Free Markets, Free People

Royal Dutch Shell


The Difference Between A Business and A Government

At least when it comes to spending money. Business takes a hard look at the potential and when there doesn’t seem to be any, it pulls back. Government, on the other hand, decides it believes something has a future and spends money to try to make their belief a reality.

For example:

Oil Major Royal Dutch Shell Plc doesn’t plan to make any more large investments in wind and solar energy in the future and does not expect hydrogen to play an important role in energy supply for some time.

“We do not expect material amounts of investment in those areas going forward,” Linda Cook, head of Shell’s gas and power unit told reporters at a press conference on Tuesday.

“They continue to struggle to compete with the other investment opportunities we have in our portfolio,” Cook said of solar and wind.

Shell’s future involvement in renewables will be principally limited to biofuels, which the world’s second-largest non- government-controlled oil company by market value believes is a better fit with its core oil and gas operations.

Now let’s be clear. “Oil companies” such as Royal Dutch Shell understand that in reality they’re “energy companies”. They realize that somewhere in the far distant future, we’ll wean ourselves from fossil fuels and they need to be in a position to supply what we decide is the viable alternative fuel(s) for that time. And my guess is, they’ll do so.

However, on a purely business assessment of “potential” (that would be potential profit) for some of the favorite alternatives of this era, Shell just doesn’t see a real future, at this time, in solar, wind or hydrogen.

With one exception:

In the past year, the company said it was refocusing its wind business on the U.S. as it pulled out of European projects.

Can anyone guess why that may be? Well, whether or not wind works or has a real application anytime soon, there’s money being promised for R&D. Why not get a little of it even while pulling back in Europe where it sees no real future for wind at this time? They’d like to keep researching it, but why spend their own money when it would appear they can use yours?

Meanwhile, I’m sure we’ll hear all about the government no longer subsidizing Big Oil with tax breaks (while you pay the difference at the pump).

I’m no arguing for tax subsidies or anything else. I’m just pointing out a few things. Shell obviously believes there’s no real business potential in the alternatives it’s backing out on right now. But it will certainly accept subsidy money for wind research if our government is handing it out, all the while our government is telling us it is no longer subsidizing Big Oil. It’s an irony thing.

In the meantime, given Shell’s decision, I don’t expect much from the billions of your money the government plans on throwing at alternatives any times soon. But I could be wrong. After all, isn’t there a new emerging “conventional wisdom” about markets among the anti-capitalists among us?

Markets – they’re always wrong, aren’t they?

~McQ