Chevron’s John Watson should follow pronuclear words with nuclear energy investments
During an OPEC meeting in Vienna held in early June 2015, John Watson, the CEO of Chevron, the second largest oil and gas company in the United States, made a comment that deserves more attention and follow up from journalists.
The context of the below comment was that Watson was explaining why his company will not be joining six large European oil and gas producers in their call for a global price on carbon dioxide emissions.
Aside: I don’t favor the common communications approach of shortening carbon dioxide to “carbon.” It is not only lazy writing or speaking, but also quite misleading. Carbon (C) is a different chemical than carbon dioxide (CO2). It is not emitted in large quantities to the atmosphere. The language choice often results in serious confusion about the magnitude of the problem since CO2 (44) has a molecular mass that is 3.67 times as large as C (12). End Aside.
“I understand the concerns but I don’t think putting a price on carbon is an answer… I don’t think it is a policy that can be effective,” Watson said.
Instead, Europe should develop its gas resources, he said, alluding to the reluctance of European governments to develop shale gas in a process known as fracking which has radically transformed the U.S. market.
“We need to make sure we develop the natural gas resources that we have, here in Europe – although Europe is choosing not to develop its resources – but also elsewhere in the world.”
Nuclear power, which fell out of favour around the world, particularly in Germany, was also key to reducing carbon emissions, Watson said.
“If we are serious about climate change – nuclear power would be on the agenda. We wouldn’t be shutting down nuclear plants around the world,” he said.
(Emphasis added.)
Source: Focus on nuclear and shale, not carbon, Chevron boss tells Europe Reuters June 3, 2015
It is important to understand that Watson is not a random energy industry observer. He is the chief executive of one of the world’s largest energy producers, a $200 billion (2014 revenue) company that has a projected capital expenditure (CAPEX) budget for 2015 of $35 billion.
A significant portion of that money ($23.4 billion) is devoted to upstream (exploration and production) projects outside the United States that are intended to make up for the relentless depletion of existing production resources. As impressive as $35 billion is in real terms, it is a 13% decrease from the $40.4 billion that Chevron allocated in 2014 when world oil and gas prices were higher than they are today.
Virtually none of Chevron’s 2015 CAPEX is allocated for nuclear energy development. If Watson was serious about how the world — and specifically his company — would be more successful addressing climate change using nuclear energy instead of a price on carbon dioxide to, I would expect that Chevron’s 2016 and following CAPEX plans will include growing nuclear energy expenditures.
One truth that supports my continuing contention that oil and gas interests hold a smoking gun that has wounded their nuclear energy competitors is the fact that the world’s energy suppliers have little, if any, investment in expanding commercial energy production from uranium and thorium.
They call themselves “energy companies” and frequently talk about their interest in wind, solar, biofuel, and geothermal production.
Here is how Chevron describes itself in a recent press release.
Chevron is one of the world’s leading integrated energy companies, with subsidiaries that conduct business worldwide. The company is involved in virtually every facet of the energy industry. Chevron explores for, produces and transports crude oil and natural gas; refines, markets and distributes transportation fuels and lubricants; manufactures and sells petrochemical products; generates power and produces geothermal energy; provides energy efficiency solutions; and develops the energy resources of the future, including biofuels.
Occasionally they even support those words with marque actions that involve substantial amounts of money, but it has been many years since the days when Exxon, Gulf, Phillips, Kerr-McGee and Royal Dutch Shell invested in the nuclear fuel cycle.
Their forays into the ultra low emission nuclear energy business were not immediately successful, but a lack of immediate success with horizontal drilling and hydraulic fracturing did not deter George Mitchell or Harold Hamm. It also did not deter the geologists who recognized that the Middle East would be a prodigious oil and gas production center in the 1920s, even though substantial production didn’t begin until just before WWII.
With the appropriate business model, there is a vast quantity of money to be made by supplying abundant, ultra low emission energy by taking advantage of proven technologies that use the incredible physical qualities of actinides like uranium, thorium and plutonium. One possible model be to treat nuclear generating facilities as “energy wells.”
A company that accepted that model should recognize that buying a somewhat distressed property that is a proven producer and has room for innovative expansion would be a good investment. That kind of deal happens frequently in the oil and gas business.
