Tag Archives: Shell Oil Company

Hindsight is Foresight Foregone

It’s not that we can’t see the future; it’s that we don’t bother.

Granted, none of us can predict it, nor do I presume that some magic algorithm applied to some special pile of Big Data can ease the Fog of the Future.

In part, it’s laziness. Here in the USA, we’re predisposed to the here and now and me, and the rest will sort itself out.  As indeed it does.  But often not as we hoped.

In part it is because we know from abundant experience that too many pious prognostications by proselytizers of progress have turned to sink-holes of time, effort and money.  So why bother.

In management we have evolved the discipline of ‘risk management’ which is part institutionalized experience and part pseudo-science.  ‘Risk management’ is somewhat of an oxymoron like ‘military justice’, ‘artificial intelligence’ and ‘virtual reality’. It trades on a figment of truth to create the illusion that it is more than it is.

Risk management has some level of foundation in its effort to deal systemically with known and knowable risks, but today’s world is increasingly subject to unknowable risks for which there is no statistical basis of quantification of either loss, cost of prevention or remediation.   But that’s not the real problem.

Many in my profession of accounting and auditing gravitate to the  ‘risk management’ mantra, and strive to incorporate it into their mission statement. After all, if you can’t be a ‘risk taker’, being a ‘risk manager’ or a ‘risk something’ is the next best thing. It’s sexier than mere accounting and auditing.  And besides, there’s plenty of precedent for the need for ‘risk management’ given the losses that businesses have incurred for themselves, and more frequently for others in their carefully contrived relationships.

But, truth be told, even the growing cadre of risk management acolytes have trouble peddling their wares to the C suite where hype and hope too often trump (no pun intended) reality and even the crudest calculations of probability.

Let’s take a few examples out for a test drive:

  •  Does anyone see any problem with Jeff Bezos and Elon Musk and Larry Paige and the other space cadets filling the skyways and byways with their latest magical brain-farts without benefit of adequate regulation and incubation for proof of concept within laboratory controlled settings, much less in the free-fire environment of that freaky place we call the ‘real world’?
  • Is the latest episode of the Theranos melodrama really a surprise?  Or was it the highly probable outcome of a flaky premise sold to incredibly greedy people willing to believe and suspend critical judgment?
  • And let’s not beat unduly on Theranos. It’s just one of a number of Unicorns in the magical kingdom of Silicon Valley and other tech redoubts where people with more money than brains can throw it at the wall, hope that something sticks in the lottery of high-tech chance,  and praise themselves that their failures are really essential tuition and down-payment for future greatness.  In their magical kingdom, failure is virtue.  In the real-world, failure gets you fired.
  • Where is China going, and where is it taking us?  The West lost that gambit four decades ago with an essential, but ill-conceived opening of relations.  The drive of corporate greed for access to a billion consumers overtook any attempt of western governments to modulate the normalization in a manner that would minimize the foreseeable disruptions we have experienced economically and strategically.  Accordingly, China has grown into an unruly adolescent (in modern world terms, its considerable historical lineage notwithstanding).  Given its desperate economic and environmental constraints, and it’s likely belief that its salvation is in expansion, military conflict with its neighbors and the West seems inevitable in the near to intermediate term.  Trump and China should easily understand each other: a coercive bully that believes he\it has a right to dominance on its terms without obligations to others. I suspect that this is in part an act China has found it can get away with because, unlike with Trump, no one has yet drawn a firm line in the land, the water or the air that they are prepared to defend (although we are beginning to with questionable allied support). Corporate executives are now marveling at how they could possibly have lost their technological edge (which they often willingly gave away in many cases for access to that one-billion consumer market)  and now are losing the market itself in a tightly controlled totalitarian environment where the ‘rule of law’ is more a farce than even a mere political fig leaf of cover.  Who’d a thunk?
  • Was the Shell Oil retreat from the Arctic really a surprise,  or merely unfettered stupidity colliding with reality?  When we have so much evidence of failure to properly engineer and install  and monitor and regulate and mitigate such ventures in much less hostile and much more stable environments, what would make any prudent executive or government think that Arctic exploitation would be just another hole in the ground?  Did BP’s experience give anyone in Shell’s HQ pause for concern?
  • How about them GMOs?  Scientists are complaining that the average clod on the streets is unjustifiably suspicious of the risks of GMOs.  But when we look at the recent history of our ‘conventional’ food supplies, the engineering of obesity, the evisceration of regulatory oversight and quality control, is there not reasonable cause for concern by the public of what will next be foisted upon them in the guise of progress at their ultimate risk and cost?  This is actually a case of the person on the street exercising ‘risk management’ in the suspicion that those in the Corporate suite will not. At least, not in the consumer’s behalf.
  • And then there’s fracking; a mindless grab for resources beyond any exercise of prudence, with costs to society measured only in financial terms to date, with studied ignorance of the collateral environmental, social and economic costs beyond the measure of defaulted securities.

