The last barrel

Last month, the Petroleum Equipment & Services Association staged an excellent annual meeting east of Atlanta, Ga. It was a remarkably optimistic gathering, considering how service companies and OEMs have suffered the effects of low oil prices.

The executive participants in the onshore and offshore panels did a fine job of articulating how the upstream industry must work to bring down the cost structure in the new low-price environment. There was much talk about how operators and service companies need to “collaborate” more closely on projects, to reduce costs, and find ways to standardize equipment.

All that aside, two of the most compelling presentations were provided by individuals outside this industry—Gen. Michael Hayden (ret.), former director of the CIA and National Security Agency, and now a principal of The Chertoff Group, and Alex Epstein, president and founder of the Center for Industrial Progress. They spoke on subjects that greatly affect the industry’s future—global geopolitics (Hayden) and the “moral case for fossil fuels,” as relates to public perceptions (Epstein).

Hayden’s five Tectonics. General Hayden spoke eloquently about how global geopolitics are dominated by the “five Tectonics,” a term that he has coined to refer to major world factors. Tectonic One, he says, is “The power of states, and the nature of power.” This means that traditional nation-states and their hard-core power are playing a less-dominant role. Furthermore, said Gen. Hayden, sub-state actors, and even individuals, are now empowered. In addition, “failed states” are creating more risk to the world than ever. He noted that the Information Age has taken things that used to be only in the power of nation-states, and brought them down to the level of smaller groups. Indeed, he refers to the Internet as a “digital Mogadishu,” the “largest ungoverned space in history.”

Tectonic Two, continued the general, is “Don’t get used to the current world map.” He noted that the concept of nation-states seems to be breaking down, with Iraq, Syria and Libya essentially “gone” in terms of being unitary governments. Part of the blame, he said, goes to European diplomats, who, in the early 1900s, “drew those boundaries for their own convenience.”

Tectonic Three is “The rise of China,” added Hayden. Although China’s rapid economic rise bears watching, he said that “there are no reasons for these guys (Chinese) to be enemies of us. Sure, they could get there, but there are no good reasons to do so. Nevertheless, there are aspects of Chinese behavior that I find hard to explain.”

Hayden said that Tectonic Four is “A nuclear world,” where proliferation among unstable states is a great concern. Fortunately, he noted, only one of what he considers the 10 most unstable nations has nuclear weapons capability, and that is Pakistan (ranked 10th), although “it is adding weapons faster than anybody.”

Tectonic Five is simply labeled “The U.S.,” referring to behavior by U.S. presidents on foreign affairs. He says this behavior is gauged by Walter Russell Mead’s archetypes of presidential foreign policy styles. These styles include “Hamiltonian” (America cannot be free unless prosperous, and cannot be prosperous unless strong); “Wilsonian” (American idealism, as in Woodrow Wilson); “Jeffersonian” (inward-turning and isolationist); and “Jacksonian.” The general said that the latter group is people of action, “sort of like Robert deNiro’s character in the movie, “Taxi Driver,” when he says, “you talkin’ to me?”

Hayden said that President Barack Obama has been equally Wilsonian and Jeffersonian, which could account for his inconsistency on foreign affairs. By contrast, Obama’s predecessor, George W. Bush, was a combination of Jacksonian and Wilsonian, said Hayden.

Epstein’s “moral case for fossil fuels.” A compelling assessment of why the U.S. E&P industry has such a difficult regulatory and public relations problem was presented by Alex Epstein, who once was an environmentalist and then converted to a pro-fossil fuel viewpoint. 

He noted that environmentalists have been “able to establish a successful moral case against your industry by portraying your core product, fossil fuels, as destroying the planet.” Unfortunately, added Epstein, “your industry has not refuted the moral case against fossil fuels. In fact, the vast majority of its communications reinforce the moral case.”

Much of his critique is contained in his book, published last year, The Moral Case for Fossil Fuels. In that book, he notes that the industry’s traditional arguments for oil and gas development, that it contributes to economic growth, creates jobs and improves national security, is not working, despite millions of dollars spent touting that message. This is because the environmentalists’ moral case is never refuted.

Additional examples of conceding the high ground to environmentalists, said Epstein include not mentioning the word “oil” on home pages (several majors are guilty of this), implying that these firms are “ashamed of what they do.” Another item is focusing attention on everything but the core product (community service initiatives, charitable contributions, etc.). “This implies that you’re ashamed of your core product.” A third no-no, said Epstein, is to praise your attackers as “idealistic.” This, he said, “implies that those who want your destruction are pursuing a legitimate deal.”

Instead, Epstein recommends that the industry proclaim a moral ideal of “industrial progress,” which promotes “the improvement of our environment using human industry, including energy and technology, in service of human life.” In other words, “we don’t want to ‘save the planet’ from human beings, we want to improve the planet for human beings. You need to say this loudly and proudly.” Credit should be given to Epstein for fearlessness, as he has debated a number of leading environmentalists on these issues. More info on his Center for Industrial Progress is available at industrialprogress.com.  

About the Authors

Kurt Abraham

World Oil

Kurt Abraham kurt.abraham@worldoil.com