Once upon a time, the idea that Earth’s climate could be changing due to human-caused carbon dioxide emissions was just a lonely, unpopular scientific hypothesis. Through years that stretched to decades, researchers patiently gathered troves of evidence to test that hypothesis. The great majority of evidence collected tended to confirm the notion that rising atmospheric carbon dioxide (and other greenhouse gas) levels raise average global temperatures and provoke an increase in extreme weather events. Nearly all climate scientists were gradually persuaded of the correctness of the global warming hypothesis.

But a funny thing happened along the way. Clearly, if the climate is changing rapidly and dramatically as a result of human action, and if climate change (of the scale and speed that’s anticipated) is likely to undermine ecosystems and economies, then it stands to reason that humans should stop emitting so much CO2. In practical effect, this would mean dramatically reducing our burning of fossil fuels—the main drivers of economic growth since the beginning of the Industrial Revolution.

Some business-friendly folks with political connections soon became alarmed at both the policy implications of—and the likely short-term economic fallout from—the way climate science was developing, and decided to do everything they could to question, denigrate, and deny the climate change hypothesis. Their effort succeeded: belief in climate change now aligns fairly closely with political affiliation. Most Democratic elected officials agree that the issue is real and important, and most of their Republican counterparts are skeptical. Lacking bipartisan support, legislative climate policy languished.

From a policy standpoint, climate change is effectively an energy issue, since reducing carbon emissions will require a nearly complete revamping of our energy systems. Energy is, by definition, humanity’s most basic source of power, and since politics is a contest over power (albeit social power), it should not be surprising that energy is politically contested. A politician’s most basic tools are power and persuasion, and the ability to frame issues. And the tactics of political argument inevitably range well beyond logic and critical thinking. Therefore politicians can and often do make it harder for people to understand energy issues than would be the case if accurate, unbiased information were freely available.

So here is the reason for the paradox stated in the first paragraph: As energy issues become more critically important to society’s economic and ecological survival, they become more politically contested; and as a result, they tend to become obscured by a fog of exaggeration, half-truth, omission, and outright prevarication.

How does one cut through this fog to gain a more accurate view of what’s happening in our society’s vital energy supply-and-support systems? It’s helpful to start by understanding the positions and motives of the political actors. For the sake of argument, I will caricature two political positions. Let’s personify them as Politician A and Politician B.

Politician A has for many years sided with big business, and specifically with the fossil fuel industry in all energy disputes. She sees coal, oil, and natural gas as gifts of nature to be used by humanity to produce as much wealth as possible, as quickly as possible. She asserts there are sufficient supplies of these fuels to meet the needs of future generations, even if we use them at rapidly increasing rates. When coal, oil, and gas do eventually start to run out, Politician A says we can always turn to nuclear energy. In her view, the harvesting and burning of fossil fuels can be accomplished with few incidental environmental problems, and fossil fuel companies can be trusted to use the safest methods available. And if Earth’s climate is indeed changing, she says, this is not due to the burning of fossil fuels; therefore, policies meant to cut fossil fuel consumption are unnecessary and economically damaging. Finally, she says renewable energy sources should not be subsidized by government, but should stand or fall according to their own economic merits.

Politician B regards oil, coal, and natural gas as polluting substances, and society’s addiction to them is shameful. He thinks oil prices are high because petroleum companies gouge their customers; nuclear energy is too dangerous to contemplate; and renewable energy sources are benign (with supplies of sunlight and wind vastly exceeding our energy needs). To hear him tell it, the only reason solar and wind still supply such a small percentage of our total energy is that fossil fuel companies are politically powerful, benefiting from generous, often hidden, government subsidies. Government should cut those subsidies and support renewable energy instead. He believes climate change is a serious problem, and to mitigate it we should put a price on carbon emissions. If we do, Politician B says, renewable energy industries will grow rapidly, creating jobs and boosting the economy.

Who is right? Well, this should be easy to determine. Just ignore the foaming rhetoric and focus on research findings. But in reality that’s not easy at all, because research is itself often politicized. Studies can be designed from the outset to give results that are friendly to the preconceptions and prejudices of one partisan group or another.

For example, there are studies that appear to show that the oil and natural gas production technique known as hydrofracturing (or “fracking”) is safe for the environment. With research in hand, industry representatives calmly inform us that there have been no confirmed instances of fracking fluids contaminating water tables. The implication: environmentalists who complain about the dangers of fracking simply don’t know what they’re talking about. However, there are indeed many documented instances of water pollution associated with fracking, though technically most of these have resulted from the improper disposal of wastewater produced once fracking per se is finished, rather than from the hydrofracturing process itself. Further, industry-funded studies of fracking typically focus on sites where best practices are in place and equipment is working as designed—the ideal scenario. In the messy real world, well casings sometimes fail, operators cut corners, and equipment occasionally malfunctions.

