Friday, January 1, 2016

My Hex on Exxon

by Tom Phillips

Sometime in the year 2000, I remember saying to my younger brother, “the world has improved.”  It was a spontaneous remark and it surprised me, considering that we'd been brought up in successive eras of doomsaying – World War Two, then the Cold War and the threat of nuclear annihilation.  If that didn’t get us, there was always the “population bomb” that was going to make the planet uninhabitable. 

For a few years in the Reagan and Clinton eras, it seemed as though we had righted the ship. The Cold War was over, nuclear weapons were being mothballed and the threat of war was reduced to brush fires on the fringes of a New World Order.  Peace was paying dividends, and the national debt that was going to overwhelm us was actually shrinking.  For news, we had to make do with shark attacks and the president’s dallying with an intern. 

It was a window onto a future that looked brighter than we ever expected, but the window slammed down on September 11, 2001.  Since then we have been blundering our way through a Clash of Civilizations that is actually a mismatch, just as the Cold War was, and which will probably end, as the Cold War did, with a whimper and a default win for modern civilization. To some of us, the world seems to be on the verge of improving again.  

A sign of it came late last year, in the Paris agreement on climate change.  This served notice that humanity will not resign its fate to the oil industry, but will actually try to save itself from self-immolation. Just as the desire for imperial domination stopped short of nuclear war, the profit motive apparently can't trump the instinct for survival.  

The governments of nearly 200 nations signed the Paris agreement.  Still, multi-national corporations, not governments, are the main players in the energy game.  Ten big non-US oil companies signed a pledge to support the transition to a carbon-neutral world.  But Exxon Mobil, the world's biggest oil company, and other US firms refused.  As long as Exxon lobbies to sell gasoline, congressmen act to clear its way, and customers line up to buy it, the carbon in the atmosphere will keep multiplying.    

Back in the 1980's, foreseeing the end of the petroleum age, the government of Kuwait began to diversify its investments – putting the wealth it had gained from oil into other fields. The Kuwait Investment Authority now has more than $500 Billion invested across various economic sectors, including renewable energy.  

Oil companies can diversify, too, and they have the wealth to do it.  Perhaps foreseeing the end of the petroleum era, they engineered a “energy crisis” in the 1970’s, convincing the world that it was running out of oil.  This had the effect of quadrupling the price of crude oil, and holding it at artificially high levels for 40 years, until the OPEC cartel finally came unglued.  Now we have an oil glut, with prices plunging.     

In this situation, wouldn't it make sense for Exxon to use its $40-Billion cash hoard to invest in other fields, and especially in alternative energy? Exxon's answer is No. 

CEO Rex Tillerson describes global warming as an "engineering problem," that someone else will solve.  "Mankind has this enormous capacity to deal with adversity," he said airily at last year's meeting of shareholders, dismissing a resolution to invest in renewable energy, because "we choose not to lose money on purpose."  

That was before this year's plunge in oil prices cut Exxon's profits and its stock price, and before the Paris conference, at which the rest of the world agreed to forge a carbon-neutral future.  Reality is closing in on Exxon.  You don't want to underestimate the stubbornness of their Texas oil culture.  But at some point, they're going to have to consider whether risking the future of civilization is good for business, now that the rest of the world has decided it isn't.  

To help them meditate on this, I just bought ten shares of Exxon Mobil.  This year I hope to join with other activist shareholders, led by descendants of company founder John D. Rockefeller, who have been trying for a decade to break the company's addiction to oil.   

It's too late to avoid major damage, displacement of people, suffering and death from global warming.  But maybe we can avoid the collapse of civilization.  Rex, I put a hex on you!  If "corporations are people, too," let's get on the side of humanity.  

Copyright 2016 by Tom Phillips


  1. A few thoughts from history:

    The "energy crisis" of the 1970's was not engineered by "they," whomever you are referring to. The 1970 energy crisis was the result of so many uncontrollable factors and actors that no group, no matter how organized or powerful, could have orchestrated (or predicted) it. The first 1970's crisis was the panic created by the OAPEC+Egypt crude embargo against the US for our support of Israel in the Yam Kippur War. Although the embargo had little material impact, Wall Street and global commodities traders benefited from speculation. The Nixon administration immediately went to work to both reduce US oil consumption and through, Kissinger, negotiated the surrender of the Sinai and Golan Heights to end the embargo. Although crude prices spiked, any benefit to US oil companies was moderated by reductions in volume and stricter regulations.