A June 7 article published by SFGate.com titled Why U.S. oil companies clash with EU peers on global warming mentioned Watson’s disagreement with the European position, but it summarized Watson’s statement about nuclear energy somewhat differently.
Chevron Corp. CEO John Watson argued that his European colleagues are pushing a policy that consumers would never embrace. Focus instead on developing nuclear plants and natural gas reserves to fight global warming, he said.
“It’s not a policy that is going to be effective, because customers want affordable energy,” Watson said last week, at an OPEC seminar in Vienna. “They want low energy prices, not high energy prices.”
I’m encouraged by the fact that Watson apparently believes that developing nuclear plants to fight global warming is more likely to be embraced by American consumers than a price on carbon dioxide. It’s also nice to know that Watson believes that such a choice would result in lower, not higher energy prices.
Some of my associates have questioned my recent advocacy of aligning with traditional hydrocarbon producers in order to advance the use of nuclear energy. They have told me that those people and companies are the enemy whose product has to be completely displaced.
I disagree. People who’ve devoted their lives to the energy industry know how important their product is to human prosperity. They also understand its importance in geopolitics and they control the capital budgets that will be required to effectively complete a sustainable energy system transition from fossil fuel dominance to a more balanced foundation of abundance that will enable future prosperity.
Hydrocarbons will inevitably play a significant role, but they should no longer dominate economies or political decision making.
We’ve all heard that the stone age did not end for lack of stones and that the bronze age did not end for lack of bronze. We need to also recall that humans did not stop using stones after the stone age ended, we did not stop using bronze after the bronze age ended, we did not stop listening to the radio after television was invented, and we have not stopped using wired telephones after cell phones became abundant.
It would make the world a cleaner and safer place if we used less coal, oil and gas and were less dependent on continuing to find and exploit new reservoirs. However, there are many locations and applications where it will be nearly impossible to find a more convenient, safer, and useful fuel than an appropriately refined liquid, solid or gaseous hydrocarbon.
The world needs big oil to invest in exploration for uranium resources around the world. They carried the lion’s share of exploration during the 1970’s when the world thought that nuclear power would be the go to method of electricity generation. We need their financial and technical support going forward if Watson’s preferences are to occur.
“It is important to understand that Watson is not a random energy industry observer. He is the chief executive of one of the world’s largest energy producers, a $200 billion (2014 revenue) company that has a projected capital expenditure (CAPEX) budget for 2015 of $35 billion.”
Rod – I love this line being included in the article. This is slightly tangential to this post, but I think could be an excellent idea for a future post: People often say, “Nuclear is too expensive”, and exasperatedly point out that nuclear plants can cost 12 Billion or 14 Billion dollars.
I know that others have used Levelized Cost of Electricity in the past to write articles (I know The Breakthrough Institute did one about a year ago, and I have seen others) – where the cost per kWh is compared.
But, I think it would be really great to have an article that looks at the “Big Picture” of just how much money is spent on energy the world over, to put those “sticker shock” stories about the price of nuclear plants into proper perspective – just how many billions the oil, gas, and coal industries spend, how much is being spent on wind and solar, in comparison to nuclear.
Energy is a BIG BUSINESS – maybe the biggest business in the world? Put it into perspective for people how little money $14Bn is when looking at total energy expenditures every year.
I just found this PDF over at the IEA which gives a great overview of total worldwide energy investments:
https://www.iea.org/media/140603_WEOinvestment_Factsheets.pdf
Key facts:
“More than $1.6 trillion was invested in 2013 in energy supply, a figure that has more than doubled in real terms since 2000, and a further $130 billion to improve energy efficiency.”
And
“To 2035, annual investment needs in the New Policies Scenario rise steadily towards $2 trillion, while annual spending on energy efficiency increases to $550 billion.”
Kind of puts the cost of a $12Bn nuclear plant into perspective, it seems to me.
@Richard Clement
I’d wager that the well logs accumulated by the oil and gas industry during the past 40 years identify numerous economic uranium deposits around the world.
If I wanted to find rich deposits of uranium and thorium, the place I would concentrate my drilling efforts would be in the areas where natural gas has a high concentration of helium – aka alpha particles that have captured some electrons.
