O&G Book Review: John Hofmeister’s Why We Hate the Oil Companies

The timing of the publication of John Hofmeister’s Why We Hate the Oil Companies (Palgrave Macmillan) couldn’t have been better.

Nearly three months after oil from BP’s Macondo well began to spill into the Gulf of Mexico, Americans’ chronic animosity toward the oil industry is back with a vengeance. Hofmeister — the retired president of Shell Oil Company, Royal Dutch Shell’s U.S. subsidiary — couldn’t have foreseen this particular environmental catastrophe, of course. But the reaction of American citizens and public officials to the spill, particularly their crucifixion of BP CEO Tony Hayward, illustrates his central message: Americans have a deep-seated hatred and mistrust of the oil industry, and the industry itself has done little to improve its image. Nevertheless, the long-term energy challenges facing the United States, as Hofmeister ably and cogently explains, will require bridging this trust gap and radically altering the way that long-term energy policy and strategies are pursued in Washington.

Hofmeister presents his case as an industry insider long accustomed to facing angry congressmen, obstinate policymakers, and an impatient and implacable public. Through figures and anecdotes, he lays out the problems posed by energy usage in the United States today and in the near future. The book is refreshingly pragmatic in its view, an engaging and illuminating read in an incredibly politicized policy area. Why We Hate the Oil Companies will perhaps be most informative to those struggling to understand why the United States has made so little progress towards diversifying its energy sources in the four decades since Richard Nixon first called for American energy independence.

We all well know the context: We remain, as Daniel Yergin once put it, “hydrocarbon man.” Our entire society since the early 20th century has been based on plentiful and cheap energy, evident in everything from the oil-fueled world wars to the 1950s explosion of freeways of Los Angeles to the sprawl of exurbs and McMansions in the 1990s and 2000s. The explosive growth of personal electronics and computer systems, and the massive climate-controlled warehouses that house the servers needed to support the networks that connect them, has pushed electricity and energy consumption even higher. Because Americans consider access to cheap and plentiful energy a birthright, most of them have been unwilling so far to make the sacrifices necessary to reduce our consumption of it.

How can we sustain such an energy-intensive lifestyle? Hofmeister assures us that shortages will not occur if we pursue a pragmatic approach towards energy, with increased access to conventional fuels and nuclear energy alongside a long-term movement towards more efficient sources.

The problem, however, is that our current energy policy is clouded by the myopic considerations of politicians, regulators, and interest groups. Politicians, Hofmeister writes, have a tendency to conduct policy in “political time” with an eye to the next election. Yet the greatest energy challenges, from increasing access to onshore and offshore oil and gas reserves to repairing a crumbling energy and electricity infrastructure, require thinking in “energy time,” the 15- to 30-year considerations of demand and investment that shape decisions made in the energy industry. Add to that the toxic partisanship of today’s political landscape, which divides legislators into the drill-happy right and the anti-hydrocarbon left, and Washington’s capacity to pursue a pragmatic and balanced long-term energy strategy is effectively crippled. When bad policies catch up with politicians in the form of energy price hikes or shortages, they are quick to deflect blame and public ire to the energy companies.

The companies themselves are not completely blameless — they usually choose to remain distant and opaque to the public rather than open and engaged. The problems, Hofmeister observes, begin at the pump. The oil majors’ service stations are often leased and operated by wholesalers rather than the companies themselves, because of their relatively low profit margins and the companies’ desire to avoid legal liabilities. Yet it is at the service station that the consumers’ impression of the company is made — if the price at the pump is too high or the station filthy, they blame the company whose logo is on the pumps. In contrast to a company like Apple, which educates and builds (albeit recently rocky) relationships with its customers, oil companies view themselves as “wholesale producers of high volume products,” keeping their interaction with the customer to a minimum.

Big Oil’s political and public relations are no better. In Washington, the industry engages in public policy when its friends are in power, only to retreat into non-engagement when its antagonists take control. When something goes wrong, Hofmeister notes, companies’ “poor handling” of accidents often “live on as case studies of what not to do in a crisis.” Anyone observing BP’s handling of the Deepwater Horizon disaster would agree with that.

How can we overcome this impasse? Hofmeister’s big idea is the creation of a Federal Energy Resources System, an independent regulatory agency that would coordinate and set short- and long-term energy policy in the same way that the Federal Reserve handles monetary policy. Only by rising above partisan politics and including board members with the long office terms of the Fed could the U.S. address its long-term energy needs and challenges. Overcoming the fragmented structure of current American energy policy decisions might help convince the energy companies that they have a stake in solving the challenge of America’s energy future.

Would such an independent “Energy Fed” be workable? Hofmeister suggests grassroots pressure on elected officials, a role that he himself has embraced as the head of the nonprofit Citizens for Affordable Energy. But he will have his work cut out for him. If there’s a body as unpopular with Americans today as the oil industry, it’s the U.S. government.

The disaster at the Macondo well has revealed an industry that for too long has resisted calls for greater transparency and public engagement, as well as a public and government that have little understanding of the complex business of energy extraction and development. If this experience and Hofmeister’s proposal help spur a shift towards a greater engagement among these three players, then America will be all the better for it.