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.
Steel Guru (March 7, 2011) – Colombia coal must look to Asia for demand – Expert