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Oil Industry’s Deep Well of Fear
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There is an open secret in the oil industry that dare not speak its name: peak oil.
Well, two did speak its name and gained no acclaim for it. One, M. King Hubbert, died years ago. The other and the more controversial, Matthew Simmons, died Aug. 8 at his Maine summer home.
The peak oil idea is simple: Oil is a finite commodity and one day we are going to use up all of it.
Hubbert, a geologist, began speculating on the effects of the gradual decline in worldwide production in the 1950s. He expressed this in a simple graph, known as “Hubbert’s pimple.”
He tended to draw the graph freehand, and it looked more like a Rubenesque breast than a pimple. It was so simple that he drew it over and over again to illustrate his points for journalists and politicians. Later, he would draw lines through the pimple to demonstrate where we had been and where we were going, based on the then-known reserves and rate of depletion.
For his scholarship, Hubbert was eased out at Shell Oil Co. in 1964. He took a job with the U.S. Geological Survey and continued his speculative research — until he was thrust into national prominence by the 1970s oil crisis.
Simmons, in contrast, was a much more apocalyptic predictor than Hubbert. His illustration is a stark tower of a graph, more like the Empire State Building. He saw all the oil on Earth savagely used up in just two centuries, the 20th and the 21st, resulting in international catastrophe probably by 2040.
In one television interview, Simmons sounded like a survivalist. He said he was stocking his home with all kinds of supplies to survive the food and fuel shortages that would accompany the decline in oil availability, and the impending international chaos and hostility.
In the energy industry, which has a definite aversion to bad news and hard questions, Simmons was an agent provocateur and an effective one — effective because he was of the industry, not outside it.
Simmons was an oil man and his firm, Simmons & Company International, was founded in Houston in 1974. It grew to be one of the world’s most influential energy investment banks, with offices in Houston, London, Aberdeen, Scotland and Dubai, United Arab Emirates. It has been responsible for hundreds of billions of dollars of merger and acquisition activity.
The industry loved the deals Simmons made possible, but not his talk of doom and chaos.
In particular, Simmons distressed Saudi Arabia by analyzing production data and detailing what he concluded was a decline in the rate of drawdown on the Ghawar oil field, the world’s largest. This was the thrust of his book, “Twilight in the Desert,” and it incensed the Saudis and their oil company, Aramco. It also forced them to increase their field management efforts and make their operations more transparent.
Where Hubbert, who died in 1989, was a gentle seer of trouble ahead, Simmons was the knock on the door before dawn.
Ultimately, both have been betrayed by time and, in Hubbert’s case, technology. But their arguments have not been invalidated.
Hubbert did not foresee the enormous technological advances in exploration and drilling, including greater depths, horizontal wells and 3-D seismic.
Simmons saw all these things and concluded nonetheless that world demand for oil is so high that the end is near. He believed that once global production peaked and the 86 million barrels a day now consumed cannot be provided, oil will rise in price steadily to $200 a barrel and going as high as $500 a barrel as chaos and fear spread.
In recent months, Simmons became even more controversial. Correctly, he estimated that BP spillage in the Gulf of Mexico was many more times than what the company had first claimed. He was almost spot on. But he also said that BP would be forced into bankruptcy and that a nuclear device was the only way to stop the leak. BP responded by ending its relationship with Simmons’ bank. And Simmons ended his lingering involvement with it, as well.
Simmons was a perfect storm of a man, raging against the myths and self-satisfaction of the oil industry. In his absence, there will be a certain quietude in the petroleum clubs of Houston, Denver and Edmonton, Alberta, and elsewhere.
But in their hearts, they fear he was right.
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On Tax Cuts, GOP Should Think like Business
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Mythology in Washington holds that when it comes to economics, Republicans know best. The root of this myth is another myth, which goes like this: When it comes to business, especially small business, Republicans know best.
All of this doesn’t matter until you get to taxes, when the Republicans, buttressed by their mythological understanding of these things, believe they know best.
And what the Republicans believe they know best is that when you cut taxes, everything gets better: Government shrinks, business booms and tax revenues go up.
It’s not that there aren’t shards of truth here; it’s just that everything has to be in the right conjunction to get one or all of these benefits.
Business doesn’t go along with these myths but, like everyone else, it hates paying taxes, so by and large it endorses the Republican position.
The thing is, business believes in a more durable truth: price.
Price means revenue, and business, therefore, believes and practices aggressive pricing. When business needs to exceed the gap between cost and revenue, it increases the price. If the market refuses to pay the price, business exits that market or fails.
Sometimes, however, and increasingly in these hard times, business pulls a con. It lowers or maintains the price, but adds other charges to gain income. The airlines are doing this. The banks make as much or more on fees than they do on consumer loans. Catalog companies do it with “shipping and handling” fees.
