One of the journalists whom I admire is Daniel Henninger of the Wall Street Journal. I look forward to his column called "Wonderland" every Thursday in the WSJ. He isn't quite up to the level of adoration I have for Peggy Noonan, but I do like what he has to say. His latest, "Mad Max and the Meltdown", is right on target.
He points out that, as the holiday season approaches, we don't say Merry Christmas, we say Happy Holidays. We fear that we will give offense to someone by use of the word Christmas. Instead we trivialize with the neutral phrase, Happy Holidays. How many other words do we not use anymore? How many subjects do we not discuss because we fear giving offense?
That is not to say that we should be yahoos, speaking without sensitivity to the concerns and differences among us. But because we do not speak of the things that matter, we have become a people who do not know the difference between right and wrong. We live in a neutral moral universe. That is not to say that we are not ethical people. We are indeed ethical, but ethics is a lawyer's word. Ethics is about following the rules, not about right and wrong.
CEO's took hundreds of millions dollars home in pay and bonus compensation from companies that were shortly to fail. But we shall find that they were following the rules. They may have fudged the truth from time to time, but we will probably find that their words were carefully phrased and their actions calculated to stay within the guidelines of their agreements by which they earned that money. I have every reason to believe that they were ethical.
At the same time, millions of everyday people seeking home loans lied about how much money they made, or how much money they already owed. But what do you expect on a "No Doc" home loan? Wink, wink, nudge nudge. Perhaps they were not ethical, but unlike morality, ethics is always weighted in favor of the rich and powerful.
Moral hazard is the phrase that our euphemism obsessed generation has coined to describe what happens when people do what appears to be ok and is expected behavior, yet is clearly wrong. In the discussions of the causes of our current meltdown, the thoughtful among us cite moral hazard as the cause. Moral hazard is endemic among us. Are you surprised when someone goes through a red light anymore? Are you surprised when you look down at your speedometer and see that you are clearly exceeding the speed limit?
Mr. Henninger's point is that our society, any society, depends on moral sentiments. Capitalism depends on the great majority of the people in the system being able to be trusted. Our culture is based on us knowing right from wrong, and doing the right thing most of the time. Capitalism depends on its participants being moral creatures. Otherwise we live with contracts and laws.
In my years as CEO of ForeRunner, I had to negotiate numerous disputes with clients. In none of those disputes was the contract of any use. In each case, we sat down and negotiated a settlement. Sometimes it took years and extensive legal maneuvering, but in the end, we sat down and accommodated each other. We resolved our dispute, recognizing that each of us had done wrong and that there was right in the other's position.
Without a moral framework on which we agree, how do we live? Mad Max gives us a picture of the alternative.
Sunday, November 23, 2008
Wednesday, November 12, 2008
A Tummy Tickler
The coming year, 2009, promises to be interesting. More than interesting, I can only compare my feelings to the last few feet of the climb on a roller coaster before it goes over the top to plummet into the interesting part of the ride. There is an ancient Chinese curse simply rendered as, "May you live in interesting times".
My business, my livelihood, depends, to a substantial extent, on money spent by our client companies to develop natural gas supplies in the United States. The direction of that market is up for grabs. There are powerful forces pushing in opposite directions. It is like two freight trains heading toward each other. A crash seems inevitable.
The election of the Obama administration confirms the nation's desire to become green. The fact that the Democrats control the legislature ensures that green legislation will pass with little challenge. This is unbelievably bullish for natural gas. Every green initiative turbocharges natural gas usage as a practical matter.
Yet the very success of the industry in increasing natural gas production over the past few years, along with the oncoming recession and credit crunch, have dropped natural gas prices by close to 50% since July. Idle drilling rigs are lining up in empty lots across the energy producing states. Producing companies that have led the drilling effort have been heavily dependent on easy access to credit, which is no more. The number of natural gas wells being drilled in the United States seems to be coming down hard and fast.
But the natural gas wells that we have drilled in the recent past are different. All wells decline over time. But as an industry, we are used to thinking in terms of 10-20% declines in production per year. Our new wells, in shales and tight sands, decline at 60-70% per year rates. Without large numbers of new wells, natural gas production is going to fall hard and fast.
Yet there is a doubling of LNG production capacity coming onto the world market over the next 18 months. LNG has not been a factor in the US, because Asian markets have taken nearly all of that gas. But now the Asian natural gas market is crashing because of the financial crisis worldwide. A lot of that LNG will now come to the US, because we are the largest market. And because we can pay for it with dollars. In times of crisis, everyone wants a secure currency. And LNG liquefaction plants run 24/7/365, because they have large debt loads to service. Any margin being better than no margin. It is likely that natural gas will flood into the US Gulf Coast and East Coast, as that is where the LNG terminals are.
I am convinced that the natural gas industry is bright. Our culture's desire to be fashionably green and our country's need to have energy security guarantee that. But we look to be heading into a hard dip.
When I was a kid back in the old days, my parents would take us for drives along the country roads. There were places where the car would go over a rise in the road fast enough to give you a little weightless feeling. As kids, we always knew where those places in the road were, and we would always beg our parents to speed up to give us that feeling as the car went over them. We called it a "tummy tickler". I think 2009 is going to be a tummy tickler for the natural gas business.
My business, my livelihood, depends, to a substantial extent, on money spent by our client companies to develop natural gas supplies in the United States. The direction of that market is up for grabs. There are powerful forces pushing in opposite directions. It is like two freight trains heading toward each other. A crash seems inevitable.
The election of the Obama administration confirms the nation's desire to become green. The fact that the Democrats control the legislature ensures that green legislation will pass with little challenge. This is unbelievably bullish for natural gas. Every green initiative turbocharges natural gas usage as a practical matter.
Yet the very success of the industry in increasing natural gas production over the past few years, along with the oncoming recession and credit crunch, have dropped natural gas prices by close to 50% since July. Idle drilling rigs are lining up in empty lots across the energy producing states. Producing companies that have led the drilling effort have been heavily dependent on easy access to credit, which is no more. The number of natural gas wells being drilled in the United States seems to be coming down hard and fast.
But the natural gas wells that we have drilled in the recent past are different. All wells decline over time. But as an industry, we are used to thinking in terms of 10-20% declines in production per year. Our new wells, in shales and tight sands, decline at 60-70% per year rates. Without large numbers of new wells, natural gas production is going to fall hard and fast.
Yet there is a doubling of LNG production capacity coming onto the world market over the next 18 months. LNG has not been a factor in the US, because Asian markets have taken nearly all of that gas. But now the Asian natural gas market is crashing because of the financial crisis worldwide. A lot of that LNG will now come to the US, because we are the largest market. And because we can pay for it with dollars. In times of crisis, everyone wants a secure currency. And LNG liquefaction plants run 24/7/365, because they have large debt loads to service. Any margin being better than no margin. It is likely that natural gas will flood into the US Gulf Coast and East Coast, as that is where the LNG terminals are.
I am convinced that the natural gas industry is bright. Our culture's desire to be fashionably green and our country's need to have energy security guarantee that. But we look to be heading into a hard dip.
When I was a kid back in the old days, my parents would take us for drives along the country roads. There were places where the car would go over a rise in the road fast enough to give you a little weightless feeling. As kids, we always knew where those places in the road were, and we would always beg our parents to speed up to give us that feeling as the car went over them. We called it a "tummy tickler". I think 2009 is going to be a tummy tickler for the natural gas business.
Subscribe to:
Posts (Atom)