Long lines at service stations, unheard-of fuel prices, power outages. Virtually everyone alive in the 1970s had some role to play, willing or not, in an unfortunate chapter in the story of global energy
For BP, the lessons of the 1970s would powerfully influence its strategy for the remainder of the 20th century.
The oil world is turned inside out
The sudden sweep of changes in the Middle East from 1971 onwards caught the industry by surprise. It started with Muammar al-Ghaddafi’s rise to power in Libya in a military coup. In 1971 he announced that Libya would be taking a higher cut on all oil that left the country. Soon after that, the British military withdrew from Iran after a presence there for more than a century. Then Iran seized some small Arab Islands near the Strait of Hormuz, and Ghaddafi - angered by what he saw as a British failure to prevent the siege - punished BP. Ghaddafi nationalized BP’s share of an oil production operation in Libya. One by one after that, almost every oil-rich nation in the region - Iran, Iraq, Saudi Arabia, Abu Dhabi, Qatar - announced that if they weren’t nationalizing their resources immediately they would within the next 10 years. The effect on BP was profound. In 1975 BP Shipping transported 140 million tonnes of oil from the Middle East. By 1983 that number would shrink to 500,000 tonnes. Over roughly the same period, Middle Eastern oil would go from 80% of BP’s supply down to a meagre 10%. As a company that had once staked its entire strategy on Middle Eastern oil, BP found that its world had now been fully turned inside out.
Engineering feats and an environmental awakening
Fortunately BP had recently discovered major oil fields in other parts of the world, including Prudhoe Bay in Alaska and the Forties field off the coast of Scotland.
Now the company had to figure out how to get that remote oil to the sites where it could be stored, shipped or refined into gasoline. And that would test the company’s engineering prowess as well as its environmental commitment. The Forties field was 160 kilometres from the nearest shore, with over 100 metres of water flowing over it. BP’s engineers had to design production platforms with legs tall enough to perch above the North Sea’s notoriously rough waters and robust enough to stay standing even through harsh winters. The pipeline to a terminal at Firth of Forth would be the largest deepwater pipeline ever constructed. It needed the built-in security and agility to survive intense currents and corrosion.
Queen Elizabeth II pressed a symbolic button to start the flow of oil from Forties field in 1975, while oil wouldn’t flow from Alaska for another two years. BP’s discovery there had sparked a national discussion about the environmental implications of extracting oil from an ecological frontier, and the project had needed U.S. government approval to proceed. At 1,200 kilometres long, the Trans-Alaska pipeline system was the largest civil engineering project ever attempted in North America, and one of the most carefully watched. BP and Atlantic Richfield compiled extensive reports examining every potential environmental risk. The final designs for the pipeline included long aboveground stretches so that the warm oil passing through wouldn’t melt the permafrost. Raised areas at caribou crossings ensured that migration habits wouldn’t be disturbed. From the protracted Alaskan debate BP took away a lesson about the value of dealing with potentially contentious environmental considerations at the very start of major projects. More importantly BP found within itself a passion for confronting environmental challenges with ingenuity and determination.
Re-focusing on core strengths
When the oil started to flow from Alaska, no BP refineries or stations in the United States were there to take it. Instead a 25% stake in Standard Oil of Ohio (Sohio) ensured that Sohio facilities were standing by to bring the first Alaskan gasoline to market. BP’s stake in Sohio grew over the years, and in 1987 BP bought the company outright, incorporating it into a new national business, BP America. That same year the British government sold the last of the shares it held in BP. Fully privatized and in a period of intense self-scrutiny, BP accelerated its sell-off of businesses - minerals, nutrition - that weren’t core to what the company had always done well: find, refine, transport and sell fuel. In the late 1990s, with stiff competition in the energy industry setting off a string of prominent mergers, BP and Amoco joined to form BP Amoco. Then ARCO, BP’s old rival on the North Slope of Alaska, joined the portfolio. Later, Castrol’s motor oils and Aral’s distinctive European operation would also join the group. BP had found a new momentum.
Colonel Ghaddafi, Libya’s leader since 1969, nationalises BP’s share of its joint venture and by 1972 other Middle Eastern countries force the oil companies to hand over 25% of their concessions, rising to 51% over 10 years.
Oil companies agree to hand over control of the Iranian oil fields to the state, while in Egypt, the Yom Kippur war begins. Prices rise and production is cut.
Oil-producing countries raise their stakes in the oil companies - BP’s production of crude falls to 10% of its output five years earlier.
First oil arrives from BP’s Forties field - discovered in 1970 - in the North Sea in November, and by 1978 is supplying 20% of the UK’s requirements.
Following repeated attempts to nationalise BP, the British government sells 66 million of its shares - 17% of its holding - in the company for £564m. The government sold its remaining 31.5% stake in October 1987.
In Alaska, the Trans-Atlantic Pipeline System begins transporting crude oil and by 1979 is shifting 1.2 million barrels per day.
BP reveals a new ‘matrix’ management structure, designed to balance national companies with international business streams. New chairman Peter Walters strives for profitability over size and begins to slim down the company.
In the US, BP buys the remaining 45% share in Standard Oil it did not already own. It later buys Britoil in the UK. At the same year it was listed on the Tokyo Stock Exchange where its shares were traded until delisting in 2008.
Robert Horton replaces Walters and carries out a major corporate down-sizing exercise removing various tiers of management at the company's head office.
BP enters the Russian market and opens its first service station in Moscow in 1996.
British Petroleum sells its 57% stake in BP Canada.
John Browne, who joined BP in 1966 and rose through the ranks to join the board as managing director in 1991, is appointed group chief executive.
BP acquires a 10% stake in Russian oil company Sidanco, which later becomes a part of TNK-BP.