For their part, environmentalists point to peer-reviewed studies showing air, water, and human health problems associated with actual (far from ideal) fracking operations.

So, depending on your prior beliefs, you can often choose research findings to support them—even if the studies you are citing are actually highly misleading.

Renewable energy is just as contentious. Mark Jacobson, professor of environmental engineering at Stanford University, has co-authored a series of reports and scientific papers arguing that solar, wind, and hydropower could provide 100 percent of world energy by 2030. Clearly, Jacobson’s work supports Politician B’s political narrative by showing that the climate problem can be solved with little or no economic sacrifice. If Jacobson is right, then it is only the fossil fuel companies and their supporters that stand in the way of a solution to our environmental (and economic) problems. The Sierra Club and prominent Hollywood stars have latched onto Jacobson’s work and promote it enthusiastically.

However, Jacobson’s publications have provoked thoughtful criticism, some of it from supporters of renewable energy, who argue that his “100 percent renewables by 2030” scenario ignores hidden costs, land use and environmental problems, and grid limits (see here, here, and here. Jacobson has replied to his critics, well, energetically (here and here).

At the other end of the opinion spectrum on renewable energy is Gail Tverberg, an actuary by training and profession (and no shill for the fossil fuel industry), whose analysis suggests that the more solar and wind generating capacity we build, the worse off we are from an economic point of view. Her conclusion flatly contradicts that of this report, which aims to show that the more renewables we build, the more money we’ll save. Ecologist Charles Hall has determined that the ratio of energy returned to energy invested in capturing solar energy with photovoltaic (PV) panels is too low to support an industrial economy. Meanwhile the solar industry claims that PV can provide all of society’s power needs. Global wind capacity may have been seriously over-estimated. But then again, maybe not .

In sum, if you’re looking for quick and simple answers to questions about how much renewables can do for us, at what price, and over what time frame, forget it! These questions are far from being settled.

There’s a saying: For every Ph.D., there is an equal and opposite Ph.D. Does this mean science is useless, and objective reality is whatever you want it to be? Of course not. However, politics and cultural bias can and do muddy the process and results of scientific research.

All of this is inevitable; it’s human nature. We’ll sort through the confusion, given time and the hard knocks that inevitably come when preconceptions veer too far from the facts. However, if the more worrisome implications of climate science are right, we may not have a lot of time for sorting, and our knocks may be very hard indeed.

*          *          *

Here’s a corollary to my thesis: Political prejudices tend to blind us to facts that fail to fit any conventional political agendas. All political narratives need a villain and a (potential) happy ending. While Politicians B and A might point to different villains (oil companies on one hand, government bureaucrats and regulators on the other), they both envision the same happy ending: economic growth, though it is to be achieved by contrasting means. If a fact doesn’t fit one of these two narratives, the offended politician tends to ignore it (or attempt to deny it). If it doesn’t fit either narrative, nearly everyone ignores it.

Here’s a fact that apparently fails to comfortably fit into either political narrative: The energy and financial returns on fossil fuel extraction are declining—fast. The top five oil majors (ExxonMobil, BP, Shell, Chevron, and Total) have seen their aggregate production fall by over 25 percent over the past 12 years—but it’s not for lack of effort. Drilling rates have doubled. Rates of capital investment in exploration and production have likewise doubled. Oil prices have quadrupled. Yet actual global rates of production for regular crude oil have flattened, and all new production has come from expensive unconventional sources such as tar sands, tight oil, and deepwater oil. The fossil fuel industry hates to admit to facts that investors find scary—especially now, as the industry needs investors to pony up ever-larger bets to pay for ever-more-extreme production projects.

In the past few years, high oil prices have provided the incentive for small, highly leveraged, and risk-friendly companies to go after some of the last, worst oil and gas production prospects in North America—formations known to geologists as “source rocks,” which require operators to use horizontal drilling and fracking technology to free up trapped hydrocarbons. The energy returned on energy invested in producing shale gas and tight oil from these formations is minimal. While US oil and gas production rates have temporarily spiked, all signs indicate that this will be a brief boom that will not change the overall situation significantly: society is reaching the point of diminishing returns with regard to the economic benefits of fossil fuel extraction.

