John Hofmeister’s book Why We Hate the Oil Companies should be required reading for people who aspire to engage in the energy conversation. It helps to explain so many things. I do not agree with his proposals or even the point of view that Hofmeister expresses; the reason that I want people to read the book is to get a glimpse into the inner world of groupthinking corporate executives who think they understand how the world should be run.
One of the more enlightening chapters in the book is titled “The Industry is Parochial. Surprised?” That chapter details the competitive nature of the business as seen from the eyes of a man whose experience in energy production started at the top of the US arm of Royal Dutch Shell, a multinational oil company that was one of the famous Seven Sisters.
It has been quite some time since I last published an article designated as a smoking gun, but in the past few days a number of events have convinced me that it is vitally important to work harder to raise awareness about the multi-decade effort by energy competitors to put as many barriers as possible in the way of nuclear energy developments.
Here is a quote from Hofmeister’s book:
By extension, don’t expect the whole energy industry to speak with one voice. Within the electric power generation industry, companies that produce electricity from coal, nuclear power, hydropower, or natural gas are as different from one another as their sources of supply. Likewise, the alternative and renewable energy industry, including wind, solar, and biofuels companies, hydropower, and geothermal, have no basis to work together on the nation’s common good. On the contrary, each energy company has every imaginable reason to work in its own selective best interest, even in opposition to one another.
This parochialism is not new. It started when coal displaced wood and oil first competed with coal. It is framed in anti-competition law, demanded by historic adjudication, promoted in modern times by local state, and federal policies, rewarded by investors and venture capitalists. And it’s all paid for by consumers.
That statement is followed by a lengthy segment on antitrust laws, explaining that they are part of what forces companies to compete rather than to cooperate. Hofmeister tells readers how corporate attorneys frequently remind executives that they are subject to prosecution if they violate rules against cooperating on prices and supplies. Having been an occasional insider and questioning observer in many business discussions, I think that Hofmeister doth protest too much about the care with which executives discuss items of potentially mutual interest. Think hard about the implications of the following quote:
Remember this: Your company lawyer is at your service and may even be your friend. If you are accused of antitrust behaviors, your lawyer will stick with you through thick and thin. He or she will work with you and represent you faithfully to the best of his or her ability for however long it takes. He or she will sit with you, talk to your family, support you in every way possible and do whatever is needed to protect you. he or she will argue your defense and do everything legally permissible to ensure that justice is done. There is, however, one difference. Your lawyer will always go home at night (meaning while you return to your cell).” Thirty-five years later I still remember that lesson. I’ve never known anyone who was found guilty or even charged with antitrust violations. I hope to preserve that record. So does everyone else I know in the energy industry.
I will give Hofmeister the personal benefit of the doubt; it is quite possible that he is a fundamentally honest person who cannot imagine breaking the law and risking jail time. However, I am not a fundamentally honest or law abiding person. I have to work at it every day because I freely admit to myself that I am tempted to shade the truth or bend rules to the breaking point if I think it will benefit me. I often make up stories (to myself) and think about how I can take advantage of opportunities.
I am especially strongly tempted if I think there is a good chance that I can benefit by breaking rules without any fear of getting caught or punished. If Hofmeister has been in business for thirty-five years and has “never known anyone” to have been charged with antitrust violations, there are several possible explanations.
He hangs around with a squeaky clean bunch of people.
He does not know very many people.
He does not pay much attention and is unaware of a charge or two that did get made.
There is little interest in enforcing antitrust laws and little chance of being prosecuted or even charged if you violate the law.
After his discussion about how antitrust laws force competition, he includes a section titled “Competition” that includes some important information, especially for those who do not pay enough attention to the business aspects of energy discussions. (Contrary to popular misunderstanding on the internet, supplying energy is the world’s largest and, arguably, most profitable business. Battles over market share have enormous financial importance.)
Why are the Olympic Games so eagerly anticipated? Why is the World Cup the most important event in the world every four years? Why do the World Series, Super Bowl, and Final Four matter in the United States? Why do political junkies like me stay up all night to watch the election returns of races clear across the country. People love competition. It’s important to us. It’s a life force. It’s also fun, exciting, keeping us on the edge of our seats. It brings out the best in us and rewards those who win. There are intrinsic and extrinsic satisfactions to being or choosing a winner.
