Category — Energy Companies

[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 →]

[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 →]

“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 →]

[Editor note: Some important facts are emphasized in this post: the Gulf oil spill occurred on property owned and managed by the federal government, and the operator-at-fault (BP) has been the most politically active in its industry. Sheldon Richman is editor of The Freeman magazine and www.thefreemanonline.org, where this article first appeared.]

With some 7,000 barrels of oil spilling into the Gulf of Mexico each day from BP’s exploded Deepwater Horizon well, offshore drilling and oil-industry regulation have returned to the front pages.

The familiar old trap is set: Do you want unfettered markets and oil spills or government regulation and safety?  The implied premise is that the oil industry operates in a free market. So, the argument goes, the only alternative is government regulation.

On first glance that story is plausible.

From USA Today:

The company that owns the offshore well spewing crude oil in the Gulf of Mexico and other major oil companies spearheaded a campaign to thwart a government plan to impose tighter regulations aimed at preventing similar disasters, according to government records.

Tighter regulations would have required that drillers perform independent audits and hazard assessments designed to reduce accidents caused by human errors, but the federal Minerals Management Service (MMS) has so far not imposed the rules in the face of near unanimous opposition from oil companies.

Oil executives — including BP, which leased the rig that exploded April 20 — argued that the industry had a solid environmental record and most companies had voluntarily adopted similar safeguards to protect against a major spill. They also said the new rules would have been too costly.

So: the MMS wanted to regulate, but the industry said it could regulate itself at lower cost, insisting it was a good steward of the environment. This is not to say that MMS was right and the companies wrong. For reasons provided below, government regulation is fatally flawed. Further, this is not just a simple matter of regulation. More fundamentally it’s a matter of ownership. The government has proclaimed itself the owner of the offshore positions where oil companies drill. In a free market those positions would be homesteaded and managed privately with full liability. In the absence of a free market and private property, built-in incentives that protect the public are diminished if not eliminated. Bureaucrats and “political capitalists” are not as reliable as companies facing bankruptcy in a fully freed market. [Read more →]

April saw two devastating disasters in the energy industry: a methane explosion at the Upper Big Branch mine in Montcoal, West Virginia that claimed 29 lives, and another explosion at the Deepwater Horizon drilling rig in the Gulf of Mexico, which took 11 more.  The latter incident, because of the tens of thousands of gallons of oil now pouring from the ocean floor each day, will impact the Gulf region for years if not for decades to come. 

These tragedies are a terrible reminder of the trial-and-error nature of life.  Humans have accomplished many wonders over the millennia – wonders that ended the vicious cycle of crushing poverty that has been mankind’s lot throughout most of history.

But these accomplishments have often come at a very high price.  Because it is in our nature to strive to better our condition and that of our children, life will never be without risk.  As terrible as the consequences of failure can be, it brings with it the seeds of hope.  Hope that we can learn from our mistakes and, if not succeed next time, at least not fail in the same way.  From such tragic lessons come knowledge and strength. [Read more →]

In August 2009, the U.S. Nuclear Regulatory Commission (NRC) issued its fourth Early Site Permit for two new units at Southern Nuclear’s Vogtle site and its first for the Westinghouse AP1000 pressurized water reactor design. The two new units planned for Vogtle also became the reference plant for the AP1000 under NuStart in June 2009. This means Vogtle Units 3 and 4 will be the first licensed installations of the new AP1000 reactor design.

On February 16, President Obama announced that the DOE has offered Plant Vogtle terms for a loan guarantee that could provide up to 80% of the project estimated cost of $14.5 billion with the Southern Nuclear only paying a credit subsidy fee.

That’s a lot of commitment from taxpayers–$11.6 billion worth. Perhaps rapidly rising construction costs of new nuclear plants is partly why the owners want such large protection up front. But there are problems with fundamental economics comparing nuclear to the best foregone opportunity.

My back-of-the-envelope calculations comparing a natural gas-fired combined cycle plant to a new nuclear plant raise more questions than answers.  For example, assume a utility has a baseload need of 2,400 MW in the future (like the new Vogtle units). Next, use the EIA future price projection of about 12 cents/kWh for nuclear and 8 cents/kWh for a gas-fired combined cycle produced electricity.

At today’s gas prices (yes, the prices have historically been extremely volatile), the combined cycle plant would use about $750 million a year of fuel. The 4 cents/kWh difference in busbar cost of generation is also equivalent to about $750 million per year in lower cost electricity generation. In essence, it’s an economic dead heat. However, the first cost of the no-risk gas combined-cycle plant is about a fifth of the nuclear plant, the latter which requires large government subsidies.

Simple math suggests that the gas-fired option should be back on the table. Moderate the fuel price risk with financial instruments with Grade A corporations. Obviously, there are major competitive problems with the nuclear plants to require such a large government subsidy–more explanation is invited in the comments by those in the know.

Background

The Alvin W. Vogtle Electric Generation Plant (Plant Vogtle) is one of Georgia Power’s two nuclear facilities and one of three nuclear facilities in the Southern Company system (Figure 1). Southern Nuclear, a subsidiary of Southern Company since 1990, is the licensed operator of Plant Vogtle, which is located about 25 miles south of Augusta, Ga. The plant is jointly owned by Georgia Power (45.7%), Oglethorpe Power Corp. (30%), Municipal Electric Authority of Georgia (22.7%), and the Dalton Utilities (1.6%). [Read more →]

With little fanfare, an earthquake has rippled through the United States Climate Action Partnership (USCAP). Three significant members, two of them being integrated oil majors, are no longer planning the cap-and-trade (aka, cap-and-tax) game. And if energy affordability and reliability is a metric, expect more companies to bolt. Social corporate responsibility, anyone? After all, there is no climate gain from a unilateral U.S. cap by the alarmists’ own math.

