BP’s profits and the pipeline (1971)

From the June 1971 issue of the Socialist Standard

In a full page spread of the Financial Times of 6 April, the British Petroleum Company (BP), gave a summary of the chairman’s statement and accounts for 1970. Among the snippets in large print were these: “Total sales continue to rise but margins eroded” and “considering the problems we had to face, I think we did well in 1970.” The report gave details of the erosions and problems faced by BP, and in so doing of those of the world of capitalism in general. Gross income (sales) had risen from £2,124m. in 1968 up to £2,659m. in 1970, while net income (profits) fallen from £101m. in to £91m. in the same period. The chairman summed up the position neatly:

  The whole of the year has been a struggle to recover additional costs in our selling prices. In the earlier part of 1970 we had rising freight costs; now we have rising taxes and royalties in producing countries stemming from an increase in government take which the oil industry had to concede in the autumn of 1970 to producers in the Gulf and Mediterranean.

It is worth noting that the cost increases ate into profits. Price rises cannot automatically be made to compensate. Oil companies have to compete for markets and dare not let their products become uncompetitive. For once rising costs are not blamed on workers’ wages but on the sections of the capitalist class. “Larger quantities of oil had to be lifted from the Middle East in tankers chartered on a short term basis at greatly increased rates.” When it came to royalties and taxes, those paid to the Middle East, Libya and Nigeria, rose from £210m. in 1966 to £465m. in 1970. This was not all, when taxes in the consumer countries are taken into account £l,359m. was taken from BP. How their shareholders including the British government must fume, knowing that so large a part of their profits are ending up in other hands. However in spite of these “eroded margins” the company raised its capital expenditure to £322m. from £244m. last year. After all, even if their cut comes only to £90m. it is not to be sneezed at.

This all adds up to big business, very big business indeed. In the field of discovering and extracting oil BP lead the industry, to the extent that major rivals get some of their crude oil supplies from them. In the early years of this century they gained concessions to the oil fields of Persia, which are to this day a major producing area. Their discoveries of oil in Alaska recently, may prove equally important. In spite of its name BP is an international company,

 Over 90 percent of the groups trade . . . was carried on overseas and the majority of the crude oil and products was neither imported nor exported from the U.K.

Alaskan oil will, or so BP hope, gain them access to, and a large share of the American market. To this end they have been acquiring facilities such as refineries and distributive outlets. In the process they have had to overcome objections raised by government trust-busters. Now they are faced with more problems, those of transporting their product from the frozen wastes to the markets. Not only must heed be taken of technical factors, but also of costs and the aforementioned 'eroded margins’. Their proposal to build an 800 mile-long, heated pipeline, over frozen tundra to the port of Valdez has met with objections from conservationists. According to the statement ". . . the Valdez line can be built whilst fully meeting the legitimate anxieties of the conservationists”. These include the fact that the line would run over an area subject to earthquakes. From Valdez the oil would be carried by tankers. This has given rise to fears that the West coast of North America would face the consequences of polluted waters and shores as a result of having become a very busy tanker route.

The rush to get the pipeline built, and oil to the customers and a profit realised on the investments, militates against a sane and rational decision being made. Time would be needed to make thorough investigations of conditions and alternative proposals. More than this, sane terms of reference would exclude cost accountancy and commercial rivalry. How can the best decision from an environmental standpoint be taken when such objectivity is impossible under capitalist conditions?

All the arguments, whether or not they are expressed in terms of environmental considerations, must under capitalist conditions produce an answer in terms of profit margins. And we cannot help but suspect that some of the environmentalists’ genuine concern must be to the liking of some of BP’s rivals. After all if it helps to keep a rival commercially handicapped, then the preservation of the flora and fauna of Alaska is worthwhile.

Joe Carter