@Jeff S
Kind of puts the cost of a $12Bn nuclear plant into perspective, it seems to me.
True, but that does not mean that the $12B price tag is acceptable and cannot be systematically lowered with practice and repetition of consistent designs with regulators who understand that their mission is to enable the safe USE of radioactive materials. It is not to ensure “safety” in the abstract by slowing or preventing the use of those valuable materials.
Excellent insight, Rod.
That circumstantial evidence sure would be a great telltale.
Rod,
As regards lowering the cost of Nuclear Energy: have you read the recent paper by Mark Adams (no relation, I assume) and the use of “nanofuel” in a Wankel-style engine?
It looks like a real “game changer” — but I am concerned with the inherent problems associated with the seals in a Wankel. Where the engine is using UF6 or PuF6, leaking fuel is a big problem.
The idea of abandoning nuclear power, which is fairly well understood to not produce greenhouse gas, gives credence to the idea that climate change is not as much of an issue as it is presented to be.
I doubt that Mr. Watson’s statement is an endorsement of nuclear energy as much as a reminder of sorts that climate change might not be that big of a deal after all. If it were, all those talking heads would be pushing for more nuclear power, the lessor of two evils.
I hope Watson’s comment reflects real trepidation the majors have over getting “beat to the punch” given that sooner or later, the strong force will come into play for new revenue streams and compromise revenues for weakforce kinematics and combustion. They need to make as much money as they can in the meantime, but not be one upped by one or more of their competitors “throwing the switch” to nuclear in a big way before their own competitive company does.
The financial danger of not preparing by putting off negotiations with the SMR nuclear front runners, and not aligning the political support is becoming ever greater. The trepidation must continue to build for each of the oil and gas companies across the Industry.
Sooner or later one or more of their competitors will get a jump on the rest of the pack by truly seeing themselves as an Energy company and not an Oil company. They best not wait for the bell.
I agree that’s a plausible explanation. He has taken note of Germany’s nuclear nuclear decimation and the lack of fortitude in regards to pushing fracking forward throughout Europe and using those facts to implicitly suggest that Europe could mitigate CO2 emissions without the need to tax oil use. His words do not mean he actually believes nuclear is the future, rather is exploiting Europe’s policy positions to stifle thoughts of any tax that could negatively affect Chevron revenues.
Rod Adams wrote:
…regulators who understand that their mission is to enable the safe USE of radioactive materials. It is not to ensure “safety” in the abstract by slowing or preventing the use of those valuable materials.
Enabling the safe use of radioactive materials (i.e., nuclear power) enhances safety because it substitutes nuclear power generation for power generation from coal and natural gas. The latter two are more dangerous than nuclear. I wish the nuclear regulators could keep this in mind when making regulatory decisions that add more burdens on the nuclear industry.
You can concentrate on the helium (which can migrate for long distances). I’ll go for the radon, which doesn’t last long enough to migrate. The gas from the Marcellus shale has high levels of radon, and I have taken a stab at calculating how much uranium is in that shale. My impression was “quite a bit”, on the order of kilograms per square meter of surface (in the shale layer alone). The real question is how easy it is to solution-mine it from the shales without extracting a whole lot of things you don’t want; oxidizing the U to soluble form in such a reducing environment doesn’t look to me like an easy thing to do, though I’d be very happy to be proven wrong.
donb,
The issue is that only few studies conclude that nuclear power is more safe.
Worse (for pro-nuclear):
The most cited study (by Hanson, etal) apparently had to use such assumptions, such as an extreme low number of Chernobyl casualties, that the credibility of the whole study became extremely low.
Hence it is ignored.
That study also greatly affected the credibility of other statements that nuclear power is more safe.
This statement of Watson (as most other CEO’s statements) is driven by the desire to increase the share price relative to his competitors; so to enrich his shareholders and himself.*)
When you look at it with those eyes, than his statement is quite logical.
A statement that he wants to invest in nuclear energy will decrease his share price. Especially since he cannot show (more or less guaranteed) good future profits (within 5-10yrs).
He also estimated that joining his European competitors, by also asking an increase in CO2 costs, would decrease his share price. So he attacked.
Btw.
– Shell has major interests in gas, which is a first alternative if CO2 costs rise.
– In the nineties Shell invested heavily in wind and solar (some billion$).