Here is the background. According to its website, USCAP is “a group of businesses and leading environmental organizations that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.” Others of a less charitable bent would characterize them as central headquarters of the U.S. Climate-Industrial Complex, a group of corporate rent-seekers (the bootleggers), made whole by the environmental scaremongers (the Baptists) hell-bent on slapping the United States into a carbon rationing scheme.

Members of USCAP include AES, Alcoa, Alstom, Boston Scientific Corporation, Chrysler, Deere & Company, The Dow Chemical Company, Duke Energy, DuPont, Environmental Defense Fund (EDF), Exelon Corporation, Ford Motor Company, FPL Group, General Electric (GE), General Motors Corporation, Honeywell, Johnson & Johnson, Natural Resources Defense Council (NRDC), The Nature Conservancy, NRG Energy, PepsiCo, Pew Center on Global Climate Change, PG&E Corporation, PNM Resources, Rio Tinto, Shell, Siemens Corporation, and the World Resources Institute (WRI).

It doesn’t take a great deal of analysis to see who hopes to get what from cap-and-trade. The environmental posse– EDF, NRDC, Nature Conservancy, Pew Center, and WRI–get their ultimate dream: control of the U.S. economy by environmental bureaucrats who can determine who gets to buy carbon permits, who gets to sell them, how many can be bought overseas, who gets to slurp from the giant trough of government permit sales, and so on.

It’s not much harder to figure out what the corporations get, whether it’s simply “green” bragging rights to use in commercials (PepsiCo), or the hope to sell subsidized hybrid cars (Ford and GM), or the chance to sell new thermostats to millions of houses and businesses (Honeywell), to build nuclear plants, windmills, or solar farms (GE, Exelon), or to get in early in the hopes of getting free permits from the government (coal, oil, and other high GHG emitters). Again, a sober comparison of social costs and benefits should get these ‘greenwashers’ to bolt.

Three groups that used to be on that list which you won’t find mentioned at USCAP’s website are Caterpillar Inc., BP America, and ConocoPhillips which have made a relatively quiet exit, stage left. [Read more →]

Editor’s note:  This article is the second of two on shale gas production.  The first dealt with the U.S. situation; this one looks at the potential impacts of shale gas production in Europe and China.

Natural gas production in Europe, currently just over 11 Tcf, has been falling rapidly over the past decade.   About three fourths of Europe’s gas is produced in just three countries: the UK, Norway and the Netherlands.  Production peaked in 2003 at 13.5 tcf.

Consumption, on the other hand, continues to rise.  Gas use in Europe stood at 20.5 tcf in 2008 and is likely to increase further as coal-fired power plants retire or are phased out of service for environmental reasons.  Most of Europe’s imported gas comes from Russia (about 80%), with the remainder mostly as LNG.

Conventional natural gas production is likely to continue its decline since the major source of gas production, the North Sea, seems set on a declining trajectory.

A Scramble for Supplies Seems to Be in Order

With the continent increasingly dependent on the state of Russian-Ukrainian relations, and with Russia’s sales prices pegged directly to oil, Europe’s energy future promises to be even more costly than its past.  Recent efforts at diversifying supplies – LNG, Nabucco, pipelines from Libya and Algeria – have proved only partially successful and retain the oil-linked price structure of Russian gas supplies.

Gas from Shale, Ours and Theirs, May Rescue Europe

U.S. shale gas production has already roiled the world of natural gas.  By providing plentiful supplies to the US shale gas production has promoted heavy discounting of natural gas in the U.S. relative to oil. [Read more →]

A calm has descended over the federal government’s initiatives in energy amid the furor over health insurance legislation. The respite is welcome, but the sturm und drang of clashing interests will resume in earnest after Congress’s summer recess. There is too much money on the table–our money–for the favor-seekers to ignore.

A Banana Republic?

Increasingly, it is clear that the initial cap-and-trade legislation was insufficiently opaque. Numerous analyses of Waxman-Markey (HR 2454) on this site and others have shown that the proposed cap-and-trade legislation will cost consumers dearly by raising the prices of electricity and gasoline, while ignoring viable sources of clean energy that have not yet found the key to the federal treasury.

With so much money at stake, each of the contestants (call them rent-seekers, some of them reluctant players in the political capitalism game) will attempt to gather up as much of the pot as possible. The only people not at the table, those of us who will pay for this orgy of confiscation, wonder just what it is that we will receive in return for our cash.

Rent-seeking is defined as follows in Wikipedia: [Read more →]

A death announcement last week in the Houston Chronicle caught my eye. I never met the late Stephen Simon, but what I read made me realize that the quiet heroes and heroines of free-market capitalism need to be saluted now and then. For they are the wealth creators and real philanthropists versus the political system’s wealth redistributionists and wealth destroyers.

Here is the essence of this man. An engineer. More than 40 years with a major energy company in a variety of advancing positions at home and abroad. Successful. Private sector philanthropist with his time and money.

And through it all, a ”heroic capitalist” in the Smith-Smiles-Rand tradition (see Part I of my Capitalism at Work). A practitioner of Principled Entrepreneurship ™.

Think of what Julian Simon would have said about Stephen Simon (no relation): He created more than he consumed to leave us resource richer. And he used that wealth to create still more wealth and advance civil society.

Finally, think of Mr. Simon and his company when you think about the names that made the news at the once rival of ExxonMobil, the late Enron. (Enron’s Ken Lay, in fact, joined Exxon two years before Simon as a corporate economist before going to Washington for various assignments and never really getting politics out of his blood.)

The obituary follows: [Read more →]