There are a number of simple questions that executive management could ask itself and save a lot of grief when contemplating a new venture or circumstance, or coping with an existing or intractable situation  (like Palestine):

  • Has the situation ever happened before, and what can we learn from it.
  • Are there any parallels, if not direct precedents, to this situation that can give us a clue of dynamics and outcomes?
  • Do we understand the context (historical and present circumstances) of our intended act, and do our assumptions take that context into account?
  • Have we tested our assumptions about what should happen if we take this action?
  • Have we defined performance standards for our expectations that will give us quick feedback if we’re going off the rails of our expectations.
  • Have we asked ourselves how the opposition/competition/stakeholders/regulators are likely to respond, and have we taken appropriate steps to address reasonable concerns.
  • What could possibly go wrong, and what’s the worst that could happen….?
  • ….and if it does, what are we prepared to do about it?

These are so simple, they don’t even deserve to be sexified as ‘risk management’.  They’re basic management, or even common sense.  Yet the frequency with which they are ignored and often even disdained by the supposedly educated meritocracy has numbed us of any sense of amazement.  Rather, it has implanted a cynicism and contempt and suspicion of all forms of authority: legal, moral, scientific, political, religious, social that accounts more for the rise of Trump, Sanders and Br-Exit than any conventional political explanation.

We could go on, but I’ll trust the point is made, if not accepted.  In the corporate, government and personal world, risk-taking trumps risk management more often than not, and often with predictable consequence.

It’s not that our capacity for foresight is so bad.  It’s that we don’t bother to seek answers we know we’re probably not going to like. And when they’re thrust upon us, we often find ingenious ways to ignore them rather than to deal with them.

So, to say that hindsight is 20/20 because we have the benefit of knowledge that is not previously available is at best half the truth.  As often as not, we just don’t give a damn.

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Word of the day:  de-escalate.

Onward

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Clim-Ergy: A Strategic Rubik’s Cube

The news of late in the climate and energy circles has been interesting.  Little factoids are entering the collective consciousness, like meteoroids piercing the upper atmosphere, burning brightly, and burning out.  But leaving in their fading trace the unsettling question: what else is up there waiting to come down, and where will it land?

We in the northeastern US have been celebrating the one year anniversary of Sandy not only with remembrance of the event, but with the discomforting realization that the way back is not nearly as quick or easy as one might have wished.  For public officials with any degree of comprehension, it is also a harbinger of things to come.

The headlines out of the IPCC in September obsessed over the 95% certainty among scientists that humans are significant contributors to global warming, the stuff that may cause more Sandys, and Colorado floods, and contagious Australian wildfires, and Sister Sandy killer storms in Europe, protracted drought in Texas where frackers are competing with farmers for scarce water that will become too little for either, and…the beat goes on.

But the real news in Climate circles is not the 95%, but the talk of a carbon budget: the global maximum of emissions that the planet can endure before ‘going postal’ (as we used to say before workplace and public space violence became trendy and went viral).  As scientists and policy makers debate the limits and timing of reaching a climatic point of no return, the news from disparate perspectives becomes increasingly foggy.

–  We hear that CO2 emissions are increasing at a declining rate, which gives false comfort because it is attributed to switch to natural gas, increased energy efficiency, and a moribund economy, and is largely limited to the United States, which is becoming a diminishing factor in the global carbon budget. What happens if the world economy recovers?  But right now, THAT does not seem to be an imminent prospect.

–  A chorus of voices are still singing the praises of frack-gas and the US’s ‘game-changing’ energy independence, as if that’s in the bag.  But off-stage, a growing chorus of voices are raising concerns that should have been addressed from the beginning regarding various levels of pollution and emissions. Fracking is reaching a critical mass and age that is manifesting its true self in ways that can no longer be concealed by corporate PR and governmental concerted ignorance.  While the fracking data is still fragmented and subject to active partisan dispute, it is accumulating, and will likely resolve to some credible consensus on environmental impact in the next five years.

–  Meanwhile, in parallel with the environmental questions on fracking technology, the question of fracking’s ultimate productive and economic viability is beginning to emerge, as the folks at the now defunct blog, The Oil Drum, suggested that it would. Growing, if disputed, evidence is suggesting that fracking is displaying the ‘Red Queen Syndrome’: that in order to sustain production levels, it must run ever faster to add new wells in order to compensate for the rapid decline of earlier wells.  In other words, increases in drilling activity will add to a declining increase in aggregate supply until the cumulative demand of capital to sustain is no longer justified by the productive results.  That becomes ‘problematic’, as they say, because in business and public policy circles the operating assumption is that cheap gas will fuel a prosperous and growing future.  What happens IF you kick that leg out from under the economic stool.  (Forget the environment, it’s not important.)

–  But, speaking of the environment and aside from natural gas, there is the growing sense that whatever we do in the USofA with our hypothetical abundance of gas, other major players are retreating from their positions in carbon reduction (Canada, Britain, Australia most prominently), which suggests that the global increase in CO2, if momentarily in hiatus due to an economic time out, will march on again whether the economy grows appreciably or not.    The energy budget will collide with the carbon budget if renewables cannot take up the slack, which, by most responsible and credible projections, they will not in sufficient time.

