Just an off the top of my head bit of thought that came about after reading
Dan's post on Peak oil.
The vehement rhetoric directed against Big Oil is understandable. Most are too blinded by the numeric "billion" and the chronology "quarter" to even consider what Exxon spent for that profit. And so the return on investment comparison between Exxon and, say, Microsoft is of little use. The general public see massive amounts of cash flowing into Big Oil, the politicians shake their fingers, promise "taxes" (if you believe that for one second, I've got this bridge for sale...) and build platforms of hollow sympathy, the media reports these gross amounts of profit in just a breathless enough fashion to feed the fires. Big Oil is, officially, America's Economic Villain.
But;
Contrary to the imaginations of many, Big Oil isn't a villainous few chuckling, middle aged men with monocles and cigars lording over a Risk map and reveling in the screwing of the American public. Exxon-Mobil, whatever their massive profits, still maintain and answer to shareholders, a considerable amount of overhead and a want to make the most money for the least amount of investment. Eventually, either through a collapse in demand or finite supply, they will face the prospect of economic obscurity. I very much doubt this obscurity will be simply accepted and the likes of Exxon Mobil will simply fade away. More likely such conglomerates will, for the sake of self preservation, adapt to the demand of the market place.
So here's a "prediction" of sorts.
Big Oil will continue to enjoy it's short term profits even as semi trailer freight fades back to railroad, traffic in LA and NYC takes on the scooters and bicycles of Tokyo and our energy infrastructure takes wind, solar and nuke seriously. Meanwhile;
Big Oil, being the industry that stands to lose the most over the long term, will also embark upon a very competitive race to find that "Golden Alternative." I suspect we'll see a slow but growing funneling of cash from exploration and drilling into increasingly advanced R&D toward a sustainable replacement. Big Oil, for all the evil we consider them to be, is not ignorant of the future and possesses an incredible amount of money to explore and develop alternatives to its own current, hydro-carbon economic mother lode.
Consider that Exxon Mobil spent nearly
$5 billion dollars in a single quarter in 2006 on exploration and drilling. Annually that's more than Canada spends on it's military (
14th out of the top 170.) Companies like Exxon Mobil possess both the self preservation and the economic means to study, develop and deliver the Golden Alternative.
Our national villain might well turn out to be a hero after all.
6 comments:
I find your understanding of shareholder power wanting. Can you name any instances, off the top of your head, of shareholders firing management in the last 15 years?
Nowadays, most stock is held in Mutual Funds, Pension Funds, Hedge Funds, by asset managers, investment managers, portfolio managers, etc.
Most of the people who are the voting "shareholders" of modern corporate America are MBAs working in the finance sector.
It doesn't take long, when examining their interests and their records, to come to the conclusion that relying on them to hold a corporation's feet to the fire is a bit like hoping for the imminent return of Jesus Christ (a belief which, undoubtedly, influences certain corporate decisions about natural resource management if James Watt is any indication).
Much more important are the many, many billions in subsidies _our_ government gives to the oil industry. Bush's Energy Bill (some Republicans this week claimed America has no energy policy, I guess they don't remember voting for Cheney's Energy Bill in 2005).
Even before that taxpayer subsidization of the massively profitable oil industry, the tax code contained numerous multi-billion dollar bennies for the oil companies. How else do you think Enron paid no taxes in 4 of its last 5 years as it raked in billions in profit?
DUDE! Pardon me for not being gentle or sweet about this.
Hmm. I'll also pardon you for missing the point of this post entirely. Thanks for the comment.
Jay,
I agree that R&D budgets of large corportations hold the key to reneweable energy/energy independence, but only because the state of the market has now changed to the point that its the only way they can survive. Prior to this crisis energy companies proactively resisted any alternatives. They didn't want to pay the initial costs for switching to alternative resources. Preparation for our current predicamnet might have gone a long way towards softening its blow.
For that I don't blame energy companies, they just want to make money. I do blame government for failing to have the courage to take appropriate steps years ago, when the costs would presumably be lower than they are today.
I don't anticipate ever buying solar panels from ExxonMobil, for a couple reasons. First, because a lot of other companies already have competitive advantage over the oil companies, because other companies have been making solar panels or wind turbines or whatever for twenty years and oil companies haven't. Second, because it seems to me that extracting natural resources and basically selling them as-is to a captive market is a fundamentally different business from manufacturing individual solar panels and selling them to individual consumers like electronics. If ExxonMobil did morph into an alternative energy company it would probably be unrecognizable. I can't think of many companies that have made a comparable switch. Remember plenty of giant companies go bankrupt, PanAm, Enron, etc.
Also I don't quite get the point of Dan's post. Because the effects of peak oil can be mitigated, that means ignore it and assume it will magically be mitigated on it's own!
Stephen,
"but only because the state of the market has now changed to the point that its the only way they can survive"
That's the cruxt of my point. Because "Big Oil" stands to lose the most they might devote the most time, cash and effort to staying afloat or on top by realizing the next Golden Alternative. Be it steam, alternative ethanol (not corn based), or shale oil.
Last bit, I agree in regards to our shortsighted energy strategy, especially after the oil embargo. While I don't think we should have gone full bore into getting off of what was a very cheap energy source, a substantive program of alternative energy should have paralleled our resumption of consumption (poet don' even know it...)
Adrian,
Why do you assume solar panels will be the "Golden Alternative?" I very much doubt that in the mid term they will. And if or when solar power becomes a truly big player it will be extraterrestrial in nature (zapping down energy via solar arrays in space, perhaps.)
As for PanAm and Enron, neither collapsed because the source of their industry simply dried up (Exxon can't sell a resource that doesn't exist.) Oil companies have the "leisure" of knowing their source of commerce is finite. Even with increased pumping efficiency (oil wells are rarely "drained") eventually oil companies will be shit out of luck in terms of their commercial resource. Do you believe they'll simply run the train off the cliff? Or will they adapt for survival?
The former... although as you say since we don't know what the Golden Alternative (if there is just one, or if there is one at all) is we can't say for sure. I just think they're too big to change. We'll get to see capitalism and natural selection at work.
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