Three Things: Pouring Cement Down the Wells

[NB: Check the byline, thanks! /~Rayne]

The last 24 hours made me think of this quote:

Supply chains cannot tolerate even 24 hours of disruption. So if you lose your place in the supply chain because of wild behavior you could lose a lot. It would be like pouring cement down one of your oil wells. — Tom Friedman

I don’t care much for Friedman; he’s a shallow pond. But it’s worth pondering his perspective that supply chains shouldn’t be disrupted.

Tell COVID that, son. Tell Nature’s response to our society’s refusal to stop the supply chain over the last four decades. This mostly-closed system we call Earth has a way of telling us not too subtly when our hubris has gotten out of hand.

Though COVID has been and remains a scourge of human life, it may have been one of the best opportunities to stop the supply chain and literally pour cement down oil wells which in their own way have become a scourge.

Disruption to food and health care supplies has been problematic, but most of that could have been addressed on a proactive basis by government which was both competent and benign. But the bigger problems our society faces, the overarching global climate emergency in particular, may best have been served with pandemic sand in the gears of normalcy.

Finally — there’s no going back to the toxic avoidance of disruption. Change has come whether we like it or not.

~ 3 ~

“Hostile” stakeholders rattled the 12th largest corporation by revenue and the 6th largest oil and gas business this week.

ExxonMobil’s (XOM) board of directors now has at least two new directors promoted by an activist fund, Energy No. 1. The fund, launched by tech industry investor Chris James, had the support of BlackRock, California Public Employees’ Retirement System, California State Teachers’ Retirement System and New York State Common Retirement Fund in its demand to replace at least four of the board with candidates of their choosing. Apart from BlackRock, the three retirement funds are the largest in the U.S. and represent $850 billion in assets; XOM’s valued at $252 billion.

Since late last year, Energy No. 1 has accumulated a $50 million stake in XOM. The fund wants

Engine No. 1 wants ExxonMobil to pledge to reduce its emissions to net zero by 2050, warning that this was “not just a climate issue but a fundamental investor issue — no different than capital allocation or management compensation — given the immense risk to ExxonMobil’s current business model in a rapidly changing world.”

XOM hasn’t performed well over the last 15 years; its last stock price high was in mid-2014 ahead of Iran’s oil re-entering the global market.

XOM has accumulated far too much debt, servicing shareholder dividends, offering weak sauce like investment in carbon capture announced on Earth Day this year, yet still expecting to be part of the White House’s green energy policy.

The corporation doesn’t appear to be making adequate progress toward a low-to-no-oil future, one in which privately-owned vehicles are electric rather than combustion engine. With countries beginning to ban the sale of combustion engine vehicles as soon as 2027 and some cities banning their use as far back as 2013 (ex. Utrecht banned older diesel engines that year), XOM hasn’t made enough effort to move to a different mix of products to maintain or build revenue over the long run.

Nor has the oil and gas corporation responded to climate change as competitors BP and Royal Dutch Shell have by establishing a goal of zero emissions by 2050.

The final tally of shareholder votes and the subsequent board composition may not be known for several weeks. No matter the board’s final members, change isn’t over for XOM, especially when the family which created its progenitor is moving to encourage change. The Rockefellers, heirs to the Standard Oil fortune, provided considerable funds to the #ExxonKnew movement in order to force XOM to deal with its toxic business model.

Don’t be surprised if Rockefellers buy up stock in cement manufacturers.

~ 2 ~

A court told Royal Dutch Shell it must reduce emissions. The 6th largest corporation in the world based on revenue, Shell had been sued by the Dutch branch of the Friends of the Earth for violating human rights with its extractive business, undermining the Paris Agreement.

The suit followed a 2015 precedent in which an environmental activist organization Urgenda had successfully sued the Dutch government for failing to meet its own benchmarks on emissions reduction.

The court ordered Shell to cut the corporation’s net emissions by 45 percent compared to 2019 levels by a 2030 deadline. The emissions to be cut are those generated by Shell’s business processes and not by the use of the fossil fuel products it sells.

A personal experience shapes my opinion about Shell as well as my opinion of the entire fossil fuel industry. In the late 1980s I had been working for a Fortune 100 company which relied on fossil fuels (as many businesses still do today); the corporation had a curriculum of sorts to ensure its workforce was global caliber. The curriculum included a session with a consultancy which guided large corporations in future planning. This consultancy used Royal Dutch Shell’s scenario planning as tool, pointing to Shell’s scenarios which saw peak oil and an end to oil. Shell at that time had already begun future-proofing itself by investing in wind energy development and other alternative energy sources.

But inside a handful of years it was evident the fossil fuel industry didn’t see the same scenarios, and Shell’s management no longer looked presciently oracular. Instead the country watched Enron’s corruption around energy blowing apart any idea the fossil fuel industry was looking deep into the future instead of the next quarter’s profits.