Publishers have experimented more with price than most businesses, and their conclusion is to stay on the high side. If the market rejects your high-priced publication, so be it.
I’ve spent a lifetime studying pricing in publishing. All I’ve learned is this: Defend your price.
In London, Rupert Murdoch engaged his Times in a costly price war with Conrad Black’s Daily Telegraph. In the middle of fierce cost-cutting, Murdoch’s camp, with more resources, was triumphant.
Cheap papers were selling.
But when it was all over, the relative positions of the publications had not changed by much and millions of British pounds had been lost. The hope had been that the victor, Murdoch’s papers, would gain so many more readers that they could make up the circulation revenue losses with higher advertising rates. It didn’t work.
Taxes are different, the GOP has averred. Not really. If they’re too high, they will stifle business, choke enterprise and cause businesses to go offshore. Clearly, marginal rates that exceed some magic number (well south of 50 percent) would stifle business.
At one point after World War II, they reached 90 percent in Britain with disastrous results and a few comical ones. The titled, moneyed families fled to Kenya and Rhodesia and the show-business types took up residence in Switzerland. Actor David Niven and playwright Noel Coward were among these.
Now that the tax cuts enacted in the early days of the George W. Bush administration are about to expire, it may behoove us to examine these with a question: What would business do? Things looked pretty bright when these cuts were enacted with the prospect of years of surpluses. But that was before 9-11, two big wars and a recession.
Therefore, if you looked at the tax issue from a boardroom point of view, the unanimous decision would be to go for the revenue and review the result later. Boardroom-loving Republicans ought to know this.
In business, they laugh at people who believe that lower prices automatically will produce compensating revenue. The joke goes something like losing a little on everything and making up with volume.
Many years ago, I had lunch with George Will and Trent Lott. All three of us were speakers at the American Petroleum Institute’s annual meeting in Houston. At the time, Lott and Will agreed that we were an under-taxed country, given the demands on government.
Back then, Republicans thought like business people.
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Where Are the Dog Days of Yesteryear?
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The Greeks started the whole thing by calling sultry summer weather “Dog Days,” blaming it on the brightest star in the sky besides the Sun, Sirius, also known as the Dog Star. But it was the Romans who really took it seriously: They sacrificed brown dogs to appease the rage of Sirius and ameliorate the weather.
Now, could it be that the Dog Days in Washington are a thing of the past?
The weather has been foul enough, but where is the cessation of news? Where are the soft, feature articles masquerading as news that marked the metaphorical Dog Days? Where are the lesser politicians trying to get noticed for bills they have introduced that will died in committee?
It used to be at this time of year, when Congress was preparing for its long summer recess, things just slowed down, practically flat-lined. Washington emptied; the traffic thinned; no reservations were needed in restaurants; and clubs, like the Metropolitan and the Cosmos, opened their doors to non-members.
While there has been some summer flight, the journalistic and political intensity continues apace. Not only is this an election year, but the whole structure of political reporting has been revolutionized.
In a time of journalistic agony in most publications, political reporting is booming, fed by new technologies and cable news. Well, that is on the surface; out of sight, the furnace is fed by money, lobbying money.
If you want Congress to pass legislation favorable to your interests, or not to pass something unfavorable, then you hire a slew of lobbyists. They, in turn, place “advocacy” ads and the political media are off to the races. These ads appear on air, on line, on paper and on our doorsteps. Some media outlets charge hefty subscription fees, like Congressional Quarterly and National Journal, others are given away. But all seek and promise to lift the veil of secrecy in Washington.
The reporters—for Roll Call, The Hill, The Daily Caller, and hundreds of blogs clustered around publications and television channels, mainstream newspapers and wire services–slice, dice, puree, chop, blend, mix, pound, julienne, mince, whip and, sometimes, flavor the news. But mostly they feed the rapacious, 24-hour news cycle by blowing the slightest slip of the tongue, the smallest infraction of decorum, the inadvertent utterance into national events.
The remarkable new entry in the field is Politico, which exploded on the scene with the considerable fortune of Robert Allbritton, chairman and chief executive officer of Allbritton Communications, which owns television stations in Washington and elsewhere. As an example of innovative multi-platform publishing, it is an exemplar.
The impact in the surge in political reporting across the board is questionable: too many peas of news in mattresses of words. There is no time to investigate, and none to ponder. Better to be first and wrong than second and right.
One result of the swelling ranks of political reporter is politicians have clammed up. It is unwise for them to say anything that has not been vetted by their staffs. Hence, their infatuation with social media.