And what about our imaginary politicians? Politician A wouldn’t want to talk about any of this for fairly obvious reasons. But, strangely, Politician B likely would avoid the subject too: while he might portray the petroleum industry as an ogre, his narrative requires it to be a powerful one. Also, he probably doesn’t like to think that gasoline prices might be high due to oil depletion rather than simply the greed of the petroleum barons. Motives can be complicated; perhaps both feel the patriotic urge to cheer domestic energy production, regardless of its source and in spite of evidence of declining returns on investment. Perhaps both understand that declining energy returns imply really bad news for the economy, regardless which party is in power. In any case, mum’s the word.

Some facts seem to fit one narrative or the other but, when combined, point to a reality that undermines both narratives. What if climate change is an even worse problem than most of us assume, and there is no realistic way to deal seriously with it and still have economic growth?

In the real world of US politics, many Democrats would agree with the first part of the sentence, many Republicans with the second. Yet both parties would flee from endorsing the statement as a whole. Nevertheless, this seems to be where the data are driving us. Actual climate impacts have consistently outpaced the worst-case forecasts that the UN’s International Panel on Climate Change (IPCC) has issued during the past two decades. That means curbing carbon emissions is even more urgent than almost anyone previously thought. The math has changed. At this point, the rate of reduction in fossil fuel consumption required in order to avert catastrophic climate change may be higher, possibly much higher, than the realistically possible rate of replacement with energy from alternative sources. Climatologist Kevin Anderson of the UK-based Tyndall Centre figures that industrial nations need to cut carbon emissions by up to 10 percent per year to avert catastrophe, and that such a rapid reduction would be “incompatible with economic growth.” What if Anderson is right?

The problem of transitioning quickly away from fossil fuels while maintaining economic growth is exacerbated by the unique characteristics of different energy sources.

Here’s just one example of the difficulty of replacing oil while maintaining economic growth. Oil just happens to be the perfect transport fuel: it stores a lot of energy per unit of weight and volume. Electric batteries can’t match its performance. Plug-in cars exist, of course (less than one percent of new cars sold this year in the US will be plug-in electrics), but batteries cannot propel airliners or long-haul, 18-wheel truck rigs. Yet the trucking and airline industries just happen to be significant components of our economy; can we abandon or significantly downsize them and grow the economy as we do so?

What about non-transport replacements for fossil fuels? Well, both nuclear power stations and renewable energy systems have high up-front investment costs. If you factor in all the financial and energy costs (something the solar, wind, and nuclear industries are reluctant to do), their payback time is often measured in decades. Thus there seems to be no realistic way to bootstrap the energy transition (for example, by using the power from solar panels to build more solar panels) while continuing to provide enough energy to keep the rest of the economy expanding. In effect, to maintain growth, the energy transition would have to be subsidized by fossil fuels—which would largely defeat the purpose of the exercise.

Business-friendly politicians seem to intuitively get much of this, and this knowledge helps fuel their continued infatuation with oil, coal, and natural gas—despite the increasing economic problems (even if we disregard the environmental problems) with these fuels. But these folks’ way of dealing with this conundrum is simply to deny that climate change is a real issue. That strategy may work for their supporters in the fossil fuel industries, but it does nothing to avert the worsening real-world crises of extreme temperature events, droughts, floods, and storms—and their knock-on impacts on agriculture, economies, and governments.

So those on the left may be correct in saying that climate change is the equivalent of a civilization-killing asteroid, while those on the right may be correct in thinking that policies designed to shrink carbon emissions will shrink the economy as well. Everybody gets to be correct—but nobody gets a happy ending (at least as currently envisioned).

That’s because nearly every politician wants growth, or at least recognizes the need to clamor for growth in order to be electable. Because growth, after all, is how we currently define our collective, national happy ending. So whenever facts lead toward the conclusion that more growth may not be possible even if our party gets its way, those facts quickly get swept under the nearest carpet.

Masking reality with political rhetoric leads to delays in doing what is necessary– making the best of the choices actually available to us. We and our political “leaders” continue to deny and pretend, walking blindly toward environmental and economic peril.

*          *          *

We humans are political animals—always have been, always will be. Our interests inevitably diverge in countless ways. Further, much of the emotional drive fueling politics comes from ethical impulses: perhaps for genetic reasons, different people assign different ethical principles a higher priority. Thus one politician’s concern for fairness and another’s passion for national loyalty can glide right past each other without ever shaking hands. Religion can also play a role in partisanship, along with the legacies of economic and social exclusion, historic rivalries, disputes, and atrocities. None of this can be dispelled with the wave of a magic wand.

Moreover, political engagement often leads to welcome outcomes. When people organize themselves to effect change, the result can be expansions of civil rights, women’s suffrage, and environmental protection. On the other hand, when people fail to speak up, social power tends to become monopolized by a small minority–and that never ends well. So, let’s not withdraw from politics.