That it takes a court order to force Shell back toward its 1990 direction says something about the fossil fuel industry as well as corporate governance over the the last three decades.

~ 1 ~

The Daily Beast’s headline: Biden Administration Backs Trump’s Massive Alaska Oil Drilling Project

The New York Times’ headline: Biden Administration Defends Huge Alaska Oil Drilling Project

What’s disturbing in these and other outlets’ coverage of ConocoPhillips’ Alaska project is the reference solely to Biden when Interior Secretary Deb Haaland and Energy Secretary Jennifer Granholm are surely key to the government’s support for drilling in Alaska. What could these two cabinet-level officials have in common? An inconvenient distaff angle to the prevailing media narrative?

NYT buries at the end of its piece the biggest single reason why the current administration may not yet yank the gangplank out from under ConocoPhillips’ Alaska project:

Other Alaska Native groups, however, said they welcomed the jobs as well as the state and local revenue expected to be generated by the project. In an April letter to Interior Secretary Deb Haaland, George Edwardson, president of the Inupiat Community of the Arctic Slope, called oil drilling “critical to the economic survival of the eight Inupiat villages that call this region home” and said the Willow project had the group’s “strong support.”

“Alaska’s oil and gas industry provides much-needed jobs for our people, tax revenue to support our schools and health clinics, and support for basic public services,” he wrote.

If the rest of their livelihood is collapsing under climate change, it’s understandable the local population will grab what jobs they can.

But there’s more to this than jobs for locals as the administration appears to reverse course on fossil fuel development. It’s not jobs but cash injections into local businesses which have suffered under the pandemic; it’s roads and other infrastructure paid for in large part by a corporation and not by local/state/federal tax dollars.

Meanwhile, Joe Biden has been plugging electric vehicles like Ford’s new electric F-150.

Is there a disconnect? Not in my opinion. Instead we are looking at asymmetric warfare, which may also explain why Biden appears to take a less aggressive stance on the Russian NordStream 2 pipeline running beneath the Baltic Sea.

In the case of ConocoPhillips, it’s blowing huge amounts of money to develop a field while vehicle manufacturers are racing toward an all-electric product lineup which may cause the price of oil to drop below cost of production. Unlike its competitors XOM and Shell, ConocoPhillips hasn’t yet had a reckoning with shareholders about its business model though overproduction of oil across the industry has already been a problem during the Trump administration.

Biden pointed out NordStream 2 is already mostly built and paid for — but some of the pipeline’s investors/co-developers are among those pressed by shareholders and environmental activists to reduce their carbon emissions. They’re out the sunk cost into the pipeline if the price of oil drops in response to falling demand.

Ditto for Russia’s oil businesses invested in NordStream 2.

These extractive companies — and petrostates — aren’t going to be able to recoup their investments anywhere near as fast as they’d initially projected. If electric vehicles arrive and are adopted by the public rapidly, they may lose much of their investment.

So go ahead, pump some cash into the economy. Build some roads and maybe some pipeline.

The locals will enjoy them for years to come after the oil business has collapsed and gone.

~ 0 ~

By the way, somebody remind the White House the Trump administration killed participation in tracking products of extractive industries. We still need to keep an eye on them. Specifically, in 2017 the U.S. withdrew from the EITI — Extractive Industries Transparency Initiative, the extractive industries anti-corruption effort — and now Congress needs to revisit the Securities and Exchange Commission’s Rule 13q-1, which implemented Section 1504 of the Dodd-Frank Wall Street Reform related to tracking large payments made by extractive industries.

Hold this last thought about the U.S. needing to track money related to oil and gas. I promise it’s going to come up in a future post.

18 replies
  1. arbusto says:

    Reminds me of Hochschilds “Strangers in their own land: anger and mourning on the American right” examining Louisianans take on having vast surface and underground chemical waste and injection sites. A fisherman’s paradise of dead fish and dying mangrove swamps where the Dept of Fish and Wildlife sends out brochure’s on what fish are inedible and what parts of other fish are safe to eat. But corporations are their friend and you have to take the good with the bad.

    • Rayne says:

      I don’t see more new development happening in Louisiana or along the Gulf. It’s going to be a different equation for Alaska — mostly because the Alaskan development will help bankrupt Conoco going forward. Louisiana is and has been easy oil and gas.

      Want to accelerate the bankruptcy? Press Congress harder to yank any subsidies supporting development of oil and gas, use the money as incentives for battery R&D or purchases of electric vehicles.

      Personally, I can’t wait to see hungry polar bears show up to snack on humans because Alaskan development made it easy to reach them. Watch development slow to a crawl and shareholders get angry about sunk costs as the price of oil plummets.

