Saturday, April 22, 2006

Energy Policy and Oil Profits

What have the oil companies been doing with their enormous profits? We know that executives are getting huge pay packages out of all proportion to what they bring to their companies. Where else are the profits going? The above chart (from shows how much the oil business donates in two-year cycles to the two major political parties. Clearly, the oil companies donate heavily to the Republicans and clearly the Republicans return the favor with highly profitable legislation.

For all practical purposes, the United States has no longterm energy policy. And yet, in a sense there has been a de facto energy policy since Reagan's first year: leave the energy policy to the oil companies. We've known for thirty years that the world has a longterm energy problem when it comes to oil: there are only so many oil reservoirs in the world and the supply is limited. We all know what nonrenewable resources mean but we conveniently forget that it applies to oil. And we conveniently forget that the numbers of yesterday were never particularly accurate in the first place. I can remember being told thirty years ago that there was enough natural gas to last the modern world for centuries. That appears not to be the case.

Repeatedly, over the last thirty years, oil companies have claimed that a certain amount of their profits has been going towards developing alternative energy but the alternative energy sector in the United States still supplies only a small percentage of total energy consumption. After thirty years, we are far more dependent on foreign oil than we once were and nothing has changed. Failure by the oil companies to have a realistic longterm energy policy should not be profitable. Over the last ten years, rewarding incompetence has become a corporate theme Americans cannot afford.

In the White House we have two former energy executives in George W. Bush and Dick Cheney; if their perpetual incompetence is a sign of what oil executives are like these days, this country is in trouble. I'm aware of engineers and specialists in the oil industry who truly do amazing things and one can argue that oil companies think longterm more than most companies but our culture rises or falls based on the availability of energy—the failures of the oil companies are significant and cannot continue. The rising oil and gasoline prices represent a crisis Bush and Cheney have refused to address. There are a variety of reasons why energy prices are rising: Katrina, trouble in Nigeria, falling production in Iraq due to the war, the possibility of war in Iran, the emerging economies of China and India, a fiercely competitive and manipulative oil producer in Russia, the failed energy policies of the last thirty years, refinery problems at home and abroad and finally the changing nature of oil supplies.

The dirtiest secret in the world (pun intended) is that light sweet crude is getting harder to come by and companies are increasingly forced to use heavier oil. We may be heading towards a time very soon when the oil sector will be significantly impacted by the production of heavy crude, oil sands and the conversion of coal to oil. These involve extremely dirty technologies with major pollution issues involved. More important, they are simply stopgap technologies that produce less and less energy for the work put in and they simply put off the inevitable need to start dealing realistically with energy and the development of reasonably nonpolluting sources of energy.

Republicans have been in denial for years and have spent an entire generation blocking the significant energy legislation that America needs. No doubt in the coming months, Republicans will make noise about the need to do something. House Speaker Hastert is already making noises about dealing with the oil companies and no doubt other games will be played, but Hastert and his fellow Republicans have been major beneficiaries of those same companies. It's time to send these guys home and begin work on real energy solutions.


Blogger ChinaLawBlog said...

The bad news for energy is India and China, but the good news is that both of these countries use energy so ineffeciently that it will be relatively easy and cheap for them to show considerable improvement. I don't know about India, but China is starting to take energy conservation very seriously.

China Law

6:15 PM  
Anonymous S,W. Anderson said...

The graph illustrates incredibly well who wanted Bush in the White Hosue and how badly they wanted him.

An index of why that was and is so can be gained by looking at graphs of petroleum prices and profits over the past five years, and noting the retirement goodies scooped up by Exxon-Mobile's departing CEO.

11:55 PM  
Blogger Craig said...

Chinalawblog, thanks for your comments. China also has another motivation for efficient energy and alternative energy: pollution. The sad thing for American business is that China, India and Europe has strong motivation to develop more efficient systems and better alternative energy. This is exactly the kind of thing that in the past the US would lead in.

11:55 PM  
Anonymous S.W. Anderson said...

Indeed, one thing a president worth his weight in press releases would do is jawbone U.S. industry to get busy and develop technology and products we could produce and export to places like Beijing, to help prevent and/or alleviate the effects of pollution.

11:21 PM  
Anonymous Razib Ahmed said...

Chinalawblog, India is also taking energy conservation seriously. For example, India is the
fourth largest power in wind energy and among the Asian countries
India is the first. Here India has a clear lead over China. ANother advantage of India is that it can get hydro electricyt from Bhutan and Nepal is a good prospect too.

7:39 AM  
Anonymous Craig said...

Razib, thanks for the link to the India story. It led to another link that will make for a good post on windmills.

And yes, you're right about India being among the leaders in energy conservation and alternative energy. China and India recently signed an energy pact concerning the sharing of information on alternative energy technology.

6:41 PM  

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