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Posts from — June 2010

Blowout Prevention Act–or Oil-Production Prevention Act?

Today, the House Energy and Commerce Subcommittee on Energy and Environment will hold a hearing on the Blowout Prevention Act of 2010. A draft of the legislation and other pertinent documents are available on the Subcommittee’s Web site.

Although the draft legislation and hearing documents address serious problems brought to light by the Committee’s ongoing investigations, the Blowout Prevention Act would throw the baby out with the bath water.

To restate the obvious, although oil spills are bad, oil is good. Without oil, there would be no modern commerce and no mechanized agriculture. Life for most people would be “nasty, brutish, and short,” and many of us would not even be alive. Another obvious point — British Petroleum (BP) is to blame for the worst environmental disaster in U.S. history, not the oil industry as a collective entity.

Yet the draft legislation that Chairmen Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) will promote at today’s hearing could shut down all offshore drilling in the United States.

The draft text says the federal government “shall not issue a permit to drill for a high-risk well unless the applicant for such permit demonstrates . . . and the appropriate federal official determines that . . . the applicant has an oil spill response plan that ensures that the applicant has the capacity to promptly stop a blowout in the event the blowout preventer and other well control measures fail.”

Sounds innocent enough. However, the bill defines as “high-risk” any “offshore oil or gas exploration or production well,” not just ultra-deepwater rigs. In addition, at both the June 17 Oversight and Investigations Subcommittee hearing and the June 15 Energy and Environment Subcommittee hearing, Chairmen Waxman, Markey, and Bart Stupak (D-Mich.) emphasized that none of  the major oil companies, individually or in combination, could have stopped the spill after the blowout preventer failed:

  • “BP failed miserably when confronted with a real leak, and ExxonMobil and the other companies would do no better.” — Chairman Waxman, June 15
  • “It could be said that BP is the one bad apple in the bunch. But unfortunately, they appear to have plenty of company. Exxon and the other oil companies are just as unprepared to respond to a major oil spill in the Gulf as BP.” – Chairman Stupak, June 15
  • “Yet when you’re asked can you stop the massive quantities of oil that are now ruining the beaches and marshland, killing the wildlife, and devasting the economy, you [BP, ExxonMobil, Chevron, Shell, ConocoPhillips] say no. You say you’re not well equipped to deal with it, and these catastrophic impacts are simply unavoidable.” — Chairman Markey (hearing transcript, pp. 220-221), June 15

The implication is obvious: The federal government “shall not” issue any more permits for offshore drilling, because nobody knows how to “promptly stop a blowout in the event that the blowout preventer and other well control measures fail.” Rep. G.K. Butterfield (D-N.C.) put it this way: “BP ignored a very simple rule. If you can’t plug the hole, don’t drill the well.” But, as the BP disaster shows, some holes cannot be plugged, at least not in time to prevent gigantic spills. Logically, the bill implies that no permits to drill should be granted and that existing permits should be revoked.

How might Chairmen Waxman, Markey, and Stupak reply to this criticism? [Read more →]

June 30, 2010   6 Comments

BP’s ‘Beyond Petroleum’: Climate Alarmism as the Great Environmental Distraction (Part II: Why the ‘greenwashing’?)

[Editor note: Part I in this series examined praise for BP and Enron from the Worldwatch Institute. Part III examines a Harvard Business Review article linking BP's 'beyond petroleum' strategy to special government favor, including drilling on government domain.]

Consumer boycotts of Shell and pressure from Greenpeace … [and] speculation that Shell might shift its position on climate change led BP CEO John Browne to look more closely at climate change. He decided to set a new company policy that would set BP apart from the competition—the product differentiation strategy.

- Gary Gardner, “Accelerating the Shift to Sustainability.” In Worldwatch Institute, State of the World 2001 (New York: W. W. Norton, 2001), p. 101.

