How to Cover the Oil and Gas Industry

By Martha Steffens, SABEW (Society of American Business Editors and Writers) chair in business and financial journalism, Missouri School of Journalism, USA

=Introduction=

Oil and gas is the world’s largest single industry.

If you were to look at the list of the world’s largest (and most valuable) public companies, petroleum companies share the spotlight with international banks and finance houses. In fact, 10 of the top 25 largest public companies are energy companies. Many oil concerns are still wholly owned by governments, including petroleum and/or natural gas operations in Saudi Arabia, Iran, Qatar, Iraq, Venezuela, Abu Dhabi, Kuwait, Nigeria and Russia, among others. Even lesser known producers like Great Britain are big contributors to the world’s energy supply, annually producing about two million tons of oil and gas, or about £37 million pounds a day to residents in Britain. Many countries are exporters, and others, like Great Britain, primarily fill the needs of its own people.

Millions around the world are employed by the oil and gas industry, though the number is hard to pinpoint. In the United States, the American Petroleum Institute says that the oil and gas industry has created 9.2 million jobs, though the environmental group Checks and Balances says the number is closer to 2.2 million jobs, including low-wage jobs of workers in petrol stations.

So covering oil and gas isn’t just covering an industry that pumps petroleum or delivers natural gas through pipelines, but is a complicated and interwoven area of coverage. The spectrum of stories include: Technology and innovation in oil/gas exploration that is changing the world map of energy exporters, particularly in North America.

Oil markets continue to be a source of controversy. Speculators have driven up prices on oil markets, while emerging economies like China and India are driving demand.

The fluctuating price of oil has governments demanding its citizens be ever more energy conscious. Legislation requires cars to be more fuel efficient, or run on electricity, though most vehicles still run on petrol or diesel.

Environmental concerns still play a role, in new drilling, especially after BP’s drilling accident in 2010 off the U.S. coast of Gulf of Mexico.

Geopolitics continues as a major story with oil prices still sensitive to political shocks in the Middle East.

=An industry overview=

The main products in the industry are fuel oil and gasoline (petrol). Petroleum, or oil, is the raw material for many chemical products, including all forms of plastics, as well as pharmaceuticals, solvents, fertilizers, and pesticides.

The industry is often divided into stage of production: Upstream, midstream and downstream.

The upstream oil sector refers to the exploration, acquisition and extraction of crude oil and natural gas. It’s also known as the E&P sector, or exploration and production. This sector includes all petroleum engineers and geologists involved in discovering potential underground or underwater oil and gas fields, drilling exploratory wells, and then subsequently operating the wells and rigs that recover and bring crude oil and/or natural gas to the surface.

The midstream sector includes processing, storage, transporting and marketing, a large sector that includes the oil tanker industry. More than 2 billion tons of bulk petroleum is transported annually by oil tankers from the point of extraction to refineries around the globe. Large tankers can carry more than 500 metric tons of oil, or more than 1.1 billion pounds, per ship. Baku played an important role in the development of the oil tanker. In 1876, Ludvig and Robert Nobel founded the oil company, Branobel, which was active in the oil region around Baku, then in the Russian empire. Ludvig Nobel was a pioneer in developing and ordering the construction of the world's first successful oil tanker, the Zoroaster. The tanker made its first run in 1878, from Baku to Astrakhan, Russia.

The downstream oil sector is a term commonly used to refer to the refining of crude oil, and the sales and distribution of natural gas and products derived from crude oil. Such products include liquefied petroleum gas (LPG), gasoline or petrol, jet fuel, diesel oil, other fuel oils, asphalt and petroleum coke. Downstream includes oil refineries, petrochemical plants, petroleum product distribution, retail outlets and natural gas distribution companies.

The downstream industry touches consumers through products such as gasoline, diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides, pharmaceuticals, natural gas and propane.

=The big picture=

Oil accounts for a large percentage of the world’s energy consumption, ranging from a low of 32% for Asia and Europe, up to a high of 53% for the Middle East. For other regions, consumption figures are: South and Central America 44%, Africa 41%, and North America 40%.

