[Economix]

I've just read about 400 postings on PeakOil.com. The consensus seems to be that we're facing a major turning point -- not just in energy supply but in in human history itself. Rising petroleum prices impact almost everything we do.

Given the profound impact of this crisis, would it be advisable for the United States to nationalize the oil and gas industry? Could this be done in a rational way with fair compensation for existing shareholders?

Historical analogy: During World War II, the federal government directed the auto industry to stop producing most passenger cars and concentrate on war materiel instead. In fact, the production of almost every industrial staple from steel and aluminum to hemp and copper wire was under strict government oversight. In less than 18 months, we transformed the Depression-shocked nation into the global arsenal of democracy.

Objections to this suggestion could include:

-- Nationalization would inhibit the exploration for new oil fields
-- Nationalization could be a drag on innovation
-- Nationalization is anathema to a capitalist society
-- It would destroy the profit incentive for increasing the energy supply

Supporters might say:

-- The oil industry is vastly over-compensated for its work
-- The nation can't afford to leave this immense amount of power in the hands of a few corporate chieftains
-- The stakes are too high to trust "the invisible hand" of free enterprise for a solutoin
-- The outflow of money from the U.S. to foreign countries is bankrupting the treasury and the economy
-- Our basic national security demands it

Reasonable people can disagree on this question, so I'd ask posters to refrain from name-calling and ideological slogans. Instead, please tell me where YOU stand on this question of nationalization -- and why. I look forward to your insights!

[BigTex]

No.

We have enough problems to deal with. Stealing private property from shareholders because someone believes they can make better use of the assets is foolish and gratuitously coercive.

Your faith in the ability of government to solve problems is probably misplaced.

Coercion is an awkward tool for solving political problems. It's a horrible tool for solving problems related to basic human needs.

If the government would like to get into the energy business, it should go purchase equipment and expertise and see if it can do a better job than the private sector.

[Byron100]

I vote yes.

The main reason is that I believe that the natural resources of a country - any country, belongs to the people, and therefore, the benefits of those resources should flow to all the people, not to a lucky few that happen to be in a position to obtain them.

Personally, I've lost total faith in the so-called capitalistic economic system we operate under today, as this is what has led to the problem of Peak Oil in the first place. The whole "profit motive" makes us humans no different than bacteria in a petri dish...it's all about more, more, more, our population and resource use increasing at an exponential pace until....bam! No more left for anybody. Future generations will look back at our age and shake their heads in disbelief at our level of delusion. Infinite growth on a finite planet...how can we be so stupid??

Sure, nationalization probably will lead to a more rapid decline in the amount of oil produced...but I'm sure the folks 500 years from now would certainly be a bit more thankful to us for leaving some for them, however little it may be...LOL.

[misterno]

Noooo.....

What is gonna happen to stockholders? Howelse can I make money so easily?

[BigTex]

I vote yes.

The main reason is that I believe that the natural resources of a country - any country, belongs to the people, and therefore, the benefits of those resources should flow to all the people, not to a lucky few that happen to be in a position to obtain them.

Personally, I've lost total faith in the so-called capitalistic economic system we operate under today, as this is what has led to the problem of Peak Oil in the first place. The whole "profit motive" makes us humans no different than bacteria in a petri dish...it's all about more, more, more, our population and resource use increasing at an exponential pace until....bam! No more left for anybody. Future generations will look back at our age and shake their heads in disbelief at our level of delusion. Infinite growth on a finite planet...how can we be so stupid??

Sure, nationalization probably will lead to a more rapid decline in the amount of oil produced...but I'm sure the folks 500 years from now would certainly be a bit more thankful to us for leaving some for them, however little it may be...LOL.

Note that the size of government grows exponentially--WHEN PERMITTED TO DO SO--just as the private sector does.

Don't ever forget this about the government: its primary directive is to expand the scope of its power. All other goals are subordinate to this one. If you doubt this, test it against any action of the government and see what you find.

The elegance of our Constitution retarded this primary directive for about 100 years, but once industrialization came along, and with it the potential for enormous profits, government has grown right along with everything else.

There is no shelter or refuge in government control--only well-intentioned complexity backed up by indifferent force.

In times of peril, people are quick to turn matters over to the government. In retrospect, they often see that this wasn't a good idea.

I am not suggesting that shareholders' right to reap large profits is a good or a bad thing. I just don't see on what basis the government is entitled to take productive assets merely because their owners have been successful in making them productive.

[Cashmere]

A big "Amen" to big Tex - dead on assessment of government.