With great big blobs of oil washing up on the shore, it is almost comical—no, it is comical—to see some of BP’s erstwhile friends in academia and other centers of high-minded thought running for cover. To cite one example, thanks to BP sponsorship, 300 researchers in white lab coats at Berkeley are busily searching for ways to make green fuels that will reduce our dependence on oil. In 2007, BP set up the Energy Biosciences Institute, saying it would spend $500 million over the next ten years to support research into plant-based fuels at Berkeley and two other universities. This is the largest corporate donation ever for university research.

- Andrew Wilson, “Beyond Pathetic.” The Weekly Standard, June 28, 2010.

For more than a decade, Left environmentalists and trendy business ethicists have touted BP’s “beyond petroleum” mantra as an example of public-interested corporate progressivism.

For example, Joe Romm in Cool Companies: How the Best Businesses Boost Profits and Productivity by Cutting Greenhouse Gas Emissions (Island Press: 1999) devotes several pages near the end of the book to “climate leadership at British Petroleum.”

Romm refers to John Browne’s “remarkable May 1997 speech at Stanford University” (p. 206) before describing this episode:

Browne noted in a February 1998 speech that immediately after the Kyoto conference, he wrote to all 350 leaders within the BP group, the people who run BP’s business units, to get their ideas on how BP could reduce carbon emissions. Browne said, “Two weeks ago I got the response and I was stunned by it. It consisted of 200 pages of the most detailed and serious proposals…. Every single one reflected the view that we were doing the right thing in trying to tackle our own emissions and to make a positive constructive contribution to the public debate” (p. 207).

Romm continues: “One of the primary messages of this book  [is what] Browne has learned… ‘It is clear how frequently environmental logic and commercial logic coincide” (p. 207).

BP’s Misdirection

But now we know what happens when a corporation gets distracted and tries to be all things to all people. It happened to Ken Lay and Enron, and it happened to BP.

Tony Hayward cut back BP’s renewables push, which put pressure on the company’s ‘beyond petroleum’ greenwash. But evidently Hayward did not or could not do enough to reverse the unfocused corporate culture toward safety and true environmentalism. [Read more →]

June 29, 2010   2 Comments

They Loved BP and Enron: Climate Alarmism as the Great Environmental Distraction (Part I: Worldwatch Institute quotations)

[Editor note: Part II in this three-part series delves into the reasons that BP tried to rebrand itself as "beyond petroleum." Part III examines a Harvard Business Review article linking BP's 'beyond petroleum' strategy to special government favor, including drilling on government domain.]

“A growing number of corporations are moving beyond denial to acceptance and action on climate change, some seeking competitive advantage by anticipating rather than responding to future policy changes.”

- Seth Dunn and Christopher Flavin, “Moving the Climate Change Agenda Forward.” In State of the World 2002 (New York: W. W. Norton, 2002), p. 25.

Just imagine if John Browne had used the time and resources BP spent on climate alarmism and ‘beyond petroleum’ on real safety and environmental issues.

BP might still have a capitalization of $150 billion and not face a potential worst-case scenario of bankruptcy and ruin. And more importantly, the U.S. Gulf would not be in an environmental crisis.

Just imagine if Enron’s Ken Lay had used the time and resources spent on climate alarmism and forced energy transformation on accounting, risk control, and the real things that promote business sustainability. (Lay was a big Christopher Flavin/Worldwatch fan too.)

Enron might still be with us today.

Diverted management attention has an opportunity cost. Left environmentalists lobbied and praised BP and Enron for putting form over substance. A few shouted ‘greenwashing’, but most applauded their coveted split within the fossil-fuel industry on climate and energy.

Enron is no longer around. Instead it has become the poster child of political capitalism run amuck. And the Deepwater Horizon accident–for which, in an effort to save about $5 million, BP will pay tens of billions of dollars–may sink BP as an independent company.

What an irony: fake environmentalism driving out real environmentalism. Climate and energy reality, anyone?

A sampling of quotations from the mainstream Left Worldwatch Institute praising BP, Enron, or both follows. [Read more →]

June 28, 2010   10 Comments

Robert Bryce on Natural Gas Vehicles

[This excerpt from Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future is used with permission of the author. Copies of Power Hungry can be purchased here.]