So it is in the business world of energy. Coal wants to win against gas and nuclear. Oil independents want to beat the major companies to access and leases. Major brands fight over the best corners for retail stations. Electricity resellers want to take market share from big utilities. Biofuels proponents want to win against oil products. Wind wants to beat solar. Everyone in the energy space wants top talent, top dollar, top market share with lowest costs.
Coal companies work hard to de-position nuclear or natural gas companies in competition over favorable public policies in electricity generation. Coal executives emphasize their economic contribution and job creation across mining, transportation, and utilities. They bring along the United Mine Workers and their fraternity of other unions. They leverage their geographic spread across the country. The define “clean coal” to their own advantage. They describe the potential economic impacts of job losses on remote rural communities in coal states. They are deeply involved, and have been for years, in supporting many long-serving elected officials helping to preserve the advantages of member seniority for their causes. For whatever tarnished history they have, they are, and will continue to be not just survivors but fighters for what they believe is their privileged role in affordable energy production in the United States.
Verbal posturing against nuclear energy (“We can’t manage the waste,” “A nuclear plant is a national security time bomb,” “A nuclear meltdown is one bad valve away from occurring”) helps their cause. Their arguments against natural gas (“We’re running out, let’s conserve what we have for t
he future,” “Tight gas fracturing pollutes our water and creates subsidence”) prop up coal.
Natural gas weighs in with claims that it is 50 percent less polluting than coal and has a long-life reserve base well in excess of what others acknowledge. Clean Skies internet television, (Aside: Clean Skies is currently operating under the name of Energy Now. End Aside.) operated by a nonprofit founded in large part by Oklahoma-based Chesapeake Corporation, broadcasts the news about and advantages of natural gas from its studio in Washington, DC.
The industry segments all make legitimate points about themselves and don’t mind shooting sound-bite bullets at their foes.
(Source: Hofmeister, John, Why We Hate the Oil Companies 2010 Kindle locations 1986-2023)
If the competition limited itself to mere rhetoric and sound bites, it would not be such an important topic for me. However, I am deeply concerned about the effect that self-interested market competitors have had on the ability of the United States to develop nuclear energy as an effective alternative to burning enormous quantities of fossil fuel. Suppressing nuclear energy growth for three decades has translated to an enormous sales volume for some very powerful and competitive players.
I am enthusiastic about the numerous recent world events in which people who hate being under the thumb of dictators have risen up and thrown at least some of the bums out. I love freedom and enjoy the fact that I live in a country where one of our founding principles is that “…All men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness – That to secure these Rights, Governments are instituted among men deriving their just Powers from the Consent of the Governed.” However, I am also enough of a student of modern history, technology, economics, and geopolitics to recognize the extreme fragility of our current petroleum based economy.
Partially because we have suppressed nuclear for so long, American middle class consumers are going to experience a surprising amount of financial pain when Abdullah stops ruling Saudi Arabia. There is no “if” involved in the fact that human beings are mortal and that 86-year-old dictators in poor health are near the expiration of their mortality. According to a recent Forbes piece titled The Truth Behind Saudi Arabia’s Spare Capacity, that indisputable fact may not matter as much as the fact that Saudi Arabia might not have as much oil or spare production capacity as is currently claimed and assumed by wishful thinkers.
We can rapidly develop the technology required to allow us to accept changes in the world’s power structures and changes in the distribution of hydrocarbons. We do not need energy independence, but energy strength based on an abundant, reliable, and growing nuclear energy segment would sure help our current situation and make the world a cleaner, more prosperous and less fragile place.
Remember this – there was a time when it was possible in the United States to build a safe new nuclear power plant in just 4 years, even though we really did not know what we were doing when we first started the Shippingport project. If Rickover, Rockwell and their team could invent ways to separate hafnium from zirconium, figure out how to manufacture fuel pellets and set up quality assurance programs for thousands of unique parts during a time when accounts were in ledger books, schedules were done with paper and pencil, drawings required T-squares and triangles, and calculations required slide rules, we should be able to beat that mark today. If the NRC is a barrier rather than an enabler – let’s make the required changes.