The world consumes 32 billion barrels of oil per year, with developed nations being the largest consumers. The U.S. consumed 22% of the world oil produced in 2011, a number that’s decreasing slightly over time. Production, distribution, refining and retailing of petroleum taken as a whole represent the world's largest industry in terms of dollar value. Governments heavily subsidize petroleum companies, with tax concessions at virtually every stage of oil exploration and extraction, including for the costs of oil field leases and drilling equipment.

=Understanding oil reserves and data=

The reserves of petroleum are a carefully guarded secret and companies and governments do not share. The Joint Organizations Data Initiative (Jodidata.org) is an international effort to compare statistics across organizations.

=A Reporter’s Tips=

Ángel Gonzalez of Dow Jones Newswires, a veteran oil and gas industry reporter, offers these tips for coverage. To understand the beat, the reporter must wrap his or her head around the dynamics of supply and demand. It’s a game of scarcity and abundance – either situation can dramatically alter local economies. Right now it seems to be a time of scarcity, as rapidly industrializing Asia seeks to catch up with the West. Asia’s appetite is such that the resulting commodities bubble has shrugged off even the worst financial crisis in seven decades.

It’s also a story about infrastructure – the job of producing energy and moving and processing metals requires a tentacular network of machinery that can alter our roads, our coasts and our skylines. When this infrastructure network fails, it can result in disasters like blackouts, mine implosions or giant oil spills. And of course it’s a story about the environment and regulation – especially as energy production and consumption accounts for a large share of the gasses many scientists blame for global warming.

The last decade’s surge in demand for oil and gas has meant that the companies that produce these commodities have become some of the largest in history. The biggest, especially in the oil sector, are owned and run by national governments – for example, Saudi Aramco, the Saudi Kingdom’s national oil company, the world’s largest oil producer. Some of these national governments, heavily reliant on revenue from oil, form groups, such as the Organization of Petroleum Exporting Countries, to try to maintain prices at a level that will bring them plenty of profit, but that is not so high that it will depress the economies of consuming countries. From securing access to interview an oil executive to maneuvering through complicated scientific arguments, reporters covering energy, utilities and mining need to be aware of the challenges of covering the beat. Below are a few of the top hurdles.

WHAT GOES UP, GOES DOWN

Historically, commodity markets experience alternating periods of abundance or scarcity. The length of these periods varies, but generally what comes up, eventually comes down. During boom periods, many observers of energy prices seem to think in apocalyptic terms. But technological innovation can play a surprising role in the availability of new resources. For example, in recent years oil companies have learned how to tap deep-water and tight-rock reservoirs once thought unattainable, and now they’re heading to the Arctic, which the U.S. Geological Survey says contains vast amounts of oil and gas.

NAVIGATING THROUGH SCIENTIFIC CONTROVERSY

Reporters writing about energy in particular will have to wade through scientific arguments in the course of their beat – so they should be comfortable to engage with academic actors, read up on the topic, and keep the salt shaker at hand. A prime example is the controversy about natural gas shale: many environmentalists, backed by prestigious universities, say that extracting gas through hydraulic fracturing, which involves breaking up tight rocks with jets of high-pressure water, can result in the pollution of water resources near natural gas wells. Oil companies deny this, arguing in many cases that the natural gas seeps naturally into reservoirs. To write fairly and authoritatively about this requires a lot of in-depth and fair reporting.

Reporters should be mindful of hype, follow scientific trends closely, and look at every angle of a story.

When quoting non-governmental organizations taking a stance on one issue or another, reporters should follow the money: see if a pro-fracking association is funded by the energy industry, or if an anti-fracking study is funded by the coal industry (producers of a competing fuel) or environmental activists. Financial backing doesn’t invalidate opinions or arguments, but readers should know whether they come from interest-backed groups.

TIGHT-LIPPED COMPANIES

Oil and mining companies built fortunes on keeping secrets: where they are going to drill or mine is information that their competitors can use to buy leases next door. To break through the ice, reporters must become experts on their beat – take a tour of the companies’ facilities, meet their executives, understand their business. That will enable you to ask intelligent questions, and most importantly, understand the answers.

Also be ready to pore into the fine print of financial statements – that usually contains good nuggets of information related to operational performance or new lawsuits faced by the companies.