Meet the New Boss, Same as the Old Boss - Big Oil and Alt Fuels

Source Article: Oil Giants Loath to Follow Obama’s Green Lead | www.nytimes.com (article)

Implications:

1) World still hungry for Hydrocarbon-based energy

2) Electric Transportation will require new infrastructure

3) Plug-in electrics have technical and cost hurdles to clear before becoming competitive

4) Oilco Capital better spent on immediate consumption needs

5) Liquid Bio (Renewable) hold better immediate promise

Analysis:

The Major Oil Companies apparent reluctance to invest in alternative energy plans to supplant the current dominant product class - hydrocarbon based fuels, is easy to understand.

Look at the ethanol business in the US. With much hype and great hopes going forward, most of the ethanol producers are in bankruptcy, victims of the volatility in Oil prices and the global economic downturn. Valero(NYSE:VLO) purchasing VeraSun's refining capacity after VeraSun filed for bankruptcy, announced a couple of weeks ago, is endemic of this situation.

Valero(NYSE:VLO) has announced they will use this capacity for their own blending needs. Instead of a potential large customer, they are now a producer with captive demand. It lead me to say in a prior article about green energy investments; "Meet the New Boss, Same as the Old Boss".

Valero(NYSE:VLO) will be one of the largest, and for sure the most economically healthy, ethanol producer in the US as of the completion of the sale. AND they got the assets at a large discount vs the development costs.

When it makes economic sense to invest in alternative and renewable energy, the Oilcos will do that. There just isn't a business case for it yet.
BP, ExxonMobil(NYSE:XOM), Total, Chevron(NYSE:CVX) all are doing research, but that's it for now.

While people don't understand why, the answer is simple; the best use of capital for an oil company is to produce more oil at this point in time. The world economy was built for and still thirsts for oil.

Plug-in electrics are a ways from being more than a "Special use" replacement for a conventional vehicle, whether gasoline fueled or some sort of hybrid and alt-fuel powered iteration of it. Electrical vehicles that aren't producing power onboard, like a pure plug-in, will need a whole new transportation "Sub-infrastructure" designed for it.

Liquid renewables seem to have the most development potential for fast adoption and economic viability, but the ethanol wipe-out for the corn-based producers shows there needs to be new technologies and feedstock found to make it a viable long-term model.

Until there are real government measures put in place to protect renewable fuel investments and resources, the Oil companies are better served to watch the "experiments" that are taking place begin to become commercially viable before jumping in.

This may not seem a very "Green" argument to make, but until there's "green (money)" in going green, don't expect more than research from the big Oilcos.