The Yastreb anchors the Chavyo well site on Sakhalin’s northeast coast. (Photo: Business Wire)

President-Elect Trump’s nomination of Rex Tillerson to be Secretary of State offers insight into a major shift in how the federal government views itself. Using another expression that may yet become a title for a Myth Buster piece, “The Business of America is business” (according to President Calvin Coolidge). The Tillerson nomination evokes a possible new foreign policy that will be business oriented. In addition to the ExxonMobil (XOM) CEO’s personal business prowess and his acquaintance with Vladimir Putin, Americans can expect that the federal government will address some of the complex issues related to future oil and natural gas development.

Developing the Riches of the North Pole

The Myth Buster has long wondered who owns the North Pole and who will develop its vast natural resources? The United States, Russia, Canada and Denmark (Greenland) hold strong legal claims. Legal claims aside, someone will actually produce the oil. This may well be Exxon Mobil. This is not to suggest that Tillerson would enact policies that favor his former employer, simply that the leading US oil producer will be well positioned to produce the North Pole’s vast oil and gas resources.

The North Pole stands as a strategic target for many oil producers, but poses massive technical challenges. Earlier this year, a Maersk (Maersk-B) drillship set a new world’s record for the deepest water depth for an offshore oil rig. The 11,156 foot Raya-1 prospect is being drilled off the coast of Uruguay. Maersk is a Danish company. The world’s longest well was drilled the year before at the Chayvo Field as part of the Sakhalin 1 project. Exxon’s technical skill proved a key factor. In June, 2016, Russia launched the world’s most powerful icebreaker, which is nuclear powered. Russia leads in nuclear icebreakers. The ocean depth at the North Pole is approximately 13,000 feet, so oil production will require top-of-the-line technical skill. So, here are three likely contenders for the North Pole – Russia, the US and Denmark – at work developing the technical skill needed.

The sharp drop in oil prices is well known to investors. In contrast to Supply and Demand theory, overall oil production has hardly dropped at all. According to an article in Forbes, U.S. crude oil production has shot up 80% since 2008. The industry expects US production to continue to increase. This appears to be a poor strategy. A major reason for the price drop is the general refusal of OPEC and other oil producers to reduce production. A major reason for that turns out to be the dependence of many countries on oil revenue. Instead of reducing production to sustain price, these nations maintain or increase production in the vain hope that the revenue stream will continue.

All of these somewhat peculiar events may lead to a giant game of chicken. If US oil interests gained greater support from the government – funding new icebreakers and new, more favorable trade policies — the US could beat out the competitors.

Still waters do run deep. Separate from the sharp rise in US oil production, light trucks have quietly surpassed autos (small cars and sedans) in the overall US vehicle market. The long-prized four-door sedan has turned vestigial. The lucrative light truck space is so red hot Nissan is planning an aggressive move, ready to go head-to-head with Ford (F), GMC (GM) and Dodge (FCAU).

The Next Nuclear Race

The Myth Buster has noted the raging battle among the light truck leaders Ford, General Motors and Chrysler in previous entries. Ford’s lead irritates its competitors, who have tried every kind of macho advertising campaign possible to outduel the F150. Ford’s decision to use an aluminum bed seemed like a fruitful target, but the attack ad’s failed. Two important points should be made. First is that quality outdoes price and advertising glitz. Second, Americans want to enjoy driving more than they want to save oil.

The first-stab at this myth shows it to be quite sturdy. A tremendous amount of financial and technical prowess is already being directed at the riches that lie beneath deep waters. Add to that likely political support. The US has lagged in manufacturing state-of-the-art icebreakers. This article implies that the next nuclear race may not be over military might, but icebreaking prowess. Next month, we will tackle a new set of intriguing and eye-opening issues.

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Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.