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and natural gas when they talk about hydrocarbons.
Hydrocarbons come in different shapes and have very different
characteristics. The popular image of crude oil is as a liquid black or
brown substance, but crude oils can also be pale yellow or green.
Crude oils also vary in many other respects: they can be runny liquids
or thick and sticky, they can have a ˜high™ or ˜low™ sulphur content,
etc. The most common way to classify different crude oils is °API
gravity, which stands for the American Petroleum Institute standard.
Every crude oil has a different gravity, which usually ranges from
about 20 to 40° API. Lighter (less dense) oils have high °API gravity
and are more sought after (Stoneley 1995, 29). Furthermore, crude oil
from each oilfield is unique. The characteristics of a specific crude oil
type influence the commercial value of the oil. For instance, many
West African varieties such as Nigeria™s Bonny Light have a higher
value than, say, Mexico™s Maya, as they have a higher °API gravity
and lower sulphur content.1



Refineries usually prefer crude oil with a low sulphur content because they must
1

remove the sulphur from the oil (Hyne 1995, 14). However, the characteristics of
crude oil from the same oil field can also change slightly over time. This presents
problems for both the handling of oil by refineries and the determination of the sale
price.
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Petrol for cars or wax for candles can come from the same crude
oil. Through processing, crude oil can be converted into, among
other things, gasoline, kerosene, lubricating oil, fuel oil, asphalt
and paraffin. Oil refineries process and separate the different
hydrocarbons and also break down some of the heavy ones into
lighter and more commercially ˜useful™ products. Since crude oil
is of little use by itself, the commercial value of a specific crude
oil depends on the proportion of ˜useful™ products that it can yield;
for instance, light oil yields proportionately more gasoline than
heavy oil.
When oil is produced, natural gas is often found in the same oil
reservoir and it flows to the surface in an oil/gas/water mixture “
this is called ˜associated gas™. Only several decades ago, natural gas
was not of much interest to oil companies. In the middle of the
twentieth century, when gas was found on its own, the find was
sometimes classified as ˜dry™ (that means, a drilling which did not
result in any significant findings). This has changed considerably
since then, with some developing nations such as Algeria and
Indonesia having become important gas exporting nations. As
natural gas may occur on its own (i.e., without the presence of
oil “ this is called ˜non-associated gas™), many gas fields are devel-
oped specifically for gas production today. Major oil companies
such as Shell are just as important gas producers as they are oil
producers; when we talk about the oil industry, we usually mean
both oil and gas.
As with crude oil, gaseous hydrocarbons have different character-
istics and their commercial value varies. Gas is classified as ˜wet™ or
˜dry™, ˜sour™ or ˜sweet™. As with crude oil, low sulphur content is
advantageous in gas. The terms ˜sour™ and ˜sweet™ refer to the sulphur
content in oil or gas; a ˜sweet gas™ contains little or no sulphur (the
same applies to the term ˜sweet crude oil™). The terms ˜wet™ and ˜dry™
refer to the content of hydrocarbons which can be recovered from gas
as liquid products. Natural gas can contain various hydrocarbons
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which can be extracted as liquids during processing; gas with signifi-
cant amounts of such hydrocarbons is called ˜wet™.2
The above description of the product indicates that hydrocarbons
are very complex products for the layman to understand, unlike
garments or commodities such as coffee. This is particularly relevant
to developing countries, where local people exposed to the industry™s
activities have often not fully understood the complexity and the
impact of oil and gas operations. Previous fieldwork by the author
suggests that local people in developing economies have blamed oil
companies “ sometimes unfairly “ for the effects of oil spills, gas flaring
and dust created by lorries, yet they sometimes failed to link oil
activities to effects such as changing fish stock levels or certain health
difficulties. The effects of oil operations can be difficult to measure
and document, and even courts have found it difficult to attribute
causality between oil activities and adverse effects on the local people
(Frynas 2000, 181). Crude oil and natural gas are also less visible for
the end-consumer because they are processed to yield other products
ranging from plastics to construction materials. A holistic under-
standing of the industry™s social and environmental impact depends,
therefore, on a relatively high level of technical expertise.
The industry™s social and environmental impact does, of course,
depend on the manner in which companies operate. The next
section explains how companies go about finding and producing
hydrocarbons.


Exploration and production

In the early days of the modern oil and gas industry in the nineteenth
century, the search for oil was conducted in a haphazard manner. Oil


Wet gas is usually associated with oil, while dry gas is usually non-associated and
2

contains a high proportion of methane, a simple and light gaseous hydrocarbon.
Wet gas can be commercially valuable because of the liquid products it can yield.
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Figure 3.1: Seismic survey


wells were drilled where oil seeped to the surface by itself or wells were
drilled on ˜instinct™, and only occasionally might the oil company
employ a geologist. Today, the oil and gas industry requires cutting-
edge technical skills, ranging from satellite technology to 3D com-
puter imaging, and oil companies employ whole armies of petroleum
engineers and very specialised smaller subcontracting firms.
Even before oil production takes place, oil operations already
require substantial investment and substantial interactions with the
government and local communities during exploration for oil.
Exploration requires so-called seismic surveys and exploration drill-
ing. In a seismic survey, sound waves are sent into the earth™s crust,
where they are reflected by the different rock layers. The sound
energy from a source on the surface bounces off the different rock
layers and returns to the surface, where it is recorded by a detector (see
Figure 3.1). Surveys are carried out by seismic crews, which are usually
subcontractors of oil companies and can include hundreds of men.
The seismic crew measures the time taken for the wave to return to
the surface, which reveals the depth of the layers and also indicates
what types of rock lie beneath the surface (Hyne 1995). In the sea and
in riverine areas seismic surveys are carried out using boats equipped
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Figure 3.2: Seismic method at sea and in riverine areas