Making fun of T. Boone Pickens is easy. But give him his due: he’s right about using more natural gas in the transportation sector. That concept makes economic sense for many fleet operators.

But – and it’s a big but – Pickens has grossly exaggerated the ability of the U.S. to make a quick transition to natural gas fueled vehicles. On the Pickens Plan website (PickensPlan.com), the billionaire claims that using more wind power and “increasing the use of our natural gas resources can replace more than one-third of our foreign oil imports in 10 years.”

That’s an easy claim to make. But Pickens can’t do it. And he can’t do it even if he were somehow able to manage a 100-fold increase in the number of natural gas-fueled vehicles in the U.S. and do so in just ten years. Building a large fleet of natural gas vehicles – and more importantly, the refueling infrastructure to support them – will take decades, not years. [Read more →]

June 26, 2010   4 Comments

Smart Meter Chaos: Maryland PSC Gets Real (consumerism, anyone?)

“The Proposal would not, in and of itself, enhance the electricity transmission grid or the Company’s distribution ‘backbone,’ and therefore it doesn’t justify the proposed customer surcharge by BG&E.”

- Public Service Commission of Maryland, IN THE MATTER OF THE APPLICATION BEFORE THE OF BALTIMORE GAS AND ELECTRIC COMPANY FOR AUTHORIZATION TO DEPLOY A SMART GRID INITIATIVE  AND TO ESTABLISH A SURCHARGE FOR THE RECOVERY OF COST CASE NO. 9208 (June 22, 2010)

The smartest guys in the electricity room believe that a path to energy efficiency and environmental goodness is to hook up so-called smart meters for us little users. The smart machines would signal (jolt?) us to use less power in peak times when the price is high and to use power more when the price is low.

But the very concept has problems aplenty. First, time-of-use pricing for residentials (versus commercial and industrial customers) is a nice ‘green’ theory, not fact. Some states like California do not want or allow such residential pricing because of equity concerns. 

Second, so-called smart meters are all about government (taxpayer) and class ratepayer subsidies, not stand-alone economics between willing buyers and sellers. 

Third, there is the hassle factor (called transaction costs) of setting up appliances with time-of-day usage. Relatedly, (in)flexibility costs are incurred.

And last but not least, smart meters are intrusive. Big Environmental Brother lurks behind each smart meter to tell you what to do and when to do it. Civil libertarians take note of this government-dependent machine. 

Smart meters as ENERGY POLICY appear to be penny-wise and pound foolish. But members of an eco-energy elite want to individually pay by the pound to impress the neighbors and save the world, let them be ‘early adopters’. And perhaps these special users should also pay the costs of utility manpower in setting up time-of-day pricing to leave nonusers whole. Such is life under public utility regulation.

Make no mistake: smart meters are not a ‘let-the-market decide’ proposition. If they were, utility customers could decide individually and on a stand-alone basis whether or not to buy and install the meters. This should be an individual demander-to-provider proposition without other ratepayers or taxpayers involvement.

One final point: the federal budget is in horrendous deficit. Smart-meter money earmarked for Maryland should not be redistributed by the Department of Energy to other states as planned. The monies should be axed from the budget, reducing the deficit on a dollar-for-dollar basis.

And by removing this component of the program, the broader Smart Grid investment concept, which has all the earmarks of a rate base perversity as explained by Robert Michaels, can be given a reality check as well.

From the PSCM Decision [Read more →]

June 25, 2010   12 Comments

Wind Integration vs. Air Emission Reductions: A Primer for Policymakers

Many claim that wind generation is beneficial because it reduces pollution emissions and does not emit carbon dioxide.  This isn’t necessarily the case. The following article explains a phenomena called cycling where the introduction of wind power into a generation system that uses carbon technologies to back-up the wind  actually reduces the energy efficiency of the carbon technologies. Recent studies  with actual data have estimated the impact of cycling on air pollution and carbon dioxide emissions.