The alternative is really, really scary for all but the very wealthiest Americans.
Rod Adams is Managing Partner of Nucleation Capital, a venture fund that invests in advanced nuclear, which provides affordable access to this clean energy sector to pronuclear and impact investors. Rod, a former submarine Engineer Officer and founder of Adams Atomic Engines, Inc., which was one of the earliest advanced nuclear ventures, is an atomic energy expert with small nuclear plant operating and design experience. He has engaged in technical, strategic, political, historic and financial analysis of the nuclear industry, its technology, regulation, and policies for several decades through Atomic Insights, both as its primary blogger and as host of The Atomic Show Podcast. Please click here to subscribe to the Atomic Show RSS feed. To join Rod's pronuclear network and receive his occasional newsletter, click here.
The Union of Concerned Scientists have put together a report, “Nuclear Power: Still not viable without subsidies”
I haven’t read in detail yet, but just a quick glance at it, it’s clear that the UCS (and I question the inclusion of the word scientists) has a pretty broad definition of the word subsidy. They also fail to put the subsidies in context with what other sources of energy are receiving. They use phrases in the accompanying press statement such as
if the government had purchased power on the open market and given it away free, it would have been less costly than subsidizing nuclear power plant construction and operation.
This is ridiculous on so many levels, one of which is there isn’t an open market from which the government could purchase power. There isn’t a big stack of Energon cubes for sale at the local Walmart store.
I came across this paper too. It is 139 pages.
The broader problem with the loss of Middle Eastern sweet light crude, is that the industry will turn to other sources like ultra-deep offshore drilling and the Tar Sands to meet demand. While the cost will go up for consumers at the pump, the greater costs of potential environmental damage, will be much higher.
Nuclear energy can reduce the carbon emission associated with Tar Sands in a couple of ways. Heat to melt the tar and hydrogen split from water by nuclear generated heat to lighten the tar. Hydrogen from water can replace natural gas for making the tar into a liquid at RT so that it can flow through a pipeline. Iceland is building a synthetic fuel facility which will open in 2014, which will produce dimethyl ether from carbon dioxide and hydrogen. Dimethyl ether is a clean fuel for diesel engines. They expect that the new dimethyl ether plant will reduce their petroleum fuel imports by one third. Maybe the diesel used in the equipment that digs out the oil sand could be replaced with dimethyl ether. If that can be done, why bother with Tar Sand let’s make synfuel instead. Of course the time lag is the problem. But we should be preparing now for a future that is not dependent on fossil fuel. Our economy can’t be maintained in the face of skyrocketing fossil fuel prices. Our standard of living will continue to drop until we replace fossil fuels with a clean abundant energy source.
Rod, I love your last paragraph, about what Rickover, Rockwell, et al. accomplished with much less powerful tools – no computers to do lots of sophisticated simulations, 3d-cad models, databases, etc. That is such a great point. Nuclear engineers and scientists today ought to be like on or two orders of magnitude more productive than in the early Atoms For Peace era (and I believe they are), and yet we don’t seem to be able to get any new reactor designs out the door in terms of licensed and built.
I do have one question though. You said, “Partially because we have suppressed nuclear for so long, American middle class consumers are going to experience a surprising amount of financial pain when Abdullah stops ruling Saudi Arabia.” What does the price of oil have to do with nuclear power? Nuclear is used for generating electricity and heat, petroleum is used mostly for transportation, isn’t it? (I think there’s a small amount of grid generation with diesel/gasoline, and some some-scale electricity generation like emergency gasoline or diesel generators in office buildings, hospitals, etc, but the figures I’ve seen within the last year indicate that oil is already much smaller than nuclear power in national electric generation).
I’ve heard people talk about the hypothetical possibility to synthesize gasoline and diesel using nuclear power, but I don’t think anyone is actually doing it? Basically, Nuclear and Oil don’t really compete, so it doesn’t seem like there’s a connection between the oil industry and the nuclear industry? Am I missing something?
The closest I’ve heard on synthesising fuel is the USAF tested several aircraft including the B-52 using bio and coal derived jet fuel. I’m pretty sure the process heat source wasn’t from nuclear though.
