Business Insight Zone

Earlier this week I touched on the tension between technological conditions, geopolitical events, and geological realities in determining the future availability of cheap oil. Here are a couple of follow-ups:

1. Mexico is experiencing some nasty “above-ground” (i.e. political) problems in its petroleum supply. Some observers of the oil business think that Mexico’s whole economy is headed for trouble; the recent attacks add fuel to that fire.

2. Trilby Lundberg may know more about gasoline prices than anybody, so I respect her viewpoint about the price of fuels — not just gasoline but ethanol etc. In this interview, she has smart things to say about the high costs (in more than just simple dollar terms) of ethanol:

The use of ethanol, despite all that subsidy, makes gasoline prices higher than they otherwise would be, through the difficulty of achieving EPA regulations and the final gasoline product, and through the requirement from the 2005 energy bill that minimal volumes of ethanol are sold. … It’s even been shown that the cost of tortillas in Mexico has been affected by our new government-mandated consumption of ethanol, which has raised the cost of corn.

She also has interesting things to say about the possibility of a future market for gasoline (not just crude-oil) imports into the US. For all that, though, I’m underwhelmed by her assessment of energy conservation and her dismissal of the threat — or even the potential threat — presented by climate change:

Q: As far as conservation, what are the trends you are seeing?

A: I’m hoping that consumers will see through the rhetoric about consuming less, demanding less, as faulty. It is not a given that consuming less will be good for our economy or for our personal freedom. [...] I don’t accept [global warming] as established fact, nor do I accept that it would be caused by petroleum consumption, nor do I accept that the human species should not affect its environment. So even if it were someday to be shown to have some small effect on the environment, I see no crime. In fact, taking into account the many, many millions of people around the world that envy our way of life, it would seem more humanitarian to wish them the kind of plentiful petroleum products and vehicles … that we enjoy … to lift themselves out of [a] backward, poor way of life.

[Warning! Philosophical rant ahead . . .] Since I’ve been spending a lot of time lately reading up on doings in the area of “clean” technology, the false dichotomy implied in Lundberg’s comments jumps out at me. This dichotomy puts petroleum permanently on the side of the good: oil has to date always meant cheap energy (true), it undergirds our economy and way of life (true), ergo it’s forever good (dubious). Meanwhile, conservation and global warming are cast as mere rhetorical devices by which their advocates try to undercut all of these good things out of nefarious or misguided motives of . . . well, what exactly those motives are is seldom made clear by ardent defenders of the once-ever-and-always school of petroleum.

Worldviews will often disagree, especially when there are interested parties on various sides with competing objectives. It’s human nature. But the assumptions embedded in these worldviews deserve to be examined. For instance, Lundberg questions whether “consuming less will be good for our economy or for our personal freedom.” Many of the conservationists I know would quickly grant that conservation could impede the economy — or at least the petroleum industry, which is today an important part of the economy. But they also say that conservation could improve personal freedom by enabling individual Americans — and the US as a whole — to free themselves from dependence on foreign energy supplies. Many technologists working in the “green & clean” area also argue that their technologies will increase economic well-being by promoting better new solutions to old challenges, instead of relying on century-old technologies like piston and Diesel internal-combustion engines, coal-fired power plants, et cetera.

Moreover, many conservationists would say that questions of economics and personal freedom pale when placed along questions of survival. And survival may be at stake, if fears of global warming are well-founded. The broad consensus of scientific thought — based on mountains of evidence, thoroughly combed, from every corner of the world — is that global warming is a threat. That’s so whether or not Lundberg chooses to be skeptical about those findings. And the worst-case scenario isn’t (as Lundberg surely knows) “some small effect on the environment,” but something much, much worse. And again, the folks working in”green & clean” technologies are trying to boost the economy through steady, even breathtaking, technological advances, to bring us to a future day when much of the world shares the US standard of living while also having less damaging impacts on the environment. No dichotomy need be implied.

Who knows? Maybe in 20 years we’ll be able to look back and say that the threat of global warming was overstated. I hope so. But if we assume that’s the case and we’re wrong . . . yikes. Smart investors always look at both “upside potential” and “downside risk.” When I read comments like Lundberg’s, it seems to me that those who defend the status quo of the petroleum industry focus on potential and risk strictly for their own industry, without acknowledging the possible downside risks for the world at large. They’re free to do that, but we’re also free to take their viewpoints with more than a grain of salt.

[Here endeth the rant.]