Energy modelers evaluating the impact of legislation such as Senator Bingaman’s American Clean Energy Leadership Act and the American Power Act proposed by Senators Kerry and Lieberman should take note for their models most likely are underestimating the cost of compliance by incorrectly modeling the integration of wind power into the electricity grid.

Wind is not a new technology. It was one of our principal sources of energy, along with wood and water, prior to the carbon era. But the use of renewables in the pre-carbon age was very different from the current use of renewables. Today, people rely on energy being available 24 hours a day, 7 days a week, 365 days a year, regardless of whether the sun shines, the wind blows, or there are high or low water levels.  We now have over 1,000 gigawatts of generating plants[1], and a large and elaborate electrical grid that requires great coordination among system operators to avoid disruptions.

Also, in the pre-carbon energy era, when renewables were the sole source of energy, there were no coal-fired or natural-gas fired power plants to provide back-up power. Studies have found that the efficiency of those carbon-based plants is affected by incorporating wind energy into the system. [Read more →]

June 24, 2010   2 Comments

Obama’s BP Time (“We’re from the government and here to help you”)

The current oil spill, like the financial crisis before it, has given ammunition to those who believe that the free market is dangerous and that deregulation leads to crises. President Obama, in his June 15, 2010, address to the nation, specifically blamed the lax oversight of BP’s operations on a “failed philosophy that views all regulation with hostility — a philosophy that says corporations should be allowed to play by their own rules and police themselves.”

This gets to a core debate between Left and Right[1] but overlooks the real nature of the problem. For many on the Right, government is the problem, while many on the Left see government as the solution. (This holds true in many different policy areas, from health care to industrial policy, among others.) But a major part of the problem is not government bias or objectivity, but rather government competence, which is not being addressed by most commentators.

Without a doubt, the ‘anti-government’ ideology that has been trumpeted by many on the Right is flawed. There are many things that government should not do, some of which are promoted by those on the Left. The failure of the Mineral Management Service to oversee the safe operation of the Deepwater Horizon (and other operations presumably) in an appropriate manner certainly highlights the fallacy of the belief that industry can regulate itself.

No doubt, this attitude amongst political appointees in the agency put in place by the Bush Administration played a role in creating this shortcoming, and the recent revelations about cozy relations with industry (including sex and drugs, even better than money!) have been repeatedly cited to confirm this. [Read more →]

June 23, 2010   6 Comments

America’s Gift: High Technology and Lower Prices (peak gas not!)

In a raft of articles on this blog and elsewhere, the surge in U.S. gas production–due mostly to rapidly increasing output from shale formations–has been touted as a key savior of domestic drillers and consumers.

At the same time shale gas has been more than a headache for LNG exporters and pipeline monopolists, for some it threatens to become a nightmare – softening prices, competing with pipeline supplies, driving LNG demand to spot markets – generally making a pain of itself, from the viewpoint of the gas industry’s would-be GOPEC.

By providing a plentiful alternative source of supply for the world’s largest gas market, the U.S., shale gas has reduced wellhead netbacks throughout the Atlantic Basin.  International reverberations have been dramatic. Even the Russian Bear, feeling the hot breath of the market, is softening its pricing terms for international gas sales.

“A Republic, if You Can Keep It”

At the close of the U.S. Constitutional Convention in 1787 a woman asked Benjamin Franklin, as he was leaving what we know as Constitutional Hall: “Well, Doctor, what have we got—a Republic or a Monarchy?”  Franklin replied:   “A Republic, if you can keep it.”  For natural gas, we can paraphrase Mr. Franklin – a market, if you can live with it.

In the U.S. and throughout the world the bounty of shale gas has created significant opportunities for consumers to save money on energy, and clean energy at that.  Most of these benefits are available only to countries where the market determines gas prices. [Read more →]

June 22, 2010   1 Comment

Vegetative Response to Climate Change: Celebrate, Don’t Fret

A new study has concluded that shifting climate is leading to shifting vegetation patterns across the globe.