But wind & solar business require a different culture, which doesn’t fit with that of oil companies. It took some years before Shell became aware of the consequences of such a gap and how difficult (nearly impossible) to bridge that gap.
_____
*) At my last regular job, our bonus depended on the share price compared to that of our competitors. So if our share price decreased less than that of our competitors, we earned a bonus (which was substantial). The period considered was four years (years further ahead were weighted less). Other companies often consider only the present year.
@E-P
You are correct. There is a lot of uranium in the shale formations now being mined for natural gas. That has been well known among geologists for a long time.
Helium certainly lasts a long time, but the areas in the world where gas has a high portion of He are fairly limited. My guess is that horizontal migration is also fairly limited and that the presence of large He concentrations is just one of several parameters that can be used to narrow the search.
@Bas
I do not disagree with your analysis of Watson’s likely behavior and motives.
That doesn’t make it right in terms of being the best choice for the long term future of his company, the health and prosperity of his children and grandchildren, or the general health and prosperity of the rest of the world’s population.
I am quite willing to try to shame CEOs into making better choices for the rest of us by exposing hypocritical statements for what they are. My chances for success are not high, but they are higher if I try that if I don’t.
Your opinion about the safety of nuclear energy and the hazards of low doses of radiation place you solidly in a tiny minority of people. I’m pretty sure they are based on personal greed, especially in light of the admiration for money that you expose in following quote:
When you consider:
– that utilities that sell only ‘green’ electricity are increasing their market share here (at least in NW-Europe; I don’t know elsewhere), while they are more expensive.
In Germany so much, that they are a threat to the traditional big utilities. So those had to announce big changes (a.o. move into renewable and out of traditional power plants);
– that ‘green’ car fuel is now piloted (Audi) and may enter the market in some years (a.o. made from renewable electricity + CO2);
– the increasing market share of plug-in hybrid & electric cars, introduction of hydrogen cars. All despite being more expensive;
Then the statement of the European oil companies becomes logical. They feel the need to add a green aroma to their oil and gas in order to delay their decline.
Remember that 10 years ago, nobody would have believed that the two biggest German utilities would abandon the central power plant business.
Similar will occur in USA with a delay of few decades as the US electricity market lags behind. For now only those in US who do deep detailed analyzing and stay rational, will believe it.
@Rod,
I explain only what is needed to change Watson’s behavior: change the share valuation criteria used by share holders, or their judgment.
Greenpeace and many other greens tried that in past decades…
I never considered myself as driven by money. But bonus imply also status and job security. When your bonus is lower than mine, you are less.
When your results are such that you don’t reach a bonus, you are fired.
If I had refused to accept targets with a bonus attached, then I would have been degraded into a lower position and be without any career.
So after some years, I found that I became more bonus driven than I ever thought would be possible.
Your opinion about the safety of nuclear energy and the hazards of low doses of radiation place you solidly in a tiny minority of people.
That opinion drives ~100 million people in NW-Europe alone. It is one of the big drivers of the German Energiewende, the nuclear ban of Austria, etc.
Don’t know what you consider to be a tiny minority?
@Bas
100 million out of a global population of 7 billion is a tiny minority. Besides, I think you are wrong about the attitudes of most of your fellow Europeans. I believe they’ve accepted a “bill of goods,” but if your opinion was held by a significant portion of the population, there would not be any nuclear plants still operating. There certainly wouldn’t be any new ones under construction or being planned.
You accepted and embraced a bonus driven culture. You became convinced that the size of your bonus said something about you as an effective person. You didn’t reevaluate your career choice. Those are pretty conventional ways of thinking, but I don’t hold them in high regard.
BTW – I reject the idea that companies exist only to serve shareholders. I know that puts me in a minority among business leaders, but I suspect employees, customers, and neighbors might agree that there is more to business success than achieving short term financial goals.
@Bas
increasing market share of plug-in hybrid & electric cars
In the U. S. there are approximately 300,000 plug-in hybrid and electric cars.
That is a rather minuscule portion of our total automobile population of 182 million (as of 2012, the last year available http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_11.html)
Vast majority of those 300,000 plug-in hybrid and electric vehicles required government subsidies large enough to completely fund a decent used car of modest age.