While the remnants of the British Empire retreat from commitments to reduce carbon, Germany and Spain are trying to work off a hang-over from their binge spending on renewables that have created economic dislocations in their energy markets, and in Spain’s case contributed to distress in its public finances.  A cautionary tale to those who would rush headlong into renewables transition without clearly thinking through its economic ramifications in transition. The common thread between the situation in Europe with energy economics dislocation and the depression of gas prices resulting from the fracking boom is that in both cases, government or industry forces rushed headlong into a perceived opportunity without contemplating long term consequences. In one case, government regulation failed; in the other, the market failed. In both cases, foresight and discipline failed. In the end, we’re collectively poorer.

Meanwhile, Shell, as one prominent fossil fuel energy company, seems to be suffering multiple personality disorder.  It has retreated from some fracking investments, to try again for the more secure? prospects off Alaska’s coast, from which it retreated last year. What a difference a year makes. Either they are dismissing last winter as a spell of bad luck, or they’ve vastly improved their capacity to deal with bad luck, or they’re convinced that the Coast Guard has vastly improved its capabilities to pull their sorry assets out of trouble, if needed.  Good luck.

Still from another cubical, a Shell executive opines that the US has oversold the potential of fracking and been perhaps a tad overexuberant in pursuing and promoting its potential. But, that’s just one man’s opinion.  And yet another Shell executive, former Chairman Hofmeister, allows that ‘everybody knows that some fracking wells go bad’. This could win the 2013 award for understatement, but let’s not rush to judgment.

Meanwhile, a few degrees south of the Arctic, Brazil’s wunderkind files for bankruptcy, doing potential serious damage to the myth of Brazil’s presumptive energy future (a parable of relevance to the US?)  Now there’s nothing particularly newsworthy about the fact that oil exploration is risky business for big guys and little guys, and there’s nothing newsworthy about some self-styled capitalist buccaneer overplaying his hand, but the intersection of the two, and its ripple effects on Brazil are instructive of what can happen when greed, desperation and hubris are mixed and shaken in an economic cocktail, as is also occurring in China and Russia now. And Clim-Ergy will likely produce many more such situations.

–  Consistent with the above, it is notable that a group of scientists has urged environmentalists to look more kindly on nuclear energy as an antidote to continued and growing reliance on carbon based fuels, and a last-ditch strategy to curb CO2.  That’s kind of like asking a chronically ill person to consider treatment by a witch doctor, because the local medical facility has been closed.  Mind you, I have nothing against nukes.  It’s a clean fuel, if you ignore the waste.  By the way, what ARE we doing with that stuff?

As I write this blog, Super Typhoon Haiyan has just whacked the Philippines, and is lining up Vietnam in its sights.  Imagine what a comparable storm retracing Sandy’s path might do with 147 mph winds. But Sandy was a freak.  Won’t happen again.

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So, where does all of this net out? What’s the bottom-line, as they say? Here are a few random inferences:

1.  In five years, environmental concerns with catch up with fracking. It will be greatly circumscribed in its application by the tougher and relevant regulations that should have guided it from the beginning. (Yes, ladies and gentlemen, we are capable of fore-thought. We just choose not to use it too often.  Although, Dick Cheney certainly did.)

2.  At about the same time, a critical mass of drilling and statistical history of productivity will have been attained, and will show that frack-gas nirvana is a mirage.  If environmental factors don’t constrain its development, economic factors will.

3.  As a consequence of #2, natural gas prices will rise significantly over current fantasies of future affordability, causing a rush back to the drawing board to rethink business and public policy realities in the context of that energy reality.  Even a continuing limp economy may not be enough to offset the impact of demand relative to supply.

4.  Within five to ten years, the cumulative economic impacts of natural events will convince the 80% of the population who currently prefer to sit on the fence that the Ignorati on Clim-Ergy, both on the Left and the Right, must be ignored, and SOMETHING must be done to address the trajectory of events that are beyond rational dispute, even if they still defy nice, neat statistical categorization and correlation based on provable science. Something must be done, but what?

5.  But by then, it will be too late.  We will be locked into a trajectory that will take decades and more likely centuries to work out. It may already be too late, but we will have worsened it over the next ten years by frantic and ignorant efforts to sustain the economically unsustainable at the expense of the environment. The consequence will be an ironic form of poetic justice when the environment renders payback in stark economic consequences.

6. Equally frustrating will be costly and ineffective responses engaged in desperation. An equivalent brain-trust to the one that will get us there, will try to get us back with visions of geo-engineering solutions, but with no greater capacity or will to consider unintended consequences of our consistently myopic, short-term thinking.  The only safety brake on our natural group-think tendency for collective incompetence will be the fact that we won’t be able to afford these schemes, if we can agree on them. We will squander precious funds on token efforts that will not scale to effect.

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Of course, many ‘pragmatists’ will read these words and dismiss them as Chicken-Little-sky-is-falling nonsense. On the other hand, we KNOW that other civilizations before us have collapsed, which is to say that on some level there is historical precedent which makes the scenario possible. We may just do it on a far grander scale because ‘we have the technology’.

Meteorites happen.  Mankind can make it happen.  In the end, the result’s the same.

In the mean time, don’t let The Future get you down. Party on, Dudes and Dudettes! Par-tay on!

Onward.

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