Where is Big Oil?

May 28, 2006

Whether it's lack of vision, denial, or outright greed, one thing is for certain. Big Oil has become a part of the problem, when it should be the solution.


I received a press release from S&P in the past couple of days indicating that U.S. companies are making record amounts of income from cash on hand.  It's indicative of ever-higher revenues that are not being poured into infrastructure, research or labor, and is frequently hoarded if it's not paid out in dividends.

Far be it from me to question the competency of those at the center of U.S. capitalism, but in my mind, this recent trend shows one of three things. 1) Either companies don't have faith in the strength of the current economic runup 2) There's little vision, guts and innovation going on with U.S. industry…particularly at the top of the capitalization scale or 3) We're in an environment where the attitude is get-what-you-can-while-the-getting-is-good.

The situation in the energy sector particularly galls me.  If I see one more Wall Street analysist get on CNBC and defend the fatcats of U.S. oil hoarding cash and burning all of their recent windfall in dividends and compensation, I think I'll be sick.  Take a look at what's going on right now among index products.  The hottest sector recently is arguably alternative energy.  The PowerShares ETF has become huge, and I know of at least two more alternative energy ETFs that are in the works…and there are probably more.

To me, there's a fundamental lack of vision going on at these companies (who's percentage of investment in research is at historic lows (per a recent New York Times feature).  What is wrong with this picture?  Oil companies, because they are straddling the energy infrastructure distribution outlets should be in the catbird's seat with regards to the next generation of energy production.  But instead of vision and guts, we're seeing shortsightedness and avarice.

I don't have a problem with companies making money, and lots of it, or even, necessarily, an industry hijacking the government from time to time (though granted "Kenny Boy" was left out to dry).  But I do have a problem with a head-in-the-sand look in the other direction, while tremendous economic opportunity goes by the wayside, and the long-term security of the country is willfully ignored.

The response to all the turbulence and insecurity that besets us at the moment ought to be a private - and public, if needed - Manhattan Project for alternative energy.  Let's skip the lip service and get something done.  It seems so obvious, so fundamental that it is shocking that it's going largely unaddressed.  Instead of bleeding money into the sand to try to build security around a diminishing resource, why aren't we pouring those billions - and the billions being paid out in dividends and hoarded as cash - into finding a more fundamental solution to our problems, and opening a potentially dominant position for the U.S. energy sector in the future?

Indeed, maybe these changes…like so many in the past…will not come from what should be the most obvious sources.  Maybe all this new investment capital will flow where the obvious opportunity lies, saving ourselves from the cycle.  But my bet is that it will not be soon enough to save us from an "oil shock" the likes of which we've never seen…one that hangs over us menacingly, and which with vision and courage, could have been avoided.


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