Go well, Shell: bad oil’s good exit
An international company leaving the country is generally seen as negative, but Western oil companies foster thug states, corrupting governments and keeping the corrupt in power. Besides, the oil industry is bowing out
There has been a spate of international companies leaving SA – both a sign of the times and generally a bad thing. We all know the rule: developing countries often lack the capital to develop their markets and industries, and developed countries have excess capital; it makes sense for both sides to get together to cut a deal.
But SA often treats foreign companies with a kind of high-handedness that is truly astounding, especially for a country that is ex-growth. And, as my colleague Ed Stoddard pointed out yesterday, when you go ex-growth, you end up in the front of the queue when a restructuring requirement hits. That’s just life.
So, foreign companies leaving SA is a depressing indicator, but you know, in Shell’s case, I am perfectly happy for it to head on outta here. I know it’s a reflection of the poor business environment in SA caused by years of the ANC’S dysfunctionality and its anti-business policies, but when it comes to oil companies, some specific issues have troubled me for years.
The vast majority of countries where oil companies do business are, broadly speaking, what I would call thug states. Oil companies have to make uncomfortable decisions about operating in these countries because the world needs oil. But because the world needs oil, the thug states hold the whip hand, putting oil
companies in a tough position.
The relationship can be mutually thuggish, however, and it can breed a culture inside oil companies that is contemptuous of human rights, very transactional and hideously immoral.
So, though perhaps not their first preference, oil companies do quite often play a part in upholding thug governments and the consequences for the populations of these states can be horrible.
Thug states
Western oil companies don’t necessarily foster thug states (although sometimes you wonder), but they don’t do very much to prevent them from veering off in that direction either. They just swim nicely in that same pond together, taking turns following in each other’s wake. And, over the years, the result is the most extraordinary correlation between thug states and oil-producing states.
So what about Shell and SA? Well, oil companies now know that, to do business in dodgy countries, they have to have some leverage. So, true to form, Shell tried to secure its leverage in SA by entering into a deal with the ANC’S pet corporate plaything, Thebe.
And it is a rather delightful outcome that this transparently corrupt relationship has ended in tears. Couldn’t happen to nicer people.
Thebe calls itself a “partner” with Shell’s retail operations and holds 28% of the business. It has wanted to exit for years. Shell says the stake is worthless, and Thebe is astounded and “in shock”. Why it is astounded is, well, astounding.
Shell is partnered with BP in SA’S largest refinery, Sapref in Durban, but the refinery has been closed for two years because the government can’t get its act together to introduce new rules meant to reduce sulphur emissions, which of course Shell doesn’t want to implement.
If you have taken the trouble to essentially bribe a country’s government by giving them a slice of your downstream business and that doesn’t give you leverage to stop new emissions rules, then the relationship is pretty useless.
The end of Big Oil
But behind all this is a much larger trend, and that is the decline of the oil industry. The industry of course has many years left to go – people forget how important it is for the chemical industry, for instance. But the truth is that not only is SA ex-growth, so too is Shell.
The company’s income bounces around with the oil price, but Shell’s turnover has been somewhere between $200-billion and $300-billion for decades now. It’s trading on a multiple so bad it’s almost South African.
And now it faces its first real existential threat in recent history: electric cars. In most countries, the impact is very small so far, but the future is visible for all to see in China, where almost half the new cars sold are electric.
About 66% of total oil sales in the US are to the transport industry, mostly to cars, and a little to aeroplanes. Think of that market halving, and you get some idea of the future oil company execs are facing.
And you know, it’s all good. Natural resources force companies to go to where the resources are and the result is the corruption of honest governments and the persistence of corrupt governments. So, though the departure of Shell from SA may be sad in some respects, I will not shed a tear.