Government is a cancer with very few useful benefits - keep it as small as possible, excise the excess, and you'll be better off for it.

[Economix]

OK. I'm back for a moment to clarify the question, which is:

Is it time to nationalize the U.S. oil and gas industry?

Some quick notes:

1. I don't necessarily support or oppose this proposition. I'm asking the question to get input and insights. Therefore, "my faith" in government is a misnomer.

2. It's conceivable that shareholders in oil companies could be compensated fairly. For example, one could set a "strike price" at the highest stock price in the last 52 weeks, then pay each shareholder that amount of money over some period of time using oil revenues to do it. I'm not asking the question a la Hugo Chavez or some tinpot dictator who might steal value. Again, this post is to gather information, not necessarily take a political position on the question.

3. The U.S. Constitution bars illegal search and seizure. That said, it does not bar legal seizure of assets, particularly when fair compensation is provided. Imminent domain is one such example of legal seizure of assets. Seizing a drug dealer's car if it's used in the commission of a crime is a different example.

4. History shows that the government can do some things quite well, given the right goals, systems and management. The federal highway system is far better than what proceeded it. Social Security is so popular with the voters that very few elected politicians would advocate "abolishing" the system. We defeated both Nazi Germany and Imperial Japan, with our allies' help, in less time that we've been in Iraq. We landed a man on the moon in less than 8 years, etc., etc. My point isn't that government is always or even mostly capable, but that it can be competent in some circumstances.

This brings me back to the question at hand: Is it time to nationalize the U.S. oil and gas industry? In other words, what would be the specific benefits to our society of doing that? What would be the specific problems with doing that? How would it help our situation? How would it hurt our situation? Who would benefit and who would suffer the most? Would it actually stabilize energy prices? What would happen in terms of the U.S. economy.

General ideological comments about "evil bureaucrats" or "sacred shareholders" aren't really very useful in answering this question. My hope is to get more comments about the pragmatic impacts of such as move -- for good or for ill -- not just philosophical analysis. Think economics here, not ideology.

Anyway, that's my hope.

[Byron100]

Well, if you're looking at it that, way, no, it probably isn't pragmatic to nationalize the oil companies at this time....it's really far too late for that sort of thing. The best thing we could do at this point is to tax the profits these companies make and spend that money on building nuclear power plants, funding solar tax credits, etc.

Of course, when the new Depression gets well under way, the government will probably nationalize everything in sight out of pure desperation, just to prevent total chaos.

[BigTex]

No.

The U.S. energy industry does not control enough of world energy production to change the dynamics of the international energy situation if it became subject to U.S. government control.

I am interested in whether anyone has a coherent argument for why this would be a good step. If the goal is to lower energy prices, I can offer a 100% guarantee that in the long term it would have zero positive price impact, but it might have a negative price impact.

Just a non-starter to me any way you look at it, even if all of the philosophical, legal, administrative and logistical issues could be resolved.

[Kingcoal]

Well, the problem is access to the raw material; crude oil. Since US companies control less then 5% of the world's crude reserves, then I don't think it would make a hill of beans of difference. The US already behaves in the interests of securing crude supplies, so what would nationalizing the oil business do, besides put a bunch of inexperienced bureaucrats in charge?

[Economix]

Excellent! Thanks for the new line of commentary...

In response to BigTex of Graceland:

Some would argue that the high price of usable petroleum products (e.g., refined gasoline, diesel fuel, heating oil) is due in part to the shortage of refining capacity in the U.S. today. A government initiative with true power and resources might be able to contract out for massive new refineries using third-party companies to build them.

Others would argue that only a government program could push through new drilling ventures in northern Alaska -- or finance ultra-deep-sea drilling projects on a large scale.

Some would argue that the cost of solving this problem is so high that it would take a large INTERnational effort to solve it. For example, it might take a multi-national consortium using the profits from petroleum to finance a workable fusion reactor or to develop affordable thin-film photovoltaic capture system on a large scale.

None of these may be feasible for an ExxonMobil, Shell or BP to accomplish on its own. For all of their wealth and power, these oil companies are constrained by both political forces and problems of scale.

Historical analogies: Rockwell Aerospace, by itself, couldn't send a man to the moon. Ford, by itself, couldn't solve the problem of developing synthetic tires to replace natural rubber tires. Boeing, Lockheed and Raytheon, by themselves, couldn't build the Global GPS system. General Electric, by itself, has been unable to relaunch the U.S. nuclear power industry by providing a new, safer design. Some projects are so huge they require a larger entity to drive and manage its progress. (The Manhattan Project comes to mind.)