@Jeff – part of the suppression has been spreading the false rumor that nuclear energy is limited to producing large scale electricity.
What do you think would be powering aircraft carriers and submarines if they were not nuclear – coal? How much heating oil in the northeast and midwest could be replaced with high efficiency electric heat pumps?
Did you know that oil supplied as much as 17% of the US electrical power market before nuclear energy claimed its share of the power market. We burned more than a million barrels of oil per day in US power plants as late as 1978.
France, Japan, South Korea, and Taiwan also had high portions of oil in their power systems before nuclear energy.
The fact is that heat is pretty fungible. Nuclear heat is pretty darned flexible if not wedged into a tiny portion of the energy market by conscious decisions.
Rod, I forgot about heating oil – that’s certainly an issue, although isn’t heating oil a pretty small portion of the total U.S. usage of oil?
A bit of a followup question. I know others have, from time to time, pointed out that an SMR, such at the mPower you are working on, could potentially be a big boost to oil sand bitumen extraction from places like the Athabasca Sands in Alberta, CA.
Has B&W released any estimates on the cost of mPower modules? I think the number I’ve heard, in general, for SMRs, has been around $200M. I got to thinking about use of SMRs for bitumen extraction – since they mainly need steam to inject down into the oil sands, could an SMR plant be built even cheaper if it didn’t need a, say, 100MW electric generator (maybe the oil company only wanted a 2.5MW electric generator to provide enough electric power for their local needs), and just use the rest of the energy as steam. Could that potentially significantly reduce the price of the reactor module, since they need only a very small steam turbine?
I sometimes wonder just how much of an affect nuclear power could have on the price of oil if deployed up in Alberta – according to Wiki the amount of oil in the bitumen up there is about equivalent to all known reserves *worldwide* of conventional oil. It really seems to me that SMRs could bring a LOT of production online in Canada, *if the SMR’s are cheap enough*, at prices lower than current market prices.
Of course the downside of that is we’d just be burning more fossil fuels and contributing to more global warming, but I have a suspicion that once SMR’s are available, it will almost immediately happen (at least, if the economics are as favorable as I think they’ll be vs. using methane for the extraction, which they currently do).
@Jeff – The balance between supply and demand in either oil or natural gas is more sensitive than some people understand. There are several components in play – both physical limitations and perceptions about the future.
The world uses roughly 80 million barrels of oil per day. Outside of strategic reserves, where adding or subtracting is a large, politically charged decision, the world’s ability to store oil is fairly small. I do not know the number, but it amounts to just a couple of months worth of production if you fill every single tank, ship, etc. It is not really possible to fill all of those tanks because you have to have some amount of inventory movement, perform regular maintenance, etc.
I have been following OPEC decisions for several decades. When they want to influence the world price of oil, they will add or subtract total production volumes in increments in the range of 500,00 to 2,000,000 barrels of oil per day. It only takes a few weeks to start altering the storage volumes in a noticeable way.
The perception part is also very important. If nuclear energy is growing and adding additional “tons of oil equivalent” per day and it looks like it will continue growing, with innovators and marketers finding more and more uses for their product, the long term expectations for the price of competitive products starts to fall rather dramatically.
You can see how that played out during the first Atomic Age. Remember that graph I posted a few days ago that compared nuclear energy output as measured in tons of oil equivalent per year against Saudi oil production? Think about how the world price of energy fuels has behaved since the noticeable flattening of the nuclear energy growth curve. Think about how they behaved during the rather steep rise. Take a look at that sharp drop in Saudi sales volume in the period from 1980-1986. Do you think that the sheiks were happy about the loss of revenue – oil sales provide the vast majority of their income and a very substantial part of their total GNP. What about the multinational companies that had been extracting, transporting, refining and marketing all of that Saudi crude? Do you think they were happy?
When you read literature about the history of the world’s energy markets – like Daniel Yergin’s The Prize; The Epic Quest for Oil, Money and Power, you will see descriptions of numerous discussions over many decades among oil producers about the need to avoid being too greedy about raising prices because of a worry that it would encourage “alternative” energy sources. They seem to have a pact of silence about nuclear, but the only energy source that has ever taken any substantial portion of the fossil fuel market share is atomic fission. THAT is the alternative that scares the pants off of oil marketers, oil producing country dictators and executives.