My response to this announcement was “Terrific! The biosphere was responding the way it should to changing conditions.”

To my surprise, this enthusiasm wasn’t shared by the study’s authors. In fact, lead author Patrick Gonzalez seemed downright glum:

“Globally, vegetation shifts are disrupting ecosystems, reducing habitat for endangered species, and altering the forests that supply water and other services to many people.”

A very negative spin on what should be cause for celebration.

Despite how much we, humans, have sliced and diced the landscape, natural systems are still doing their best to respond to climate changes—just like they always have.

The only way to see this in a negative light would to hold the belief that everything that humans do to the world is bad. This seems like an odd philosophy, for more than likely the holder of such a philosophy wouldn’t exist today had it not been for everything that humans have done to make the world a better place and vastly improve our health and welfare. Just 150 years ago, as the industrial revolution was set to take off, the population of the world was about 5 times less than now and the average human lifespan was about 30 years. 

I am not saying that there aren’t some negatives for some species when the climate changes. Of course there are. But what I am saying is that there are plenty of positives as well. And it takes no more imagination to come up with positives than it does for negatives. [Read more →]

June 21, 2010   5 Comments

John Browne’s 1997 Stanford University Speech: The “Beyond Petroleum” Beginning (and beginning of the end of BP?)

“Stephen H. Schneider, a climate researcher and Stanford professor who wrote the first popular book on global warming, said [that Browne's] speech was a welcome change of direction for an industry that has, until now, denied that global warming is a problem. ‘They’re out of climate denial,’ Schneider said.”

- Quoted in Glennda Chui, “BP Official Takes Global Warming Seriously,” San Jose Mercury News, May 20, 1997, sec. A. 20.

Then BP CEO John Browne’s speech at Stanford University in May 1997 marked the beginning of the company’s “green” (or to critics, greenwashing) approach to product differentiation and corporate governance. Left environmentalists applauded heartily–and would continue to do so until the Deepwater Horizon accident of April 2010.

Browne’s speech began by begging the question and proceeded to a non sequitur. It begged the question by assuming that anthropogenic global warming was bad and it leapt to the conclusion that corporations and for governments must fight it. In Browne’s make-believe world, there was no such thing as analytic failure or government failure–just market failure.

Today, we know what John Browne did not want to know 13 years ago. We know that the climate is far too complex to pretend to ‘stabilize’ through marginal changes in carbon dioxide (CO2) emissions. We know that government mitigation policies are all pain and no gain. We know that oil, gas, and coal are the real deal–and wind and solar are pretend, press-release energies that might even be CO2 positive.

We also know that the global warming issue resulted in incalculable intellectual fraud, grotesque corporate rent-seeking, and the waste of the environmental dollar (there are real, here-and-now ecological issues that deserve the global warming buck).

We also know, painfully, that BP put form over substance and took their eye off the ball. Beyond Petroleum was a failed corporate strategy that resulted in heedless, dumb cost-cutting that put profits losses ahead of people and the environment.

Reality can be a harsh mistress. BP went after an environmental fad, basked in the glow of the Left environmental movement, and now may have destroyed itself in the process. As with Enron, another ‘progressive’ ‘green’ company, the Left environmentalists got what they deserved.

If only John Browne had given a Lee Raymond-type speech and had conducted BP’s business in the manner of its more reality-grounded brethren. The blame for the fatal attraction goes deep, and it lands at the doorstep of the mainstream environmental movement that got BP into greenwashing.

John Browne’s speech follows verbatim.

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The world in which we live is no longer defined by ideology. The old spectrums of left to right and radical to conservative are still with us, but ideology is no longer the ultimate arbiter of analysis and action. Governments, corporations, and individual citizens have all had to redefine their roles in a society no longer divided by an Iron Curtain. A new age demands a fresh perspective on the nature of society and responsibility. [Read more →]

June 19, 2010   18 Comments