But how to work effectively in a politically polarized environment? Hyper-partisanship is a problem in approving judicial appointees and passing budgets, and failure to do these things can have serious consequences. But when it comes to energy and climate, the scale of what is at stake runs straight off the charts. The decisions that need to be made, and soon (ideally 20 years ago!), on energy and climate may well determine whether civilization survives. The absence of decisive action will imperil literally everything we care about.

Energy is complicated, and there can be legitimate disagreements about our options and how vigorously to pursue them. But the status quo is not working.

I’ve struggled to find a hopeful takeaway message with which to end this essay.

Should I appeal to colleagues who write about energy, pleading with them to frame discussions in ways that aren’t merely feeding red meat to their already far too polarized audiences, encouraging them to tell readers uncomfortable truths that don’t fit partisan narratives? I could, but how many energy writers will actually read this essay, and how many of those are willing to examine their preconceptions?

Perhaps the best I can do is point out the existence of a small but enthusiastic subculture that actually understands these issues. This subculture is exemplified by Transition Initiatives promoting “small-scale local responses to the global challenges of climate change, economic hardship, and shrinking supplies of cheap energy” and the premise that life can be better without fossil fuels. For better or worse, this subculture is practically invisible to political elites and the mainstream media (except perhaps in parts of the UK).

Perhaps it’s fitting that this essay leaves both author and readers unsettled and uncomfortable. Discomfort can sometimes be conducive to creativity and action. There may be no solutions to the political problems I’ve outlined. But even in the absence of solutions there can still be better adaptive behaviors, and judo-like strategies that achieve desired outcomes—ones that could conceivably turn the tide on intractable global problems such as climate change—without directly confronting existing societal power structures. These behaviors and strategies can be undertaken even at the household scale, but we’re likely to achieve much more if we collaborate, doing what we can locally while using global communications to compare notes and share our successes and challenges.

20 Comments on "The Purposely Confusing World of Energy Politics"

Hattier on Thu, 13th Feb 2014 12:57 am 



Wait, isn’t Richard Heinberg on the “It will be ok somehow” team…
HMM. Its almost as if a time goes on and humanity continues down the rabbit whole, these guys are revising their projections (As any good academic would). The issue is… there getting worse… When the optimists (Who understand the issues) start losing there optimism, doesn’t this mean collapse is going to be the last card played
Thoughts?

Northwest Resident on Thu, 13th Feb 2014 1:48 am 



“The fossil fuel industry hates to admit to facts that investors find scary—especially now, as the industry needs investors to pony up ever-larger bets to pay for ever-more-extreme production projects.”

Keeping investors invested in oil production projects explains probably all of the articles we see on this site and elsewhere that paint a rosy picture of the oil production future. It is a concentrated effort by TPTB to keep the investment coming because without that investment, everything falls apart rather quickly.

Great article that accurately describes the predicament we are in. There are no “solutions” that do not involve massive change and economic destruction, along with all the human misery and suffering that goes with it. And the longer we go without taking our medicine, the worse it is going to be when we finally summon the courage and the force of will to just get it done. If our goal is to do our part to give our children and future generations of humanity the best possible chance of long term survival on planet earth, then we better take that medicine now, before it is too late. And even then, there are no guarantees. We really have gotten ourselves into a deadly situation. Somebody somewhere better have a plan, or humans are toast.

Makati1 on Thu, 13th Feb 2014 2:31 am 



NWR, I wish I could see a way out as I have grand kids and several great grands that will need a livable world. I think it is already too late for that now. The lag in pollution effects means we have already overshot the 2C increase and are locked into the 4C+ increase over the next 50 years. Maybe less. And then there is the food and water situation which would take volumes to cover.

Most Americans laughed at President Carter when he told us to put on a sweater and install solar panels on our roof. Likewise, they jeered at the “Limits of Growth”, “Silent Spring”, etc., when they came out. Had we been intelligent enough to heed the warnings, we may have dodged the bullet. But, we didn’t and now our progeny will pay the price, and perhaps the whole species will.

Yes, Heinberg is correct. We can only try to make the decent easier on ourselves by personal preparation. I do not believe that any transition initiatives will work in the long run. Not in the ‘Me & Mine’ nation for sure. Not in any country not already living that way as a culture. It takes decades/generations to change cultures and I do not think we have that long. A few years, maybe. I hope I am wrong.

BillC on Thu, 13th Feb 2014 3:03 am 



Too long to read. Get to the point

GregT on Thu, 13th Feb 2014 3:38 am 



“These behaviors and strategies can be undertaken even at the household scale, but we’re likely to achieve much more if we collaborate, doing what we can locally while using global communications to compare notes and share our successes and challenges.”