  2. Tom Carleton says:

    Interesting take, that disruption from COVID helped build momentum for transition.
    Seeing steady change for years, but sure looks like a tipping point is now coming. 🙏 hoping!
    And re: the Biden admin position on Alaska drilling… OK if also now build a vision/path to future opportunities for locals,
    Roads etc. are great, but when the bottom falls out of petro, that will hit hard and fast.

    • Rayne says:

      When you read about what the Alaskan Native Americans lost due to the pandemic, it’s hard to imagine how the government will be able to provide adequate them fast enough considering their numbers and location.

      If Conoco is going to put money into development which will help during the next handful of years, I can see why the administration would give this a pass — it’s more immediate than trying to tax them and redistribute their revenue, a more certain thing than trying to do so as the globe heads into a steep downturn of fossil fuel consumption.

      This isn’t going to be cheap oil. It’s going to be pricey, far more than $65/barrel and that’s the breakeven for viability of pipeline development like Keystone XL. West Texas Intermediate is trading at $66.32/barrel right now. Do the math in 10 years time when a considerable number of vehicles are electric.

  3. P J Evans says:

    Reading about XOM and ConocoPhillips: the boss of Westlands Irrigation District (west San Joaquin Valley) said about the water limits coming down from the Feds this week, that it’s a matter of water distribution…as if every river in CA is free-running and full of water; he doesn’t seem to understand (publicly, at least) that there ain’t no water available. (Westlands is one of the biggest users of moved water in the state; they’re the ones with the pomegranate, pistachio, and almond orchards on what used to be dry land or vineyards or fruit orchards.)

    • Tracy Lynn says:

      This sounds familiar—I heard the same argument years ago when I worked for a startup water technology company— I attended a public forum on water rights and water conservationin which the representatives of the large Central Valley ag interests insisted that farming more efficiently used water than urban areas. They believed at the time that they were entitled to more water if rationing took place because they could irrigate the crops, then the water would run off to be captured by the next field and the next—thus using and reusing the same water. I have no idea if this was really what went on in practice—I represented the urban Bay Area, but also had an interest in making sure the Delta received enough water for wetland survival. Those ag interests were powerful then and sound like they are powerful now—only now there is less water for these farms to exploit.

      • P J Evans says:

        They don’t seem to do their best at not wasting water – turning near-desert to irrigated farming seems to be proof of that – and ag is something like 80% of the state’s water usage – cities have rules about water, even if they aren’t enforced as well as they could be. (New housing has smaller yards, multi-family has barely any space that isn’t building, and existing stuff tends to be watered less.)

        And Newsom’s biggest donors include the Resniks, from “Wonderful”, one of the big offenders in turning desert to farms.

  4. Tom says:

    One thing I’m hoping for is that a world less reliant on fossil fuels and the internal combustion engine will be a quieter world where the idea of firing up an old leaf-blower on a Sunday afternoon will be viewed the same as farting in church.

    But what will happen to the world of auto-racing with the widespread adoption of electric vehicles? Imagine the race announcer giving the classic injunction, “Gentlemen, start your engines!” only to have the spectators in the stands lean forward and strain their ears to hear a barely audible “hmmmmmmmmm” sound. Before the race, will people in their seats be asked to turn off their cell phones or set them to vibrate so as not to distract the drivers? Will drivers whip around the track vocalizing their own “Vroooom! Vroooom!” engine sounds? Or will racing organizers and TV broadcasters have to provide recorded gas engine sound effects for their viewers the way that situation comedies used to have laugh-tracks? So much of the appeal of auto racing (to me, at least) seems to lie in the machines’ powerful innards-shaking engine noise.

    Perhaps auto racing will retain its use of the internal combustion engine and become something of an antiquated technology pastime with its own devoted following, much the same as those fellows who enjoy shooting muzzle-loading black powder firearms.

    • bmaz says:

      E-Racing is the dumbest and most boring shit ever. Motor racing is not the problem. And, please, stop to consider that all that electricity for so called “clean” cars comes from mostly all fossil fuel plants, or nukes that are arguably worse.

      • Rayne says:

        You realize, I hope, that the lowest cost source of electricity is now solar, has been for several years, and it will begin to rapidly outpace fossil fuel and nuclear production for that reason? 🤨

            • bmaz says:

              Adding to List of Posts to Write: What the fuck meaningful racing is. Formula E is the absolute pinnacle, and it is really unwatchable. Maybe the day will come, but it is nowhere close.

    • Rayne says:

      I had a similar experience the first time I attended an unlimited hydroplane race in which a turbine engine competed with traditional engines (ex. Rolls Royce Griffon aircraft engines). The high-pitched but relatively quiet turbo was deceptive; it didn’t sound powerful because it didn’t rattle the stands the way the older craft did as they roared by. But they were plenty fast. It’s just a matter of cultural adjustment, like getting used to Toyota’s Prius cars on the road.

Comments are closed.