3 June 2009

Speech of Dr. Michael Nobel at the opening ceremony of Caspian Oil & Gas Conference in Baku

Distinguished academicians, honored guests, ladies and gentlemen,

This conference is dedicated to the present and future of the oil and gas sector in the Caspian region. You will therefore hear much about energy security, gas distribution and future oil production. Allow me therefore instead to speak to you briefly about the past, of the oil industry in Baku with an emphasis of the story of the two Nobel brothers Ludwig and Robert and Ludwig’s son Emanuel, who assumed the business after his father’s death. This year is a jubilee year for our - 150 anniversary of Emanuel Nobel, 130 years of the establishment of Nobel brothers oil partnership- “Branobel” and 125 years of construction of the Villa Petrolea, the residence house of Nobels in Baku, which was magnificently reconstructed by the Baku Nobel Heritage Fund. It is interesting to note how pure chance can create remarkable business opportunities. The two brothers had taken over the mechanical factory of their father Immanuel Nobel in St. Petersburg when they received a large order from the army to rebuild old muzzleloaders into repeat rifles. The Berdanka, as it was called, needed new butts in the process.

Robert was therefore sent to the Caspian region to look for walnut timber for these rifle butts but met a man on the boat who told him about his oil drilling experiences and Robert, a chemical engineer, instead bought the man’s small oil well in Baku, the oil production capital of Russia at that time.

When Robert arrived in Baku, oil drilling was very primitive. Kerosene was mostly used for lamp oil and heating but the poor refinery process made it difficult to use because of the fumes and smoke it generated. The Nobel brothers totally revamped the drilling techniques and Robert, being a chemist, improved the distillation process so that he obtained an almost pure and smokeless liquid. The Nobel Kerosene within a year saw its demand increasing fourfold.

Also, when Robert came to Baku the cost of oil transport was several times higher than the cost of extraction. It was done with small sacks on camel backs or barrels on sleighs, even dogcarts.

The Nobel brothers thus became innovators in oil production through the transformation of a frequently inferior product into a high quality one and delivery of a guaranteed quantity. One customer wrote: “when you buy a hundred pounds, you know you will get 100 from the Nobel’s and not 92 or 85.”

However, the brothers greatest contribution was in logistics and the transformation of a primitive, inefficient and expensive transport system into a modern mass distribution system involving pipelines, oil tankers, railroad tank cars, oil storage facilities; a system which basically still is used today. In this way they enabled a superior quality product to reach widely dispersed customers cheaply and rapidly.

To do this the brothers constructed the first pipeline in Europe and the second in the world. Ludwig also designed and built the world's first oil tanker in Sweden, the Zoroasther, named after the god of fire. Since it was too long to fit in the locks of Gota Canal it was constructed in parts, transported in pieces and welded together in the Baltic Sea, a radical innovation at that time.

As Ludwig strongly believed in vertical integration, a number of petroleum- using products were also acquired. The Nobel brothers went to Germany to look at a new engine developed by a man called Rudolf Diesel and obtained the license for manufacturing it in Russia. Soon the Nobel diesel engines, produced at the factory in St Petersburg were installed everywhere in that country.

The Nobel company’s personnel policies were also far advanced for it’s times: they provided housing, medical care, schooling, and pensions to the labourers at a time when workers were primarily regarded as an expendable resource. The Nobel Brothers Company thus showed a highly developed Corporate Social Responsibility a hundred years before this became generally accepted.

In 1916 under Emanuel Nobel's leadership the company Branobel was the largest company in Russia, it had 52 000 employees, a large figure at that time, and producing one fourth of world's crude oil. It had the largest private tanker fleet in the world with 20 tankers and 1200 tank wagons. It had 400 oil depots all over Russia. It revenues far exceeded Sweden's gross national product at that time. Its net worth was over 260 million dollars, while the shareholders received 40 % dividends.

In one of his letters to Emanuel, Alfred Nobel in 1890 wrote: “I don’t like to give compliments, but I must say: I’m astonished at how you managed to cope with most important tasks! Well done, nephew!” Emanuel also was instrumental in providing scholarships and grants to young talented students. Up to 40% of the net profit of Branobel was allocated for sponsorships and social care, a rather remarkable figure at that time. He was instrumental in personally helping to develop the Baku branch of the Imperial Russian Technical Society and fully committed to support science and research in Azerbaijan.