Heinberg is of course correct, but at this point he is merely grabbing at straws. While there is a growing awareness, and there are many people who are actually attempting to find solutions, there simply are not enough people aware of our predicament to make a difference. Our politicians are lying to us, the corporate media is lying to us, and it is far easier for the masses to believe comfortable lies, than dire truths. A critical mass will not be reached in time, or perhaps more appropriately, WAS not reached in time.

Those that are aware, can do little more now than hope for the best, and prepare for the worst. Live every day to it’s full potential, take care of one another, and enjoy this wonderful planet for as long as it is possible.

Davy, Hermann, MO on Thu, 13th Feb 2014 3:44 am 



N/R, I am on the fence on the pill popping. One the one hand I wonder if TPTB should just round up all us critical thinking and have a big public execution and then everyone can go back to blissful ignorance and death will come but blissfully and in ignorance. If you are doing well now why mess with that? Should we live for the now and just except the end is near (us critical thinkers). If we have moved up from level one of the Peak Oil game to level two which deals with contraction and collapse then we understand we have at most 6-9 years until an energy induced collapse. We know the possibility of a cascading economic collapse is possible at any time with about a zero chance of improvement. I believe managed de-growth is not possible. A hard enough and long enough drop in economic activity will leave the poison pills of modern man (nuke weapons, nuke waste, chemicals, and biohazards) unmanageable. We will get quickly FUKU’d. The ecosystem is ruined, quality resources are gone, and stabile climate is failing us. So my usual long story short and trying to get to the point DAveY. I am not sure we should take that pill. Should we just live until we die? I am not sure your idea of causing a small earthquake to head off the big earthquake will work with a complex interconnected unstable polluted global world. N/R just being the devil’s advocate here so to speak on the pill popping. Pill popping does cause overdoses!

Stilgar Wilcox on Thu, 13th Feb 2014 4:03 am 



Anything and everything these days gets argued to the point of cancelling out divergent views, concluding each time a controversial topic gets brought up ending in a neutral, take no action outcome. So peak oil and AGW just keep building in more pressure towards a cliff.

What’s unfortunate is most people are influenced by emotional arguments because it feeds into their reptilian brain (1st brain layer), rather than one’s backed by data fed by the neo-cortex (3rd brain layer). IMHO, that base emotional predisposed perspective will be our undoing, and from a natural selection standpoint that is the correct eventuation.

In other words, we have achieved this level of complexity via the geniuses, but since people want what’s easiest at the moment, the majority, the non-geniuses, by their willingness to be swayed by emotion rather than fact, are forcing what will be a die off of themselves.

If our species had somehow evolved to expect more from the non-geniuses, then data would win out and we would have already been well on our way to making a transition to greater sustainability.

Jesper on Thu, 13th Feb 2014 6:21 am 



Since there are so many unknowns I’m not feeling very optimistic that we will come up with an optimal response.

How high would the unemployment be if we cut back 10% on CO2 next year? How does that suffering stack up against BAU?

My feeling is that we’re so locked into the current system that we actually can’t change it. It’s simply too overwhelming, and changing also consumes energy.

But perhaps this is totally expected. Mother earth will eventually set a limit to growth that we can’t find a workaround for, and from that day on it’s downhill until we reach a sustainable population. How ugly will that ride be? How long will it take?

Keith_McClary on Thu, 13th Feb 2014 6:26 am 



Link to original Resilience article, FWIW:
http://www.resilience.org/stories/2014-02-11/the-purposely-confusing-world-of-energy-politics

Northwest Resident on Thu, 13th Feb 2014 6:51 am 



Davy — I don’t know what would be best, honestly. I just try to think what would I do if I was in charge of the world — what makes logical sense to me. And if it was up to me, I would pull the plug on BAU at a time and place of my choosing, but not until I had a plan in place and the resources and people to implement that plan lined up and ready for deployment. The goal would be to secure oil and strategic nuclear/power locations, stop the waste and toxic emissions, force localization and self-sustainability on people, keep order to the most reasonable extent possible and assist communities with consolidating into local food production and economic self-contained units. A lot of people wouldn’t be able to make that transition, no doubt. But the strong, smart and capable ones might, enough of them to rebuild a new sustainable way of life with enough remaining energy reserves to power them far into the future. But yeah, with my plan, a lot of people would die. That’s inevitable anyway, so I don’t guess I would feel too guilty about it.