    The second energy crisis was a similar market panic but created by the cessation of Iranian oil export after the Shaw fell. The vacuum in production was mostly filled by Arab oil production who claimed and retained the lost Iranian market share, as they would again do after the Iran Iraq war. US oil companies could have neither caused or benefited from these events. As far as US policy, we supported the Shaw and lost much after his fall. US and UK oil companies had been partnered with Itanian oil preduction pre-1979 and were completely iced out under Khomenei, who would not share profits with foreigners. US oil companies benefited little of any from the oil price spikes, while some companies lost hundreds of millions in investments.

    As for Kuaiti Investment Authority diversifying their sovereign wealth fund. All sovereign wealth funds are diversified. This was not a strategic change by the Kuaitis and had absolutely nothing to do with fears of the end of oil. The question of any fund manager is "what to do with all this cash." The Kuaitis have around a trillion to invest. They employ hundreds of investment professionals to work overtime finding places to employ capital and seek un correlated investments with diversified volatility and return profiles. This is no comment on their view of the future of oil, but rather a need for stable returns in different markets and most importantly a need to stabelize their currency. (Called Dutch disease) in fact the KIA has steadily increased its exposure to its domestic oil industry since the 1980s. Despite what a prince may say to western journalists, no decisions maker in Kuwait or in the KIA thinks for a minute that oil is over. (Two of my classmates are investment professionals with the Kuwait sovereign wealth fund.)

    Politicians believe oil is done. Politicians believe in wind, solar, and geothermal energy. Decision makers who direct large amounts of capital, scientists who have real jobs (not funded by a government grant) believe oil will continue to be critical to the future of humanity. If Exxon invested it's 40B in cash in wind, solar, etc, shareholders would vote out the management team and the company would go out of business. Energy prices would spike (in ways that make 1970s look like a cake walk) planes would not fly, products bought on Amazon would not arrive, start-up founders could not fuel their two hour commute from Haight-Ashbury to Palo Alto, and society would end as we know it. The war on oil is a war on society. That's why I have a few more than 10 shares of XOM.

    I always enjoy your articles Tom. Hope you and your family are well.

    1. Steven – Thanks for reading – I’m tickled to have a critic from the oil industry! As for the energy crisis – I was writing the news in the 1970s, and the curious fact I remember is that the oil embargo was lifted in 1974, but the price of crude oil somehow remained at its new elevated levels. This persuaded me that it was opportunism, and just what some business insiders called it -- “the master manipulation of the 20th century.” Nobody can prove it, because the oil companies left no fingerprints. They operated behind a screen of headlines about political turmoil in the middle east, and through oil-producing client states that were cast as the villains (OPEC.) (You should know that these states are completely dependent on western, mainly US technology, for their oil wealth.) In the end, the companies got exactly what they wanted – a much higher price for their commodity.
      I mentioned KIA because it was the first of the sovereign funds, and its stated aim was to diversify, to reduce the country’s dependence on oil revenue.
      Your picture of a high-carbon future leaves some big questions unanswered. Even Exxon now concedes that burning oil means global warming. No one’s talking about ending the use of oil today. But can we really engineer our way past the worst effects of climate change? The Paris agreement envisions a transition away from fossil fuel -- a huge challenge that will require business, governments and consumers to work together. Right now Exxon is a big part of the problem, and no part of the solution.
      And don’t mock alternative fuels. Our co-op apartment building has converted to 100% biodiesel heating fuel, made from recycled vegetable oil. It works better than oil! No smoke, no soot, no sludge, no carbon. Replicate with similar materials on global scale. That’s your job, Henderson.
      Be well and Happy New Year.

  2. that's a good idea - how much did ten shares cost? (though of course I'm thinking - are any significant proportion of their shares for sale .....)

    1. Ten shares cost about $750. They're widely held and readily available.

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