Craig Eisele on …..

November 21, 2014

Alternative Energy Lies My Mother Did Not Tell Me.

I don’t typically rely on Rolling Stone for energy policy analysis, but I couldn’t help scratching my head over a piece earlier this week decrying “Big Oil’s Lies About Alternative Energy.” The story attempts to show that even as President Obama is calling for more investment in alternative energy, the energy companies with the deepest pockets are paring their investments and focusing more on fossil fuels.

While that’s true, the article implies some nefarious purpose on the part of oil companies. Actually, the reason behind oil companies’ decision is obvious: profit. Like all companies, oil companies exist to make money. Many plowed millions of dollars into alternative energy programs during the past decade, but those investments have generated little, if any, return. Meanwhile, hydraulic fracturing has unleashed huge potential profits from oil fields in the U.S. — properties that come with far less risk than drilling in other parts of the world.

The Rolling Stone piece seems to imply that oil companies making money from oil is bad, yet it ignores the huge benefit that oil company profitability has brought to millions of Americans. I’m not just talking about the abundance of cheap energy, which has been a big driver of the economy, but also about the financial benefits for investors. I found myself wondering how many shares of, say,Exxon Mobil XOM +0.62% are held directly or indirectly by funds in the Rolling Stone 401(k) plan.

Certainly, as the Rolling Stone piece notes, investment in alternative fuels by large oil companies has been paltry relative to their other operations. As I pointed out in Drowning in Oil, my book on BP , the company’s “Beyond Petroleum” campaign was always more marketing hype than corporate commitment. That said, BP’s recentdecision to sell its U.S. wind energy business has more to do with raising money to pay the legal costs from the Deepwater Horizon disaster than it does with the company’s commitment to alternative fuel.

When former BP chief executive John Browne concocted “Beyond Petroleum,” he hoped the company could profit by leading the charge into alternative fuels while more obstinate rivals such as Exxon sat on the sidelines. Yet Browne and BP found what Exxon had already determined: alternative fuels didn’t generate enough return to justify the investment.

Big Oil hasn’t just hit a dead-end on alternative energy. For years, the energy giants have struggled to replace oil and gas reserves. In effect, they are moving a step closer to liquidating themselves with every barrel of oil they produce. Exxon’s purchase of XTO Energy was designed to reverse that trend, but as an investment, it’s been a disappointment so far. For more than a decade, Exxon has been buying back its own stock, an admission that it believes shareholders can get a better return putting their money somewhere else. Few seem to be plowing that cash into green energy companies.

If wind or solar were inherently profitable, big oil companies would have invested more heavily. Unfortunately, their testing of the market failed to find viability. That leaves smaller companies with less overhead and more tolerant shareholders to find a way to make alternative fuels economically viable. We need to continue that quest, in hopes of developing a more diverse energy portfolio for the country. But those pioneers will have to make money at some point, too.

In the meantime, beating up oil companies for doing what their investors expect of them doesn’t bring us any closer to a solution.


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