However, the year after, in October 1917 the Bolsheviks came to power in Russia. Soon they had destroyed everything the Nobel brothers had built over the last half-century. The wells were filled with water or were set afire, the pipelines blasted to pieces, the offices closed. The tankers and railway cars were confiscated.

Their workers saved the Nobel brothers when the Bolsheviks wanted to kill all of the so-called plutocrats. The Nobelites, as the workers were called, formed a protective cordon around the brothers home, saying they were good citizens and should thus be spared.

Emanuel had to flee, disguised as a peasant. After a dramatic escape from Baku through Russia by horse and by foot over Lake Ladoga’s ice he arrived 1918 in Sweden. His relatives were incarcerated a while but also managed to escape to Sweden. The Nobel Empire was irrevocably lost.

How did the Nobel Brothers succeed in such a spectacular way in a harsh competitive environment?

I heard an interesting definition of the requirements for commercial success of start-ups – as you know most of them fail within a year or two - you need three elements to be successful, first a visionary entrepreneur, willing to take risks, going outside the established channels, a grasper of opportunities, in this case it was Robert Nobel.

But then you need to replace him with an able administrator and manager when the business is working, to develop and consolidate it into a solid structure, that was Ludwig and Emanuel, his son and then you need a business angel, willing and able to provided long term sustained financial support in a period of rapid expansion and potential liquidity squeeze and that was Alfred.

I would like to end this part of my speech by paraphrasing the old saying: “those who do not recognize the past are condemned to repeat it.” In summary, what are the lessons to be drawn from the story of the Nobel brothers? The most obvious is the importance of choosing your parents carefully for the quality of their genes. The second is to look at the long-term political stability of your future geographical area of operations. The third is to treat your employees well because you never know when they can be the ones to save you.

Let me mention briefly the Nobel Prizes. The ones created by Alfred Nobel are by far the best know awards in the world. However, not many people know that there were two other Nobel Prizes, both in oil, one of which created and distributed before Alfred's prizes in 1901.

In 1889, the year after Ludwig’s decease, the Nobel Brothers Oil Production Partnership decided to create a prize to honour the memory of its founder and gave the Imperial Russian Technical Society the mandate and the funds to set it up. The award of 1.200 gold rubles was bestowed upon the individual who succeeded in the best investigative work in the field of metallurgy and/or in oil industry. The award was given three times, in 1896, 1898 and 1905.

The Azerbaijan Prize worth 1000 gold rubles was established in 1907 by the Baku oil firm Mazut, owned by the Rotschild family. and named after Emanuel Nobel. The prize was awarded for inventions in the oil industry and the laureates selected by the Baku division of IRTS. Four awards were given - in 1909, 1910, 1911 and 1914.

These last two prizes thus no longer exist but the Nobel Prizes created by Alfred have of course remained the most prestigious awards in the world. Now, to make a mark upon the world a prize has to have relevance. Oil and gas companies often has to struggle against an unfortunate public image. Huge windfall profits, unlimited exploitation combined with pollution of the environment and CO2 increases, leading to rises in the temperature of the atmosphere help contribute to the public image of oil companies in the eyes of the public.

Therefore, four of the descendants of the Nobel brothers are engaged in another award venture; of finding and honoring the most outstanding developments in alternative sources of sustainable clean energy and efficiency of its use, through a foundation named the Nobel Charitable Trust.

Its activities are threefold: awards, conferences and scholarships.

The Alternative Energy Award is to be given to individuals and organizations in the following three categories:

• Scientists and/or institutions who have made important discoveries in the renewable energy field or whose discoveries could lead to reduction in pollution and global warming.

• Corporate leaders or companies who have demonstrated successful efforts in finding new commercial solutions in the energy field in order to reduce consumption of nonrenewable energy and its resulting side effects.

• Policy makers who have distinguished themselves by implementing policy actions in order to reduce non-renewable energy consumption, pollution and warming of the earth’s atmosphere

The award will be given away annually and presented in the form of a medal, a diploma and a sum of money.

The NCT Energy Conference in the memory of Ludwig I. Nobel will focus on renewable energy sources, ways of combating pollution and global warming with participants from major suppliers and consumers of such energy sources as well as scientists and legislators.

Funding received will also be used besides the two previous activities for scholarships to young scientists who have, within the fields of renewable energy and pollution and global warming reduction, made significant discoveries but who lack the necessary resources to develop their innovations.

By doing this, we, the founders attempt to contribute to the solution to some of the most urgent and important problems of the energy crisis facing mankind and our planet in the centuries to come and we warmly invite and welcome the support of any energy company and government interested in this field.