I guess its a good thing I’m not in charge???

mike on Thu, 13th Feb 2014 9:47 am 



“Too long to read. Get to the point” – Bill C

You clearly are a product of the modern educational system that prefers myth from sound bites rather than truth and wisdom from thoughtful theses.

The point of the article arguably is that too many in the business and political “community” prefer the easy answers from short easy sound bites than complex arguments from long thoughtful analyses of the predicament. They will say “Too long to read. Get to the point”.

Or were you being ironic?

Davy, Hermann, MO on Thu, 13th Feb 2014 12:27 pm 



Stilgar I have often mentioned I see our species as having the “peacock syndrome” our large brains are an evolutionary dead end on a finite planet. “If” some of us survive collapse in an unstable climate regime it may be possible in some niche spot we come back to something like hunter gather man and or it is possible as a new awakened humanity. I duun knuwww? Yet, all previous species have gone the extinction route as we know. I have mentioned extinction and evolution are part of a song in nature. Song is frequency and cycles. So can or should we fight what is natural!?

Hell, mike, “get to the point” is part of the new way of life. Everything is going so fast and we are blasted constantly with too much of everything in this PEAK world and its associated entropy of information and thought. The subtleties that monks in the dark ages could find in the quiet, still, and illuminating world they inhabited are gone for most.

N/R, we know we are basically on the same page on many subjects here. I have two outlooks on a crash. They both involve living life to the fullest now while building a short term lifeboat to navigate a short hard period and long term alternative lifestyle for a stabilized post-crash world. One outlook is the one you put forth. A crash sooner than later hard down to the basement. Climbing out of the cellar after the tornado has ripped apart the BAU world and collect as we can to rebuild. The other is a gradual step down of increasingly contracted society of BAU. Yet, still able to hold together and manage the worst that humanity has bequeathed to our world that being the ecosystem poisons. Hoping our decent allows a reduction of the worst that can be imagined AGW. Yet, either way it seems modern man is toast and it is very debatable if our species can survive long term IMHO. I ask myself if we should enjoy our Socrates and Plato moments of enlightenment like here on this discussion board. Should we realize that ultimately we have no control as individuals and as a society over what is coming? Live life now and to the fullest and hope for the best.

rockman on Thu, 13th Feb 2014 2:07 pm 



NR – Just touching on a small point you brought up before: “The fossil fuel industry hates to admit to facts that investors find scary—especially now, as the industry needs investors to pony up ever-larger bets to pay for ever-more-extreme production projects.” Let’s look at the shale plays first. There is very little investor capital going into all that drilling. Look at all the big players: they are public companies. They pay for ops out of cash flow and debt. EOG is one of the biggest players. Investors might buy their stock but none of that money goes to EOG. It just changes hands from one shareholder to another. So unless a pubco does a public offering of stock (not very common these days) no investor money goes into operations. In fact, stock buy backs have not been uncommon with the effect of pubcos reducing the number of investors in their companies.

So jump to the scenario where investors perceive too much risk in the shale plays. They simply divest their stock. If enough folks do it the stock value could fall significantly. And how would that affect a company’s capital budget? Low stock value = lower dividend payments = more capital for the company for drilling. Of course, there will be hell to pay from the major stockholders, board members and management holding stock options. And IMHO this is the root cause for the cheerleading: not to lure investors but to keep those stock investors healthy. IOW the folks making those flashy PR pieces are getting paid from the well head. They make the big bucks when they buy low/sell high the company stock. And anything they can do to give the perception of increasing value is what they’re all about.

But there are private companies like mine. You won’t see my owner making PR fluff touting oil/NG investing or drilling. We don’t even have a website. You may have noticed that I’ve never mentioned the name of my company. We’re owned by a family and Big Daddy is just fine with no one knowing the family’s business. We were created to generate a rate of return…not bragging rights. The company has invested over $250 million in developing oil/NG. We’ll likely spend another $150 million in the next few years. Big daddy is pleased with our profit margin. OTOH we’ve focused on conventional reservoirs and have never drilled a single shale well. And all the small private companies I deal with are doing fantastic. One reason is that periodically a pubco will pay a ridiculous amount for proved producing reserves. I don’t know a single direct investor in the drilling game that isn’t very pleased…especially ones who had developed reserves that were justified on $50/bbl oil or less. The concern Big Daddy has had since we started up 4 years ago was finding enough suitable prospects to drill. We don’t drill unless there’s the possibility of a very nice ROR. Not ever well works, of course. But the ones that do make up for the dry holes. My personal big project at the moment: drilling horizontal wells in a conventional oil reservoir that started producing 68 years ago. It had been considered depleted. But that was at $30/bbl. But at $100/bbl the residual oil left behind is very viable…if one knows the trick to coaxing it out.

