Dope talking about oil

Seth Friedman manages to trip up over his own prejuduces here:

If Obama & Co really want to do the best by both their electorate and the environment, they could do worse than permanently nationalise oil companies as a way of enacting serious positive change in the industry. As has been witnessed throughout private sector history, most investors – and certainly those with the most financial clout – regard profit above all other concerns when it comes to their demands from the companies in which they buy stock. BP and the other energy megaliths will never be forced to take the environment seriously while they continue to be bankrolled by those for whom money talks louder than any number of dying wildfowl and destitute fishermen.

However, such a remedy should not be seen as simply a temporary solution in the vein of the shambolic bailout of UK and US banks. Energy is far too crucial and sensitive an issue to be left in the hands of the private sector, and with the world\’s supply of oil steadily declining, the urgency for finding alternative energy sources grows greater with every passing day. An oil industry which ploughs all profits into research and development of green fuels is the ideal model until the world can finally be fully weaned off oil – and such a system can only be fully brought to bear under the auspices of governmental control.

So, firstly: who really thinks that politicians have longer time horizons than either companies or investors?

No, really? Who thinks that politicians look beyond the next election? In contrast to, say, BP, who were (even if cackhandedly) were clearly and obviously willing to spend many years finding oil which would be available in 15, 20 years time?

Yes, very good.

Secondly, here is a list of global oil companies by size. It\’s not until you get to number 17 that you find one which is truly private sector (the Russians are nominally so but hardly so). And PDVSA or the Iranian one (remember those oil well fires in the Gulf? Govt caused that was!) are hardly great environmental examples, nor examples of companies working for the long term.

So, government ownership has been tried, indeed is the norm, and yet doesn\’t seem to work any better.

Thirdly, Our Seth seems not to quite understand what a \”company\” is. It\’s a collection of knowledge more than anything else. What makes BP or Exxon, Shell, valuable is the knowledge of how to find, drill for, transport and refine oil. They don\’t have any knowledge which is transferable to, say, coal (Shell for one tried this and it was at best not very successful), little that works for solar PV (BP was once the world\’s largest company in this field and again, it wasn\’t notably successful: the spun off company has been well beaten by upstarts with new technology like First Solar) or indeed any other of the various alternative technologies.

There might be some with offshore wind….knowing how to place and run rigs isn\’t all that different from knowing how to place and run windmills….but even here the oil companies tend to buy in that expertise from specialist independents (umm, Transocean and Halliburton for example).

Just saying that because BP is in the energy sector it ought to be doing renewable energy is like saying that just because Airbus is in transport it ought to be making cars. It\’s a nonsense. The skills don\’t transfer.

Just to take one teensie, tiny, example. For a certain type of solid oxide fuel cell to become successful someone, somewhere, has to work out a way of extracting more scandium from the earth. Why would BP, Shell or Exxon be more efficient at doing that than I would be? Given that I am the world expert in scandium, its uses and extraction? (No, really, I am.)

That they\’ve got pots of money? Perhaps: although this again betrays a rather shocking lack of knowledge about how financial markets work. To pick up a few millions (about what would be needed) would, while not being entirely easy, something that could be done with a few months work on either AIM or the TSE. Faster than it would be if trying to get such a deviation from the norm through a bureaucracy like BP or Shell (and don\’t even think about trying to get the national oil companies to do it).

Sorry, but this idea is simply nonsense, nonsense on clown type stilty things.

7 comments on “Dope talking about oil

  1. I’m not completely sure I agree with you here.

    Reading up on BP’s business model upstream, it seems to act more like an energy bank and professional services firm than a collection of specialists – the technical experts in setting up DH were all Halliburton, Transocean or Schulumberger employees.

    BP’s skill is in raising the money, getting the regulatory/legal support required, and (in theory) hiring the right experts – all of which are much more transferable than the drilling-specific skills.

  2. Never mind the next election, as noted in ‘Yes, Minister’, a politicians horizons go no further than the next vote.

  3. BP’s skill is in raising the money, getting the regulatory/legal support required, and (in theory) hiring the right experts – all of which are much more transferable than the drilling-specific skills.

    Correct. Like Shell, they are effectively a project management company which is good at raising capital, and they are good at raising capital mainly because they are big, have a track record, and are trustworthy (qualities Gazprom found it didn’t have when it tried to finance Sakhalin Energy once it took over the Sakh II project). But they still have on board a lot of expertise applicable to reservoir management, seismic surveying, drilling, and project front end engineering.

  4. And polticians won’t have the best interest of the environment at heart. Nope only their own, then their party, then their country. With the electorate and environment joint last.

    Just a note about the biggest oil companies. It’s by size of oil reserve in the ground. It’s not by size of any financial basis. In terms of output, Russia comes ahead of Iran even though Iran is way ahead of Russia in terms of its reserve.

  5. @john b,

    you may have a smidgen of a point re transferrability of skills (though I suspect the regulatory/legal framework is indeed a minefield of epic proportions), but this is not the key issue.

    the key issue is time horizons and, yes, BP really does invest over 20, 30, 40 or even longer timescales. To put that in context, I challenge you to name just ONE single MP elected in 1970 who would ride against public opinion in order to be on the right side on argument today.

    Even to state the idea is to dismiss it as ludicrous.

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