with air guns which release compressed air (instead of explosives used
in onshore areas) into the water surface. The equipment is towed in
the water behind the boat (see Figure 3.2).
Following seismic surveys, drilling of exploration wells begins in
areas where oil reserves are suspected. This may already involve the
construction of some infrastructure, as vegetation may need to be
cleared and access roads to the well site may need to be built (this does
not apply to drilling in the sea). Wells are drilled with rotary cutting
tools with tough metal or diamond teeth that can bore through the
hardest rock. These tools are suspended on a drilling string. During
drilling operations, information about the oilfield at various depths is
collected by examining drill cuttings, which are returned to the sur-
face. Drilling is the only way to exactly determine whether there is oil
under the surface and to estimate its amount, although drilling costs
can be very high, which puts a limit on the number of drilling sites. If
there is no oil in commercial quantities, this so-called ˜dry hole™ is
plugged and abandoned. If oil is discovered in the exploration well,
so-called ˜appraisal wells™ are drilled in the area in order to establish
the size of the field. If the field is to be commercially exploited, some
of these appraisal wells may later be used as so-called ˜development
wells™ for oil production (Hyne 1995).
Once the production stage starts, an oil/gas/water mixture flows to
the surface. Oil companies cannot pump oil alone, because gas and
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Figure 3.3: Typical oil production activities


water are located in a petroleum trap together with the oil. Gas flows
to the surface by itself because it is very light. Oil can sometimes flow
to the surface by itself if there is enough ˜pressure™ in the reservoir, but
oil is more commonly brought to the surface artificially by pumps or
other methods. Once the natural reservoir drive has finished, water is
injected into the earth™s crust to force some of the remaining oil to
flow to the surface (Hyne 1995).
From the surface, the oil/gas/water mixture is transported through a
pipe to a gathering station called a flowstation, where gas and liquids
are separated. The oil is then either (1) transported through a pipeline
directly to a local refinery; or (2) exported through a pipeline to a
foreign refinery (e.g., pipelines from Algeria and Libya to Western
Europe); or (3) “ as is common in most developing economies “
transported to an export terminal on the coast where the crude oil is
loaded on to tankers and shipped abroad (see Figure 3.3). The basics of
oil production in offshore areas are not very different, but the produc-
tion techniques can be much more technologically sophisticated. In
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deep water areas, oil companies no longer use fixed oil platforms
tied to the seabed; instead, they use huge ships, which float on the
water far above the oilfield. These ships or vessels are used to
separate the oil/gas/water mixture and to store the oil until a tanker
arrives to take the crude oil away. The ship is connected to the
ocean surface through various cables and the drilling equipment.
Oil companies use underwater GPS-style satellite systems, which
can pinpoint the location of drilling equipment to the centimetre;
and all of this drilling activity happens at a distance of many
hundreds of metres or several kilometres below the ship.
The above outline of the industry™s production processes reveals a
highly technical industry, using highly sophisticated technology
and equipment. At the same time, the industry has a high potential
to cause negative social and environmental effects, from the explo-
ration phase through to the production phase, ranging from the
impact of migration into rural areas during seismic studies to the
impact of oil spills during production and transport (this is discussed
in greater detail in Chapter 4). Indeed, the oil and gas industry
cannot function without seismic surveys or infrastructure such as
access roads, which requires interactions between the oil companies
and the local people and carries the risk of diverse social and
environmental effects, particularly in highly populated or ecologically
vulnerable areas.


Marketing

CSR activities typically focus on oil exploration and production “
also known as ˜upstream activities™. The so-called ˜downstream activ-
ities™ “ oil refining and the marketing of oil products, which add value
to the product, tend to cause less controversy. In addition, in many
developing economies, such as Nigeria and Azerbaijan, there are few
domestic refineries and petrochemical industries, so the bulk of the
crude oil is exported to foreign refineries in North America, Europe
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and Far East Asia, where the crude oil is later transformed into petrol,
jet kerosene and other products.
None the less, it is useful to outline some of the complexity of oil
marketing because it helps to understand the involvement of different
actors in oil operations. The landscape of international oil markets
has undergone major changes in the last twenty years. By the early
1980s, a so-called ˜spot market™ began to grow in importance and
eventually replaced the previous system of fixed prices, following
Saudi Arabia™s decision to abandon government-determined official
prices in 1985. On the most basic level, a spot market for crude oil is a
market for the sale and purchase of oil for immediate delivery, in
contrast to the ˜futures market™ which provides for delivery at some
point in the future. A crude oil spot market sale is the sale of one
crude oil cargo for immediate delivery at a price negotiated at the time
of the agreement. Thus, traders can buy a specific cargo for immediate
delivery or for future delivery.
In fact, most of the oil today is still delivered under fixed contracts
between producers and refiners. However, the spot market helps to
determine a realistic price of oil in the world market “ based on the
available supply of and demand for oil. The price of the oil is
calculated using complex formulas and is usually ˜benchmarked™
(that is, related or compared) against the price of a leading crude oil
type: the Brent crude from the North Sea, the Dubai crude or West
Texas Intermediate. The price is adjusted according to the character-
istics of the particular oil “ a barrel of better quality oil may fetch
several dollars more than a barrel of lower quality oil.
While the pricing of crude oil is now largely ruled by the market,
developing economy governments still play a major role in the
international oil market. During the nationalisations of the 1970s,

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