So yes: IMHO investors that have a lot of capital tied up in pubco stocks should be very leery. But us privcos: our biggest concern is not having enough holes to punch while prices are so high. And if NG prices get back up above $6/mcf we’ll start slamming those down again.

Davy, Hermann, MO on Thu, 13th Feb 2014 2:41 pm 



Rock the hammer. You hammered the nail on the head!
And IMHO this is the root cause for the cheerleading: not to lure investors but to keep those stock investors healthy. IOW the folks making those flashy PR pieces are getting paid from the well head. They make the big bucks when they buy low/sell high the company stock. And anything they can do to give the perception of increasing value is what they’re all about.

This whole energy thing is scientific but we must consider human nature and the economics!

Rock, my family has been a major supplier to the pipeline industry since the 30’s. I was in sales both domestic and international in the pipeline field before my finance work there. I am out of the family business now but family businesses are like mafias you never really get out!

Northwest Resident on Thu, 13th Feb 2014 3:51 pm 



rockman — Thanks for the detailed explanation on what is behind all the “we have plenty of oil” PR (propaganda). No doubt, pumping up the price at the wellhead as you say is one of the driving forces, maybe even the main driving force. But I’m going to stick with my suspicion that there are at least two other primary reasons behind all that propaganda. One is that the collective corporate/financial world wants to “keep the herd calm”, so to speak — the goal is to create the illusion of normality in a world that is slowly but surely swirling down the crapper. And the second reason is as Heinberg states, “the industry needs investors to pony up ever-larger bets to pay for ever-more-extreme production projects.” This is the one that you seem to be qualifying, if not disputing. I personally know a very wealthy dentist who has two huge monitors in his office on which stock market channels play nonstop. He’s a big “private investor” in the stock market, it is his passion and I’m sure he makes a lot of money at it. I asked him a while back, what should I invest my money in? He said, “energy”. I think there must be armies of guys like this dentist around the world, and I’m guessing that the oil industry very much needs those investors to stay invested. Whether that money goes to private companies or to big oil companies, I’m not sure — probably a combination. Doing some Google searches on private investment in oil companies, it looks like Mexico comes up a lot, as in, Mexico definitely needs investment in their oil exploration and production. Maybe the propaganda is intended to get private investment into foreign oil exploration and production? Its all so confusing to us non-oil industry newbie types. All I know is that they sure are trying hard to make oil/energy production investment “opportunities” look attractive and secure, at a time when those of us here on this site know better.

rockman on Thu, 13th Feb 2014 6:37 pm 



NR
– I think we see it pretty much the same. “One is that the collective corporate/financial world wants to “keep the herd calm””. And that’s the point I was hoping to make: who comprises that heard? The pubcos don’t care if Joe6pack believes there’s a lot of oil left or not. He’s buys his beer and spends whatever he has left to fill his gas tank regardless of what he believes. It’s the shareholders (and potential shareholders) they want to keep pumped up. I doubt anyone here every bought stock with the anticipation of it going down. The pubcos must convince folks that don’t own their stock that the future looks good. Otherwise they won’t buy and the market cap shrinks. In my career with pubcos I spent an unbelievable amount of time in meetings about ways to chum up enthusiasm for the company stock and finding every legal way to cook the books to make the future look even brighter.

“the industry needs investors to pony up ever-larger bets to pay for ever-more-extreme production projects.” Again, can anyone here name one major player, shale or otherwise, that has used even a single $ of investor money to drill a well in the last 3 years? I live in this world 24/7 and I can’t recall one. Here’s what Chesapeake spent drilling in 2013: $5.7 billion. And not one penny came from an investor. Where did that money come from? Their 3rd quarter revenue alone was $4.87 billion. And that doesn’t include the $25 billion they made in the last few years selling assets. But those weren’t their only sources of capex: even after liquidating and reducing debt CHK still owes $16.2 BILLION. And this is a company stock valued at $15.4 BILLION. So exactly how would you convince anyone to buy the stock at current its current price without blowing a huge puff of smoke up their ass? LOL. More specifically, if you were a stockbroker trying to sell a client on buying CHK stock (and paying your commission) wouldn’t you pull every piece of CHK propaganda as well as all industry puff pieces you could find. Very old Wall Street saying: You’re not selling the steak…you’re selling the sizzle. And that’s the job of the PR groups: sizzle creation. It’s real easy: no sizzle…no sale. No sale…no commission for the broker and no increase in stock value for the current stock holders. When with the pubcos I saw more folks lose their jobs by not getting the stock price up then by drilling dry holes.