Here is a link to an interesting opinion piece from an off-shore wind turbine advocate who is trying to make the case that those silly monstrosities will have an impact on the price of oil. The output of unpredictable offshore wind farms is far less likely to be a suitable replacement for oil consumption than the output of various sizes of atomic fission power plants.
Regarding natural gas supply and demand (particularly tight shale gas, as Hofmeister puts it),
Well, I was very interested to see how the discussion would take shape on this post, because I squarely fall on the side of Hofmeister. I think what stands in the way of coming up with better long term solutions for low cost, sustainable, and reliable energy in the US is a system that pits one energy source against another, a divide and conquer approach, that pretty much assures that the dominant interests (and conventional way of doing things) wins every time. This may work very well for widgets and mouse traps, where people are competing on a level playing field and looking at efficiencies in similar production techniques, but it doesn’t work very well for energy sources (where radically different technologies are involved), each with different limitations and advantages. Some energy sources have much better short term outlooks, others perform very well on a 60 or 80 year time horizon. Some work primarily for baseload generation, others for transportation, some provide energy independence from available natural resources (and have less of a cost benefit), others are transitional, and others provide support to developing global markets for entrepreneurship, innovation, and future energy solutions.
Parochialism is certainly advantageous in helping to concentrate and focus the mind, but it doesn’t help in developing a multi-faceted or coordinated approach to our long term energy challenges (where we are thinking primarily in the 2-4 year range, and we need to be thinking in the 20-50 year range). Hofmeister doesn’t mince words, which is even more surprising for a former oil industry exec (and he is far more comfortable on his own than he was as a representative of Shell). If he has a specific agenda, it’s oil development in the arctic (and bending political considerations to move “energy independence” up the national agenda). But sometimes, great ideas have other unintended consequences. We need policy coordination in this country (deregulated markets, derivative and hedge fund speculation, and reinvested R&D budgets of large multinationals out to conserve and protect their self-interests) aren’t going to get us there. People on this blog are obviously of the parochial mindset, recommending nuclear as the one sized fits all solution to all of our energy needs (current, global, and future). I see lots of problems with this approach, particularly from a strategic and pragmatic standpoint (and making decisions for an energy resource that requires lots of coordination, high initial capital expense, steep regulatory controls, and a 70 year outlook). We can wait for the next crisis before we start making better long term energy decisions, I’d like to think we can learn from our past mistake, but we aren’t there now. And coordination doesn’t necessarily involve “big government” type approaches, just a subtle tweaking of incentives that match competitive markets with competitive energy sources. In my mind, we are a long way from that goal, and hence a long way from tough choices that are necessary for our viable and long term energy security.
@EL – have you read the book? Do you agree with the idea of the energy equivalent of a federal reserve run by the equivalent of bankers from the energy industry? What about the idea of opening up not only the Arctic but offshore drilling in Florida, California and the northeast?
Good points. I agree with him on the end goals
@EL – since I have about 30 years worth of experience in working with a wide variety of people I do not see how it would be possible to arrange a system that is free of political partisanship and special interests. The best I can hope for is to move closer to a less controlled and subsidized competitive market where objective measures of effectiveness of cost, performance, reliability, cleanliness, etc. can allow many market decisions to take place every single day.
Under such a system, we will have the best chance of having a sustainable, affordable, clean energy supply system. (It should be no surprise to you that my technical analysis is that fission would be competitively successful in such a system.)
@Rod. When I was traveling in the Caribbean this winter, I ended up in a conversation with a wealthy couple from Brazil. If you’re familiar with the history of the stunning economic turnaround and pro-business environment in Brazil, you know it’s largely the result of the deft and skillful leadership of three term President
@EL – I was not talking about left-right partisanship so much as “special interests” most of which revolve around MONEY. It would be interesting to put the wealthy couple, a few public servants, some small businessmen, some waiters, some farmers, some manufacturing employees, and some taxi drivers in the same room to find out if they all agreed about the performance of the Brazilian leadership and economy.
Perhaps they would, but…
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