Jan
18
It’s Time to Kick the Oil Companies Butts
January 18, 2008 | 2 Comments
Yesterday morning I spent over an hour on a conference call with representatives of the American Petroleum Institute and a long list of bloggers. There were four API people, Jane Van Ryan, the API moderator and organizer, Red Cavaney, API’s President and CEO, John Felmy, API’s Chief Economist, and Ron Planting, API’s Manager of Statistics. Nice folks, who all attended to the quickest and the loudest questions with aplomb.
What one comes away with from the discussion is framed by the questions. In the list of conferees was a number of bloggers from the “peak oil” segment who were the quickest and loudest. While I surely agree that oil may or might or has or will peak, it really doesn’t matter. The spread from demand and the supply has already set up a market situation of a “premium” where even the slightest shock of reduced supply or increase in demand sends the price rocketing upward. Thus, we have a “premium” over the product’s economic value.
Say the real economic value of a barrel of oil is really $50 for the work it will do. Right now, the demand is so close to supply and the information about a cushion to answer a supply shortage or demand increase is controlled by government petroleum interests who really do understand that such information will have a huge impact on the market price. The market just raises the price to assure that demand answers the need to restore the cushion in the first steps and then to find the economic value later – maybe. The cartel of OPEC and the Axis of Oil mean to support a premium for as high as possible and for as long as possible making the “maybe” a very uncertain thing.
One’s first impulse is to answer the government petroleum interests like OPEC and the Axis of Oil with government action. Sounds good, but its been done before with only aggravated problems as a result. If any story repeats itself in history, it’s when an interest of a sovereign vs. sovereign collide, and the results are destruction by economic disasters or war.
Another method to answer is to stay with the market and let its signal of high premiums form the problem. The first impulse is to reduce demand, drive less, conserve more, fewer jobs, less taxes, economic contraction. It’s not fun in the developed world and a death sentence for some in the undeveloped world. It is already happening, as it is the first and most personally effective means to adapt to the new conditions. However, this is only a stopgap measure and not a solution.
The most successful method is to see the greater opportunity in the solutions to the problem. Oil may well have an economic value of $50 to $60 per barrel more or less. This value must compete with any and all alternatives. To repeat – petroleum must compete in price to do work with all of the competing ways to fuel work. More over, the petroleum industry, its customers, investors and workforce has to come to grips with the reality that energy from solar, geothermal, fission and fusion will be eating their fuel market. Simply – change, grow and expand the market.
Now let’s kick some butt!
The free world’s petroleum companies enjoy record stockholder values and profits for paying taxes and to return in reinvestments and dividends. One can see that the European based companies like BP and Shell are further along in grasping that the customers are much more elastic in their choices than the U.S. companies. I watch in great anticipation for U.S. company investments like the Royal Dutch Shell algae plant in Hawaii or the great mass of wind turbine investment and butanol market development by British Petroleum. The realization that oil has to compete is sinking in better in Europe. Reality check time – fuel can be grown, harvested from the sun, the earth, made from combining resources and simply made more efficient. The greatest reserve on earth is in the entropy in what we use and will use. Seizing the entropy can easily quadruple the work that can be done from any source of energy or fuel from the work we do now.
Another reality check – oil must compete – it will decline in market share – the premium will retreat and humankind will use more energy and fuel than ever before. The future is in not relying on digging or pumping an ever harder to obtain resource, the alternative efforts are already driving to lower unit costs and the effort will not ever cease.
I have some of my wealth in the petroleum business, I have been in the business, I have family and friends in the business. The U.S. Oil and Gas Industry is better at risk assumption and risk management than any other industry in the world, bar none. It has one of the largest pools of capital in history for fueling the future and it’s in hand now.
All that money and you’re paying taxes? That’s crazy!
Every one of those tax and dividend dollars can be used in research and development of alternative sources of fuels and energy systems that could be sold and used in the free world, improving the lives of our families and communities and exported to others. But, the drive to lower fuel and energy costs has escaped to others for now.
However, time’s up, you’re being called on it now. It’s nice to be answering the leading questions of the doom and gloom crowd, it’s nice to politely answer the price fixing charges of politicians getting an opportunity from ignorance. The news making is all-nice.
Most of the world is out reach for exploration, most of best of the U.S. is too. The price is now past the opening for competitive sources, and the race to answer the demand is on. There are huge opportunities in getting the work out of entropy, discovering ways to harness the abundance of energy falling from the sky or rising from the earth to us every moment, and finding the ways to exploit the physics of nature.
Meanwhile the average cost of lifting oil and gas for processing is rising fast, squeezing the profits to come. The door is open for now. The petroleum business can’t stop now, the need for stockholder value, salary, job and pension support never ends. By no means has the industry come to see the start of the end of line, rather it needs to see the beginning of a new energy sources and fuel choices era is upon us. Get with it, petroleum is only part of the energy and fuel business and the sooner it is reduced in importance and market share the better.
Nothing in history has improved the life of humanity like petroleum and the energy it released into growth and prosperity. The next step is upon us, and we are all, whether aware or not, are looking to the petroleum industry to explore, discover, develop and sell us the next step in powering humanity’s growth and prosperity.
There. Butt kicked. There’s a lot to do so let’s get to work.
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