|crazy media politics of alternative energy
||[Oct. 18th, 2006|03:03 pm]
First, the background: I've been interested in alternative energy since I was a kid, first with windmills and later in photovoltaic solar cells. Once I started driving, I became more interested in alternative motor fuels, and wondered why gasohol had been such a flop. With the recent energy crisis, this interest had been renewed, and using the wisdom I have gained about the way humans act, I was able to answer some of my earlier questions.
It's true: The U.S., and the industrialized world in general, is heavily dependent on fossil fuels, petroleum in particular. It is one of the "motive powers" of the economy, and perhaps the only one of these motive powers which is tangible and quantifiable. Like interest rates, the price of energy is both a knob and a gage of economic activity. OPEC and other oil-producing interests naturally want to maximize the amount of money they receive for their resources. Petroleum is almost a complete commodity (there actually are differences between petroleum from various oil fields, but modern refinery technology and the highly sophisticated petroleum market make it seem that petroleum is all interchangeable). It is not surprising, then, that various producers have set up agreements and cartels to benefit the petroleum-producing interests, at the expense of the oil-consuming groups.
Maybe it shouldn't come as a shock, considering the amount of money involved, but these petroleum interests have far-reaching plans to protect the value of petroleum as a commodity. However, one should note that the interests of the individual organizations often diverge on specific issues. Oil exporting nations have differing interests than public, multinational corporations. Petroleum has long been used as a tool to further other, long-term plans on an international scale. Russia is an obvious, contemporary example but Venezuela and Saudi Arabia also play this game. Nations also have far more sophisticated and troublesome needs than corporations. An example of this is Bolivia, where development of extensive natural gas deposits has stalled because of socio-political problems. Corporations are beholden to their shareholders, to merely make the price of stocks and bonds high by raising confidence in the payout of high dividends over the long term.
Petroleum corporations such as Shell, Philips, British Petroleum, etc have diversified their holdings since the oil crisis of the 1970s. Particularly notable is their activity in the photovoltaic solar panel industry. While there was certainly some political and media pressure applied to these corporations to invest their "windfall profits" in a socially acceptable manner, there was also practical business sense in doing so. Diversification protects a corporation from certain sets of bad economic circumstances, but there has to be some investment during good times when there is surplus capital.
One potential drawback of such diversification is the way that many investors, particularly in large mutual funds, classify corporations. The funds themselves want to diversify, and it is often easiest to do this by investing in 'pure play' stocks which are often valuable at opposing times of the economic cycle. For instance, domestic automotive stocks suffer when the price of petroleum is high, but petroleum companies benefit. Such fund managers only look at the increase in stock price when the market is in favor of that corporation's particular niche. However, there are other schools of though in the investing world which take a close look at specific corporations and gage expected performance based upon assets and competence of management. Warren Buffet is famous for this type of corporate valuation.
What does this all mean? It means that various nations are often at odds with multinational public corporations even though they are ostensible allies in the petroleum industry.