Conspiracy theory or just recognizing a normal business practice?

As a lazy man who likes to repurpose his work whenever possible, I want to share a note that I just sent to some of my nuclear friends who question my analysis about the actions of fossil fuel interests to restrain the growth of nuclear energy.

Rod, I have never been a big fan of conspiracy theories. Particularly those that claim the fossil fuel industry is blocking nuclear power. I think most industrialists are about making money.

The leaders of all commodity businesses spend a good deal of time thinking about things like “overcapacity”, “supply and demand”, erecting barriers to entry, and beating their competition. You are correct that they are “about making money”, but the rise and fall of market prices as a result of those factors play a huge role in how much money they make each day.

That is not “conspiracy theory” talk anymore than it would be conspiracy theory talk to note that members of the New York Giants spend tens of hours per week, even during their off season, studying “film” of their opponents, trying to identify weaknesses and figuring out ways to take advantage of their own strengths in order to come up with as many Ws as possible.

Unlike most nuclear people, I have spent a fair amount of time in board rooms, strategy sessions, marketing meetings, and investor presentations. In addition, I developed a hobby of investing and reading the business press when I was just a plebe at the Naval Academy.

Here is a short story from Daniel Yergin’s The Prize, one of the seminal books on the energy industry.

“At the beginning of the 1960s, Iraq revoked 99.5% of he concession held by Iraq Petroleum Company, the company originally created by Calouste Gulbenkian, leaving it only the region where it was actually producing oil. The IPC in turn ceased investing in new exploration and production in that area. The result was that Iraqi output, which could have surged along with Iran’s and Saudi Arabia’s creating an impossible problem of allocation, only edged up gradually through the 1960s.

At one point during those years, Oman, at the southeast corner of the Arabian Peninsula, emerged as a very interesting oil play. Standard Oil of New Jersey, as might be expected, had the chance to get in. But when the issue came up in the company’s executive committee, Howard Page recommended against it. He had spent so much time negotiating with the Saudis and the Iranians that it required little effort on his part to conceive of how furious they would be. He could well imagine, in particular, what Yamani (longtime Saudi oil minister) would say to him if Jersey and Aramco sought to restrain Saudi output to make room for production from a new concession in a neighboring country. That would surely contradict Jersey’s principle number one, which was not to do anything that “would endanger our Aramco (Saudi Arabia) concession.”

But the members of Jersey’s production department disagreed with Page. After all, they were geologists, and as far as they were concerned, discovering and developing new reserves was what it was all about. Their ambition was to find new elephants, and they were very excited about Oman. “I am sure there is a 10 billion barrel oil field there,” a geologist who had just returned from Oman told the executive committee.

“Well then,” replied Page, “I am absolutely sure we don’t want to go into it, and that settles it. I might put some money in if I was sure we weren’t going to get some oil, but not if we are going to get oil because we are liable to lose the Aramco concession.” With that logic, Jersey stayed out of Oman. the geologists, however, were right. Oman did become a significant oil producer, with Shell in the lead.”

(The Prize: The Epic Quest for Oil, Money and Power, Simon and Schuster, New York, NY, 1991. p. 535)

It is only a very minor step in logic to realize that at least some of the people in the oil and gas industry might have gone one step further than Page did. How difficult would it have been for Standard Oil to invest some money to buy the rights to drill and then NOT find any oil – at least officially. That would allow them to convince the world that they had explored Oman and found nothing of value. That way, they could have delayed the production and not had to compete for markets against the increased volume of oil.

Take one more step in logic to realize that at the same time (1960s) that people in oil and gas company boardrooms were worried about finding markets for increasing volumes of oil and gas from new plays around the world, the nuclear industry was ramping up. Even with all of the well funded opposition that it has faced, nuclear energy now supplies the world with the energy equivalent of 12 million barrels of oil per day, roughly equal to the energy output of Saudi Arabia and Kuwait combined.

