Britain is turning its back on one of the major successes of this decade
It is the biggest deal in the oil industry for a decade. It will consolidate production. And it will put renewed pressure on the rest of the industry, not least the two British giants Shell and BP. With its acquisition of Pioneer Natural Resources for almost $60bn (£50bn), ExxonMobil will cement its grip in the oil industry.
But if the US has been able to create a $60bn company out of the shale oil and gas boom, of which Pioneer was one of the leaders, why couldn’t Britain? There is no reason why the UK should not have developed a whole series of shale giants like Pioneer – and we still could, if we only developed the political will to exploit our own energy resources.
The deal may or may not get finalised, but if it does it will help to consolidate ExxonMobil’s grip on the oil market.
It emerged on Friday that it is in talks to acquire Pioneer, a $50bn business, and if a deal goes through it is likely to have to pay a significant premium, sending the final price up to $60bn, or possibly even higher. It would be Exxon’s biggest corporate move since the merger with Mobil that created the company in 1999.
And perhaps more significantly, it would consolidate its presence in the sprawling Permian Basin of Texas and New Mexico, where Pioneer is one of the strongest players.
For Exxon, it may well prove a smart move. For all the investment in green energy, oil is still above $80 a barrel, and the price has been strong all year. As much as they are hated, fossil fuels are going to be a vital part of the energy mix for many years to come, and there will be plenty of money to be made from extracting oil and gas and delivering it around the world. ExxonMobil was already the largest Western oil company, and if it can drive this acquisition through, it is likely to remain so for many years to come.
Viewed from this side of the Atlantic, however, the interesting question is surely this. Why don’t we have any companies of the size of Pioneer? Founded by Scott Sheffield in 1997, Pioneer is the company that drove the development of the fracking industry in the US.
Along the way, it made the country self-sufficient in energy for the first time in a generation, with surpluses to help out Europe when the Russian gas was turned off, and created vast wealth for the country. A $60bn price tag is a testament to the value of the industry.
The contrast with the UK is painful. The amount of shale oil and gas in the UK is open to debate. After all, it is hard to know for sure until you start drilling. The British Geological Survey put the reserves at 150bn cubic meters. According to a study by Warwick Business School, it could be enough to meet up to 22pc of the UK’s annual energy consumption up to 2050. There are a range of different figures. And yet whichever estimate you take, one point is clear. It is a lot.
The problem is that we have refused to develop it. A bizarre coalition of local protest groups, the same kind of people that stop houses being built, or roads constructed, have joined forces with the kind of extreme environmentalists who object to any kind of fossil fuels being extracted, together with a handful of conspiracy theorists, to bully ministers into banning the UK industry.
It is hard to understand why. Companies such as Pioneer have been developing the technology for a quarter of a century now, and funnily enough Texas does not seem to have been convulsed by earthquakes (and neither has Alberta, the centre of the Canadian shale gas industry).
Neither has there been a huge rise in the number of deformed babies, another favorite scare story of the anti-fracking brigade. Instead, huge new companies such as Pioneer have been created, and ones that are solid and stable enough to be acquired by the giants of the industry.
It is a scandal of epic proportions that the UK has squandered the opportunity to create the same kind of shale businesses in this country. In reality, we should have started this industry seriously when the first licences were handed out fifteen years ago.
By now, we would have major players in the business, with proven expertise, and a record of consistent production. It would be BP or Shell buying a UK fracking giant for billions, instead of an American company buying another American company to consolidate its lead in the industry.
Along the way, we would have created a huge number of jobs, lots of tax revenues, and vastly improved our balance of payments, while securing our own energy supplies, and making sure we were protected from prices dictated by Russia or Saudi Arabia. It was a huge industrial opportunity to turn down simply on a few scare stories about earth tremors that have proved to have no basis elsewhere. If fracking were as dangerous as its opponents argue, Exxon Mobil would not be buying Pioneer.
We could still start if we wanted to. The resources are there, and the technology is well established. With this latest acquisition, if it goes through, the industry is maturing, and the oil majors are starting to move in. If we lifted the ban now, we could have the first energy coming on stream in a year, and a major industry within five years.
We could be using that time, and some of the tax revenues it would generate, to build more wind and nuclear power, creating supplies that would be secure for generations to come. In reality, ExxonMobil’s massive deal for Pioneer has reminded us how valuable the shale oil industry is, and how much wealth it creates.
And it is a painful reminder of just what a terrible mistake the British government made when it turned its back on what should have been one of the major industrial successes of this decade.
