come from Punjab, India and made it all the way around the world in little hops. He'd ended up in San Francisco running a gas station.
You've probably noticed that convenience store clerks sometimes have this sort of drowsy I-don't-care look about them. One day I was standing there early in the morning. DR was drowsy, we hadn't talked very much, people were coming in, buying gas, doing their usual thing.
This van appeared -- I hardly even saw it, maybe out of the corner of my eye. Suddenly, DJ came to life. I hadn't realized he was so tall. He sprung to life, flew out to the lot, yelled at the man, and the man got back into his van and drove away. It turned out that this guy had been planning to ditch his van in the gas station for the day and take the bus somewhere else in the city. You don't even think of the things that we do to gas stations, partly because people have huge anger towards gas station.
Part of the American bargain with oil is that we feel the gas station owes us something. That means gas stations make about five cents a gallon profit, selling us gas. They make up for it by selling us other things we don't mind paying for, like corn nuts and sodas and bottled water.
McNally: That bottle of water costs much more per gallon than gasoline, even at $3.50 a gallon.
Margonelli: Absolutely, and water doesn't explode.
McNally: Oil companies are making record profits based on the price and the demand. How does a gas station do?
Margonelli: Gas stations are the face of the oil companies on the street, but the gas stations themselves often have complicated relationships with the oil companies.
Independents may fear one of the majors coming in across the street to sell gas cheaper than they can afford to buy it on the wholesale market. The people with franchise deals often have fraught relationships, because the oil companies have been closing down a lot of them over the years.
As they become less and less profitable, the companies want to only sponsor the ones with the highest volume. They've been slowly putting mom and pops out of business, sometimes by raising the price they charge for gas until it's not feasible for them to sell it.
The owner of the gas station I was at is constantly trying to figure out the oil market. Trying to psych it out, to keep from being crushed between retail and wholesale.
McNally: Are the independent stations doing well right now with the price of gas so high?
Margonelli: No, when the price of gas is high, the independents have a hard time, because their wholesale prices rise above the cost that the refineries provide it to their own stations.
McNally: Is the person who runs the Shell doing really well right now?
Margonelli: They might be, it depends upon his individual deal with the gasoline distributor or the refinery.
McNally: How about life at the supply end of the chain?
Margonelli: CD Roper, a fourth or fifth generation oilman, invited me to join him on a gas-drilling rig in East Texas. The intimacy that CD has with this 100 million year old geology is extraordinary.
As [CD's family] drove across central Texas -- probably in the 1950's, his grandpa described this huge red mountain that used to stick out of the cretaceous sea, and how the geology of that mountain had been worn down by the sea and spread out over the sediments. And how when you drill down a mile or two beneath the surface of the earth, you come upon those red sediments from what's called the Lano Uplift.
He allowed me to sit on the rig at night as he would catch samples from the drill bit. The drill bit that they were dealing with was maybe 15 or 18 inches. It's actually three rotating cones that crush the rock underneath and smush it up between them. It looks like the mouth of a housefly, that's the feeling you get when you look at it.
McNally: You wrote an amazing point -- that drill bits come and go within 18 months, about as quickly as laptops.
Margonelli: Right, they have a very fast development cycle, because the drill bit is key to getting to the gas. At this point a lot of US oil is gone, so people are looking for gas.
McNally: Natural gas.
Small, difficult to find pockets. It's not like the Beverly Hillbillies' finding a big gusher. It's finding a pocket of gas and getting there as quickly as possible. So you need a really fast drill bit, and everything about your drill bit and they way that you drill becomes very important. Every minute counts.
CD would go up and catch samples and bring them down and wash them with this kind of sand. Then he'd put them under the microscope, and you'd be seeing sand from 100 million years ago. I found it just thrilling. I could really feel the romance of that life and that work. It was great to be given a window into this, which I would have had no access to otherwise.
McNally: Let's go across the world to Chad, one of the poorest nations in the world. They now have an oil industry and Exxon is there. Can you give us the big picture of what effect that's had on Chad?
Margonelli: Chad is a very poor landlocked African country, surrounded by oil producers, including Cameroon, Libya, Sudan and Nigeria, who've all had negative experiences with oil. Chad has had about 30 years of civil war, and, although [the country] had a semi-legitimizing election in 1996, [its] leader is essentially a warlord. Exxon, along with a consortium of other oil companies, invested 3.7 billion dollars building an oil field and pipeline to get the oil out of Chad.
It was a relatively small amount of oil, which shows how desperate the majors are to find new deposits of oil in places that are not OPEC countries with big national oil companies.
McNally: In other words, you can make deals with the OPEC countries, or you can go outside that system and try to find it somewhere else?
Margonelli: Right, and with a place as unstable as Chad, commercial banks wouldn't sign on to the deal. They thought it was too risky. But the World Bank came in, and made some guarantees about environmental standards and about supposedly distributing the oil wealth to develop the country.
When I was there in 2003, the first check was about to arrive and people were very anxious. Basically nothing comes out well in Chad. People say, "When Chad shoots an elephant, it dies in Cameroon."
One of the things that really broke my heart was a conversation I had with a professor who had been a member of Parliament. He was a very thoughtful man, very mellow.
He said that the Parliamentarians hadn't really been allowed to sign off on the oil proposal, but they had been expected to ratify it. At the very end of the discussion, one of the Parliamentarians stood up and said, "You know, in my village there's a certain kind of bird, and when you see that bird in the forest, you know that something will change. You don't know if your mother will die or your father will die, but someone will die whether you like it or not. And I think oil is like that bird. We don't know what this is going to change for us, but something will change."
Exxon made a bet on Chad, the World Bank made a bet on Chad, the U.S. made a bet on Chad. But really, all the chance of loss in that bet fell on the people of Chad.
McNally: That loss would be?
Margonelli: Essentially, losing the fragile peace that they had, and losing the hope of developing a better economy.
Oil money has come into Chad, lots of it, and it hasn't really developed the country. Some of it has been siphoned off through corruption. A whole economy of war has developed where people attack the government and then get paid off with oil money. The World Bank has been forced to change their agreement with the government, to allow Chad to spend more money on weapons. It has been just a disaster.
McNally: So, Exxon wins? They did find oil, there is money flowing.
Margonelli: They got a very good deal.
McNally: But the money, instead of solving problems, creates new ones. I've heard you describe it before, that when oil comes to poor countries, people become dependent on it, and whatever else was working falters, and whatever else they might have developed as an alternative, doesn't happen. Usually a few rich people get the money and no one else wins.
Margonelli: Right, and in Chad, in addition to the oil economy, there's an economy of war, and so the country's very destabilized.
Recently that professor, the former parliamentarian, wrote me an email, and said "Things are okay here. I have a job. My family is safe, although the children were disturbed when they saw bodies burning in the street during the coup attempt."
I wanted to cry. The combination of stoicism and horror. And the fact that none of the rest of us really heard about this. We heard a lot about the marvelous new oil project in Chad that was going to change things, but we haven't really heard about the all-but-war that's going on there.
McNally: What's the biggest thing that you took from doing this book?
Margonelli: If you get to choose, you really want to live in an oil importing country. That's one thing. Life in an oil exporting country can be really terrifying, and you don't have much control.
On the other hand, for so many years, the U.S. has gone to the ends of the earth, focused on finding bigger supplies of oil, and ensuring them through military arrangements, through money, through subsidies, through whatever it takes. We need to start focusing on using less, and on being responsible to some of our oil suppliers.