If I were king of the world, I'd do the following:

1. Create a windfall profits tax on any oil revenue that isn't directly reinvested in exploration or refining capacity.

2. Use that revenue to establish the following:

A) A new $10 billion tax-free cash prize for the first company that can create a way to generate electricity on a large scale (or distributed scale) without fossil fuels at the equivalent of $2.50 per gallon.

B) Create another $10 billion cash prize for the company that can generate electricity using coal with zero (or close to zero) air emissions, including the sequestration of carbon as part of the process.

C) Create a multi-national consortium of companies, governments and technologists to create the best possible "safe" nuclear reactor and new nuclear waste-management system. Only countries that comply with totally transparent IAEA inspections at every level would be eligible for this technology, or to be on a grid supported by this technology.

E) Using any of the above technologies, promote new forms of electricity use for transportation and heating on a massive scale.

I believe this effort would yield fruit within about 10-12 years. I'd say that at least 1/2 of the cost could come from taxes on the oil industry, or from the quasi-nationalization of the revenue stream from the oil business.

Just some ideas from a Midwestern guy who writes on economic history. I welcome your thoughts, as well!

[vision-master]

A big "Amen" to big Tex - dead on assessment of government.

Government is a cancer with very few useful benefits - keep it as small as possible, excise the excess, and you'll be better off for it.

But big business is even a worse cancer.......... the US HEALTHCARE SYSTEM is a prime example!

[BigTex]

Now if you want to talk about a comprehensive national energy policy that is not dominated by the energy industry and the auto makers, then that would be a fantastic idea.

Many of us have been waiting for such a policy since Nixon first talked about the need for one.

When it comes time to vote for this, please let me know and I will be there when the polls open.

Coordinating private sector efforts could be a tremendous help in solving at least some of the problems.

But if you have energy people running the effort inside the government, you may be disappointed with the results.

[threadbear]

Oil's dominance as a fuel will spiral downwards, soon. Why would any country want to nationalize, at this point? They'd pay megabucks with a slim chance of decent returns, in the long term.

[pup55]

where YOU stand on this question of nationalization

Let me get this straight...you are going to have the same organization that brought us the Katrina aftermath, Iraq, our current agricultural policy, our social security system, our educational system, our so-called "homeland security" program, and is defending our southern border, now take over our energy policy?

Good grief.

All you need to do is look south, to Pemex, and see what happens. The last numbers I saw say they were losing on the order of $1.5B per year, and needed at least $10-15B per year investment just to slow the decline rate, and bring their discoveries into production.

There are so many entrenched interests, and so much corruption, that despite the fact that they are in serious decline, we do not hear the half of it.

It seems to be working slightly better in Brazil at the moment, but only because they are pre-peak, so everything they do makes them look like geniuses, and also, because their internal oil usage is a lot less than the US, (per capita or by whatever other measurement you want) so they can afford a little slop in the system.

This is not to say that the current situation is that much better, but at least the motivation, namely profit, is openly stated at the outset.

But let's please not turn this complicated business over to a lot of people who think they can decide what is good for us.

[joeltrout]

I vote yes.

The main reason is that I believe that the natural resources of a country - any country, belongs to the people, and therefore, the benefits of those resources should flow to all the people, not to a lucky few that happen to be in a position to obtain them.

Who are the shareholders of the major oil companies???

Most retirement funds own shares in major oil companies so that means millions of Americans own major oil companies.

If you have a retirement fund or pension there is a good chance you own shares of major oil companies.

Also remember thousands if not millions of people in the US are making good money off the oil companies in terms of competitive jobs, mineral/surface owners, etc...

Just some food for thought.

joeltrout

[Twilight]

Much of the US oil and gas industry is made up of privately held fragmented legacy assets which add up to a very substantial portion of the whole. If you put bureaucrats in charge of those old hands, that portion will wither away and die. I doubt the entrepreneurial enthusiast mindset can be harnessed for someone else's vision of the public good. People walk when outsiders start calling the shots.

[joeltrout]

People walk when outsiders start calling the shots.

And the problem is many people are able to retire and walk away because they already qualify for retirement or will within 5 years. Which will really hurt because all that knowledge disappears.

There is obviously a huge difference in me (25yrs old) with 2 years experience walking away verses John Smith (60yrs old) with 35+ years experience walking away.

The oil industry retirees leaving scares me.

joeltrout

[Blacksmith]

Is it your plan to nationalize mineral rights too?