Sunday, August 8, 2010

I didn't write this, my brother did. But it's worth reading.

Why We Hate the Oil Companies is a book about energy, the economy and politics.  I became aware of the book during the BP oil spill in the Gulf of Mexico.  The author, John Hofmeister is the former President of Shell Oil, in North America.  Each night, despondent, I watched Anderson Cooper or Campbell Brown on CNN interview various pundits, interested parties, stakeholders, etc.  Frequently John Hofmeister was the industry “expert”.  I heard him speak about the limited options considered by the various leaders in resolving the oil leak compared to the much broader set of choices, often unconsidered.  He would say some things that challenged my personal views.

 

    I have been trying to find the video clip of an interview where he was challenged on the intrinsic safety of deep-water drilling.  His response, paraphrased was that oil companies do deep-water drilling because they are not allowed to do the much safer shallow-water drilling.  I believe there may be good reasons to not do shallow-water drilling, however – it never occurred to me that we had much more accessible, and safer to reach oil closer to shore.  It was his statements that I could not readily place within my base-knowledge, either to affirm or deny that made me curious about his book as its title flashed beneath his name, night after night, during the oil spill.

 

    In the book, Mr. Hofmeister builds the following case.  First, a clean, post-industrial economy of the future will use more energy, not less than an old-line manufacturing economy.  For example, “The comparatively low cost and plentiful supply of energy throughout the 1990s and the first years of the twenty-first century helped drive a low unemployment rate and a lifestyle of larger cars, commuting to larger houses, located farther from downtown employment centers or industrial areas.” (Amazon Kindle: 336)  This is a key concept in his analysis.  U.S. economic success and the standard of living of its citizenry is dependent on access to low-cost energy. Repeatedly in the book, he returns to the idea that high-cost, less reliable energy disproportionately punishes those with low-income, the working-class and the middle-class.  In the information age, energy becomes more important, not less, he believes.

 

    The former President of Shell Oil – America then begins to describe what he perceives to be the inability of our political institutions to develop sound energy policy and how recent history is replete with examples of that inability causing harm and misery to U.S. citizens at varying degrees.  “The call for American energy independence was first made more than 35 years ago.  At that time, we imported about one-third of our oil from other nations.  After three and a half decades of repeated commitments by presidents, presidential candidates, and countless elected and appointed officials of both major parties at federal and state levels, after dozens of energy bills over the intervening years, through recessions and periods of heady economic growth and prosperity, by 2008 we imported two-thirds of our oil from other nations.  Our reliance on foreign oil increased, not deceased.” (Amazon Kindle: 458-461)  More importantly, he concludes that recent examples of energy disruption and temporary fuel price spikes are a foreshadowing of greater energy and economic troubles in the near, medium and long-term.  He believes these interruptions and energy cost volatility will inevitably force the U.S. economy into a position in which it is unable to meet the reasonable expectations of our country’s citizenry and possible loss of our superpower status.

 

    John Hofmeister spends significant portions of the book discussing the scale and enormity of our current energy infrastructure.  One such example is as follows, “Americans use…10,000 gallons [of oil] per second.” (Amazon Kindle: 502-06)  Or, “Nearly half of the electricity in the United States comes from coal-burning generating plants…we burn through a [train] car-load of coal every three seconds, 20 car-loads per minute, 1,200 per hour.”  (Amazon Kindle: 624 – 630)  As he compares this to alternative energy sources he resoundingly concludes, alternative energy sources cannot replace this behemoth fast enough to avoid unprecedented economic distress.  “[W]e can’t just turn it off.  In an electron society, we couldn’t run our hospitals, banks, companies, households, governments, schools, and public safety without it.  For these reasons, it is na├»ve and dangerous simply to argue for no more coal.” (Amazon Kindle 636)

 

    Why have we failed in nearly forty-years to fix our energy dependence or secure long-term energy access?  The former Big Oil executive lists four reasons: incompatible and misinformed beliefs of the right and the left on energy and the environment; incompatible time scales for development of energy and implementation of energy policy compared to election cycles; infighting between different energy industries such as coal vs. nuclear or natural gas versus wind and solar as each sub-industry uses their influence with their constituents, stakeholders and their beholden politicians, and finally; the NIMBY or “not in my back yard” syndrome. All of these items form a nexus where elected politicians make decisions or direct regulatory agencies.  This leads to policy incoherence and a related reduction in energy production, refinement and transmission infrastructure development that leaves America vulnerable to unpredictable but expected events.  Hurricanes, summer heat, Middle-Eastern geo-political turmoil all will produce disruption.  America’s dependence on Gulf Oil, OPEC Oil, inability to build new nuclear plants, unwillingness to invest in new coal plants or build new refineries makes us dependent on an unnecessary few number of energy sources all with unique risks and vulnerabilities.

 

    The former oil executive is also the CEO of Citizens for Affordable Energy, Inc.  He strongly advocates for alternative energy in his book, but consistently makes the case that changes in policy, unrealistic time frames and misunderstanding of the scale of energy use, as well as vituperative banter by ideologues prevent the development and implementation of new technologies in a rational manner. (The subtitle on one chapter says, “Put in charge of energy, the right wing will destroy the earth; the left wing will destroy our society.”)  He does have some of his own venom for corn-based bio-energy in the form of ethanol.  He suggests that the cost and energy use in its production to be so high as to make it a nonsensical choice.  After several paragraphs describing engine efficiency, difficulty in transporting the fuel, cost of production, etc., he concludes, ”All things considered, corn ethanol is a bad idea for everyone but the corn farmers.” (Amazon Kindle 868)

 

    So, what is John Hofmeister’s solution?  The formation of a regulatory body called the “Federal Energy Resources System” (FERS).  Mr. Hofmeister spends considerable time discussing the Federal Reserve Bank and its relative success in managing our economy since the Great Depression.  He suggests that the EPA and Energy departments be rolled together in it, that it be given enough authority to over-ride individual state objections to projects (such as Massachusetts’s opposition to a Wind Farm off the coasts of Nantucket and Martha’s Vineyard).  He touts the length of time in which Federal Reserve governors serve (14 years) and the extension of the four-year terms of the Chair by presidents of opposing parties as proof of the bipartisan manner in which it operates.

 

    When reading the book, and discussing it with my friends on the right and the left, their hostility was palpable.  I found them trying to find labels that both belittled and appropriately placed the author of the book into a simple box.  “He’s a shill for the oil industry.  Maybe alternative fuels require enormous government subsidies, but traditional energy forms receive just as many.  There is no proof that global warming is real, we're just at the tail end of the last ice age.” are examples of the many ad hoc criticisms I received while discussing this book.  I do not have an opinion about FERS.  Mr. Hofmeister made a compelling case that he believed in global warming, protecting the environment and that other fuel sources besides oil could serve America’s energy needs well.  He equally strongly made the case that America was vulnerable and that low-cost and stable energy were a necessary part of our super power status and the wellbeing of our citizenry in the future and that elimination of hydrocarbons, desirable as it is could cause havoc on our well being.

 

    Why do we hate the oil companies?  John Hofmeister believes that their shortsighted management has made them easy targets to the passionate, if incoherent politics that is part of our time.  They are a scapegoat and have come to symbolize 40 years of failed energy policy, as well as the center of the populace’s anxiety every time gasoline prices spike, or there are power outages during the summer heat.  He makes a strong case that we are in trouble and things may get worse.  His solution to the problem is less compelling to me.  I enjoyed what I learned by reading the book but I did find it depressing.  Hopefully, I am moderately better informed.