Of course, the earth is in a far different condition today than it was in the 1960s. We are no longer discovering any readily accessible “elephants”. Many analysts believe we are either past, at or very near peak oil production. Though there is a temporary glut in natural gas in the United States, that is not true around the world. As I wrote in yesterday’s Atomic Insights post, many of the logical reasons why fossil fuel interests opposed nuclear energy development for so long have been overcome by events. Now, if they want to continue to prosper into the future, they need to be shifting some of their capital in a more productive direction.

Today an IFR would be seen as a big risk – not only capital cost but also FOAK risks. This almost certainly means that governments have to provide protection before private industry will take those risks.

I am too much of a libertarian to believe that governments should (or will) step in to provide funds or protection for nuclear energy. I would be happy if they simply stopped doing the bidding of oil, coal and gas (plus certain well established “nuclear” interests) by doing everything they can think of to slow down the expansion of nuclear energy.

About Rod Adams

12 Responses to “Conspiracy theory or just recognizing a normal business practice?”

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  1. Daniel says:

    Greed is everywhere and we also know that Big Oil companies are overstating reserves on their books so that they can keep on drilling. (I don’t recall the reason why, but there is a correlation between the stated book reserves and the amount of oil a company is allowed to drill out).

    This practice hurts nuclear.

    At the rate we are consuming oil, we could face a crisis sooner than we think. This is a lie that must be uncovered.

  2. Jason C says:

    One of the things a lot of people don’t seem to understand about nuclear energy is that it is a disruptive business model. It’s a lot like how Google upended Microsoft’s business dominance of the email market with Google Apps with a different business model. Having your own onsite mail server, two on-call staff techs to service it, heavy fat email clients that users don’t know how to manage well and need tech help for all the time was an eventual recipe for failure when put up against a system that changes all of that.

    The ability to do more with less would shrink the business volume of the total energy market should nuclear gain even more market share. Maybe some economists would argue the commodity fuel intensive energy market is better for the economy, but if everyone had lower energy bills, there’d be more money to go elsewhere in the economy as well. Apparently enough Americans feel that even a slight bump of $40-50 extra per month is enough to make a big difference in their household budget.

    I’m not saying a nuclear dominated energy market would necessarily mean lower energy bills, but it would probably be in a better realm of possibility compared to other energy strategies.

    This makes me think of a facebook friend who said she loves her new Chevy Volt and hasn’t filled it up with gas since she got it last December. Instead, a 4 hour charge for $1.40 takes her 40 miles. Some people have panned the Volt, but the results of a happy customer speak for themselves. I just wonder how long it will take the oil companies will respond when millions of car owners have “gas optional” cars that only require a fill up about 8 times or less a year.

    • Daniel says:

      And that beautiful Chevy Volt was probably charged from the electricity of a coal fired plant. Very green indeed. Batteries are a store of energy, not a source.

      • Jason C says:

        Daniel, this particular Chevy Volt I’m referencing is in Southern California which like the rest of California has only a small portion <10% of coal generated electricity. However, that's beside the point. Saying batteries are not a source of energy is a moot point, so is gasoline.

        The point of dinging a Chevy Volt or any other electric or hybrid plugin type of car as not being green or green enough for not having the ultimate green energy supply behind it doesn't hold any weight. Nor does it bolster the argument for nuclear very much.

        If we know the CO2 grams per KWh for a given electrical supply, the total KWh's consumed per mile for a Volt or other electric, we'd then have the figure of CO2 grams per mile. Someone has already calculated this and found out electric cars still come out ahead in grams of CO2 per mile compared to gas cars even when the electric supply is mostly coal.

        Cars like the Volt show that with the right engineering approach we can have the benefits of an electric car for the most part while augmenting its weakness in range and charge time with a small gas engine on the side. Until better battery technology comes along, I'm sure this is going to be the most practical approach for quite a long time for green cars.