@Rod,
We agree that companies should serve society.
And there are CEO’s who consider that to be very important.
But reading Watson’s statement, he clearly doesn’t belong that group (although he may state otherwise if it serves his personal interests).
I stated ~100million in NW-Europe as I don’t know about the rest. Probably part of the rest shares my opinion too.
Agree that most people here do not take much action against nuclear, they have other priorities which I respect.
Still they support the Energiewende (which has all nuclear out as its prime target) while paying 6-7cnt/KWh extra for it, etc.
Even in NL we now pay some extra to stimulate the implementation of more renewable*). Everybody accept it without problems (except Joris, I assume as it excludes nuclear).
___
*) Our rather new national energy plan is signed by nearly all societal organizations (unions, employers, greenpeace, political parties, etc) and accepted by our government.
It was composed after a broad public discussion.
@Bas
We agree that companies should serve society.
That’s not what I wrote. I said that there is more to business success than achieving short term financial goals. Companies still exist to serve their own interests, but they need a broader context, a longer view and the recognition that not all equity is in the hands of passive shareholders.
You are right. However:
I remember that I read similar at the comments section of Atomic insight regarding solar energy some years ago.
So these things can change rather fast.
And when you look at the fundamentals, they may change indeed very fast.*)
Apparently the CEO’s of those oil companies consider the reasons (which I stated above) to be a substantial risk, so they propose higher costs for CO2 emissions in order to get a greener color.
___
*) There is no reason for battery technology to become a factor 2 or more cheaper within a decade, thanks to mass production and material progress. And an electric motor in a car is much cheaper than a gas or diesel motor (if in mass production).
Rod,
Oh – I agree. But, realistically speaking, right now the price tag is at least $12Bn dollars – and my point is EVEN IF THAT’s the price, it’s not really a lot of money in the energy industry.
Hard to raise your right foot when there’s been an 18+ year “pause” in the model-predicted continual rise in global temperatures and this “crisis” that must be confronted. I still haven’t figured out how a trace gas, necessary for life on earth and in concentrations similar to past geologic time periods, will cause the demise for that same planet. When the human contribution of atmospheric CO2 is 5% of the total emitted each year, are we making more of what human influence on global climate is or can be?
The planet is currently in a state of equilibrium where the release of CO2 by biomass degradation in winter is compensated by the absorption in spring when the biomass grows strongly. The fact that the human releases which come from outside this cycle are only 5% of the amount it involves is not relevant about the effect they can have.
The fact that as high or even much higher concentration existed in the geologic past and did not destroy the planet is much more relevant. However the current speed of release is probably unheard of in geological terms thus may have a larger impact, leaving much less time for most species to adapt than in the past. Also a lot of things which are clearly survivable for our species may however be very highly unpleasant for most of us, for example would kill a number of human ranging in the tens or hundreds of millions. If climate changed forced us to grow wheat in the plains of Siberia and Alaska, the US mid-west having turned to a large scale desert, we’d do that, and still be alive. However a lot of what it’d involve would be very, very unpleasant.
There hasn’t. There was a brief spike above the trend in 1997 due to a very strong El Nino event, and much of the trend was hidden by inadequate coverage of the high-latitude regions where the warming is strongest.
Your expertise in squeezing multiple lies into a single sentence is worthy of Duane Gish, of the “Gish gallop”.
1. The argument from incredulity is a logical fallacy.
2. Today’s CO2 concentration is far higher than what it’s been during any time for which we have direct measurements (ice cores), and nearly double the minimae. The high historic levels of which you speak occurred when the Sun was quite a bit dimmer; it brightens at about 1% per 100 million years, as the accumulation of helium in the core increases the density and the temperature required to offset self-gravitation.
3. The rate of rise of CO2 is unprecedented, even in the ages when it was far higher than today. Life has never been forced to adapt so fast.
4. Just because a gas is necessary for life doesn’t make it harmless. I’ll be happy to feed you pure oxygen at 5 bar for a few hours and then question you about its harmlessness or lack thereof. If you survive, that is. I suspect that if you did, you’d be unable to troll here ever again. I’m fine with that.
5. Nobody’s saying planet Earth will die, just lots of the species and ecosystems. This has happened before. But this time, humans could be one of the species that goes extinct.