Here in high summer, one realizes that the glorious lazy, hazy Dog Days are a thing of the past; a time to do that interview you had put off, to try to be little more creative with your writing, to talk the bureau chief or editor into an off-beat story. No, instead, hundreds of political reporters are looking for something, anything, to fill today’s void. Was a congressman seen with a pretty woman (Damn, it is his daughter!)? Did a senator misspell something on her Facebook page?
It is this frenzy for faux news that brought us stories like Acorn, Shirley Sherrod, and the endless sightings of President Obama with known socialists? Whew!
Bring back the ancient Dog Days, but spare the brown dogs.
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Batteries Are the Shocking Truth about Electric Cars
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Can white elephants come in green?
President Barack Obama flew to Holland, Mich., on Thursday to attend groundbreaking ceremonies for a new lithium-ion battery plant, which the White House advertised as an example of federal stimulus grants at work and a gateway to a clean-energy future.
Great stuff — if you don’t look too hard.
Indeed, the Holland plant, effusively hailed by Michigan Gov. Jennifer Granholm as creating 300 jobs, and 62,000 “green” jobs down the road, will produce batteries in America.
But Compact Power Inc., which received $151 million from a federal stimulus program to open the $303 million plant, isn’t American and neither is its technology: It’s a subsidiary of the giant South Korean conglomerate LG Chem, and its technology is Asian.
Also that age-old bugaboo for electric cars — range and battery life — is still a work in progress. General Motors says its Chevy Volt will go up to 40 miles on a single charge and will have a range-extending, gasoline-assist feature. Nissan’s fully electric car, the Leaf, will have a 100-mile range. Ditto Ford’s electric Focus. Much depends on driving conditions.
Lithium-ion batteries are way ahead of traditional lead-acid batteries in power and weight, but they aren’t perfect. As yet, the best battery is far from being a competitor for a tank of gasoline.
There’s a back story here. The most obvious narrative is the need to create jobs in Michigan, and the hope is that electric vehicles will bolster car production there.
More obscure is the administration’s belief that a brave, new clean-energy America can produce jobs and reduce the output of greenhouse gases. In Obamaland, windmills will turn silently through the night, while millions of fully electric cars get their batteries topped up in driveways and garages.
A green and pleasant land is just a few million batteries away and, by Jove, the Department of Energy is on the job. It has $2.4 million to spend on electric car infrastructure. The department is helping to bring on nine battery plants, including the one in Holland. It’s also promoting charging stations.
Some small facts: These batteries are still so expensive (about $16,000 apiece) that any fully electric car, or near so, requires subsidies down the line to get the price down to where ordinary people will buy them in quantity. The only fully electric vehicle on the market today, the Tesla, is a sports car that costs over $100,000 and is aimed at the well-heeled greens of Hollywood.
While official retail prices for the Ford, Nissan and GM models haven’t been announced, estimates are in the range of $30,000 to $35,000. Federal tax credits are likely to trim several thousand dollars for many buyers.
Batteries have stood in the way of electric cars for more than a century. In the early days of motoring, electric cars covered short distances and held promise. But while internal combustion engines revved ahead, batteries languished.
But the dream of an electric car never died, though the batteries frequently did. In the 1970s, the U.S. government spent lavishly on battery research, including lithium and aluminum air batteries. There are dozens of ways to make batteries, but all have their disadvantages: weight, disposability, life, rate of discharge and market indifference.
If you want everything you get today on a car — electric windows, air conditioning, electric seats, multiple lights, highly variable loads and easy refueling and, maybe, towing capacity — you need a hell of a battery
We have, so to speak, been shocked by presidential energy enthusiasm before. Jimmy Carter believed in liquids from coal and launched the ill-fated Synthetic Fuels Corp., and George W. Bush went hog wild over ethanol — and those expectations are being trimmed daily.
I’ll buy a hybrid and wait, if it’s OK with Obama. –For the Hearst-New York Times Syndicate
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The European Dilemma: Austerity or Growth
May 14th, 2012
Guests: Darren Gersh, PBS's "Nightly Business Report"; Laure Mandeville, Le Figaro; Michael Fauntroy, George Mason University
Radio’s impact in Washington and the nation
May 7th, 2012
Guests: Tim Farley, Host and Program Director, Sirius XM Radio’s POTUS Channel 124
Elections here and abroad; crises in Syria and Sudan
April 30th, 2012
Guests: Arnaud de Borchgrave, CSIS; Ed O'Keefe, The Washington Post; and Christopher Chambers, Georgetown University
Word and phrase origins in the U.S. presidency
April 23rd, 2012
Guests: Paul Dickson, author; Carl Cannon, RealClearPolitics.com
Political “wars” in the 2012 election, and real wars elsewhere
April 16th, 2012
Guests: Michael Fauntroy, George Mason University; Ed Kelley, The Washington Times; Chuck Lewis, Hearst Newspapers