        If consumers shift their demands in the type of cars they want to buy and those cars turn out to have 100% or better milage than their previously owned vehicle, in just 25 years we would see a dramatic shift in the population of gas guzzling vehicles on the road. As to how the oil companies will respond to a shift in demand because of more efficient vehicles is yet to be seen.

        Now that gas prices are high, I’ve spoken to a few fairly new truck owners (who really didn’t need a truck actually) who are very unhappy about the gas bill. On the other hand quite a few hybrid owners I’ve spoken to couldn’t be more pleased with themselves. Only time will tell how this all plays out but one thing is certain, their is a definite higher demand for fuel efficient, hybrid, and electric vehicles.

    • Rod Adams says:

      $50 per month times roughly 100 million households ~ $5 BILLION per month or $60 Billion per year.

      That is not small change. It would be enough to increase the total revenue of the fast food industry by 50%.

  3. Joe B says:

    Well it may be off topic, but its really time to wake up, put your egos aside and effing take some responibility for the poisons you are promoting.

    See if you can get through 19 minutes of the reality that you dont effing hear about on the 9 o clock effing news.
    This is JAPAN, on the ground level. This is whats going down, it may not effect your family now but we are headed for the apocalypse. is your personal success really worth the suffering that will undoubtedly be the long term result?

    WAKE UP!

    • DV82XL says:

      Joe- You are a simpleton, and ignorant simpleton at that, who’s ignorance is only exceeded by the size of your ego. What makes you think that anyone that reads or participates in these threads cares what and other stupid people that don’t have a grasp of the fundamentals of this subject think?

      Don’t you get it? Your ignorance is not equal to our knowledge. You have mistaken the right to air your opinions like everyone else, with the belief that they are of any value. Let me disabuse you of that notion: just because you can find others who’s understanding of this subject is as deficient as your own, does not make any of you worth paying attention to.

      The only coin that has any value in the debate over the benefits and potential dangers of nuclear energy are scientific fact. Those that ignore this and make the wrong decisions, be they individuals or authorities, are the ones that are at fault if the outcomes of those choices are wrong, not nuclear per se.

      Thus the only one here that needs to wake up is you.

  4. gallopingcamel says:

    Daniel says:
    February 25, 2012 at 8:10 AM
    “Greed is everywhere and we also know that Big Oil companies are overstating reserves on their books so that they can keep on drilling.”

    What is your problem with greed? Where do you think your Iphone came from and practically every other invention that makes our lives so comfortable?

    • Cal Abel says:

      Overstating is an understatement. I just put a model together that puts global proved reserves in November 2011 at 666 Gbbl, and 698 Gbbl yet to be found. This is a total reserve of 1364 Gbbl. EIA reported global proven reserves at 1341 Gbbl in 2009.

      The definition of Proved Reserves is:
      “are the estimated quantities of all liquids defined as crude oil, which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

      Reservoirs are considered proved if economic producibility is supported by actual production or conclusive formation test (drill stem or wire line), or if economic producibility is supported by core analyses and/or electric or other log interpretations. The area of an oil reservoir considered proved includes: (1) that portion delineated by drilling and defined by gas — oil and/or gas — water contacts, if any; and (2) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons is considered to be the lower proved limit of the reservoir.”

      If you look at the countries that are the worst offenders, Venezuela, Saudi Arabia combined state proved reserves that are 84% of what my model shows. The amount of oil that they tell their people they have is a social promise, and is used as a tool to keep their populations in check so the dictators and kings can sleep at night. We are going to have a some very interesting years coming up.

      BTW the total available oil for production in 1859 was 2640 Gbbl.

  5. gallopingcamel says:

    You sound a little liverish today but thanks for trying to educate Joe Sixpack!

    I don’t worry about anti-nuclear hysterics as they will come around when fossil fuels get expensive

    • Maury Markowitz says:

      “they will come around when fossil fuels get expensive”

      What do you mean “when”? It’s already “did”.