“Mexico definitely needs investment in their oil exploration and production”. The investors they need are not private citizens pumping their 401k’s into drilling. They are talking about corporations investing. And that doesn’t mean writing a check and sending it to PEMEX. It means going into Mexico and spending money directly. This is where the verbiage gets a little loose IMHO. Define investor: a person…a corporation…a check writer….someone sharing expenses. In the case of CHK and every other US pubco the investor in each company’s drilling ops is the same: it’s the company itself. CHK is investing their own money in the shales…not someone else’s. The only investors they are trying to pump up are actually folks who haven’t invested in the company: they are trying to gin up enthusiasm in POTENTIAL stock buyers. That’s how you increase share price: increase demand. And that’s what the hedge fund managers, board members and executives with stock position demand. And if those folks responsible don’t deliver they are out the door before you can blink. Which is exactly why the CHK board put up with Aubrey’s BS as long as he was increasing their equity positions. When that gravy train stopped they “suddenly” discovered his mismanagement and ran his ass off. And what is Aubrey doing these days? He did manage to raise about $1.5 billion to start up another little empire. Now here we’re talking about real investors putting their money on the line. We’ll see how that works out for them. Regardless I’m sure Aubrey will do OK. All together now: ”Bringing in the sheep, bringing in the sheep…” LOL.

Northwest Resident on Thu, 13th Feb 2014 7:47 pm 



rockman — I would love to see the look on a person’s face after just having had a puff of smoke blown up his ass. Priceless!

I totally agree that the job of the PR (and marketing) groups is to create (and sell) the sizzle.

And you couldn’t squeeze a gnat’s ass between the way you’re seeing these issues and the way I’m seeing them.

Just one clarification on my part: When I talk about an “investor”, I am actually talking about an individual who invests his/her money in the stock market — buys stocks/bonds/etc… — not what you must know as an “investor” which is a person who goes direct to a company and offers investment directly to that company. Reading what you wrote here, I though I might qualify my definition of “investor” so you know what I’m talking about. — I think you know I am a software developer. But in what field of endeavor? Answer: Financial investment!! That’s right, I work for a company that sells software that financial advisors use to track “investment portfolios”, trades, taxes, losses, gains, etc… and prints reports that the advisor can use to offer snapshots of where the “investors” sit. That “investor” term has one meaning to me, but I think a different meaning to you. Clear as mud now, I think. As always, I greatly appreciate your attention to detail and the educational and illuminating points of view that you post.

rockman on Thu, 13th Feb 2014 8:39 pm 



NR – That’s what I was guessing. “Investor” can be such a loaded word that it can take on very different shades of gray. But this is the critical distinction I was trying to stress: where the capex is coming from. And there’s the source of the Red Queen’s energy: she’s feeding off of herself…not outsiders. Unlike crashing into that snow top mountain and eating your dead team mates you’re slowly eating your own leg. LOL.

And here’s a little sizzle from my side of the fence given the nature of your job: where did all those $millions my Big Daddy gave us to play Oil Men come from? High frequency trading. They broke the one billion trades per day mark many months ago. And amazing group of young computer farts (35+ somethings…young by my standards) sitting two floors above me. Make around $50k/yr + bonuses. How big the bonuses? Do well and I’ve seen $500k+ checks. Big Daddy believes in rewarding good work. He also believes in running your ass off in a heartbeat if you don’t deliver. One hell of a motivator. LOL.

Northwest Resident on Thu, 13th Feb 2014 9:03 pm 



I’ve gotten some fairly decent bonuses in my time, rockman, but never anything close to $500K. Paying taxes on a $500K bonus would break my heart… but I’d still be okay, I’d get over it, as usual… It makes me shudder though to think what those programmers had to endure to earn anything like a $500K bonus. Firing computer programmers is also SOP — we’re all interchangeable. 🙂

rockman on Fri, 14th Feb 2014 8:49 pm 



My Big Daddy is actually a pretty easy going guy. Unless you really show yourself to be incompetent, lazy or a cheat he won’t fire you. But when you do good he’s very much into sharing the spoils. And it has nothing to do with making money per se. He could live his lifestyle times a 100 just off of a 2% interest rate off his existing capital. Monetary gain is just one measure of success.

Which is why he’s donated mucho $millions for stem cell research. He won’t make a penny off of it. It’s just something he’s been interested in for a long time. Just like the $millions he’s put into kid’s cancer research. He’s just driven to be successful whatever he’s doing. Help him succeed and he’ll reward you well. Screw up his plans and you’re dead meat. An interesting workplace atmosphere to say the least. LOL