Exxon Blinks On Alternative Energy

In a scene very reminiscent of the 1970s- and isn't much of our political economy these days?- Exxon announced a strategic reversal on alternative energy sources.

Yesterday's Wall Street Journal reported that Exxon is pairing with esteemed biologist J. Craig Venter to research the use of algae to clean greenhouse gases and secrete oil.

Honestly, reading that last part, it sounds like a sci-fi novel.

And maybe- just maybe, if we are lucky- it is.

Because the last time Exxon appeared to abandon its primary business, oil exploration and refining, and jumped into something else, it wasted billions of dollars. According to the Journal article, this time, it seems to be anteing up only $600MM. Truly a pittance for the oil giant.

Some historical context is required to properly understand what's happening here.

Back in the 1970s, when the Clean Air Act Extension and high oil prices put pressure on oil companies, Exxon launched Exxon Enterprises. EE was a holding entity which oversaw startup planning for all sorts of non-oil businesses, including solar energy panels, a fax machine business, and various other electronic office products initiatives. The thinking was to use Exxon's enormous revenues to fund so-called replacement technologies, such as electronic office equipment, to replace oil used in commuting and travel, and solar, to replace depleting and expensive oil.

I consulted to one of the EE businesses as part of the Wharton Applied Research Center when I was a graduate student. In a hilarious activity straight out of Joseph Heller's Catch-22, our mission was to help the management of Exxon Solar Energy to forecast a developing market of sufficient size to secure follow-on budgetary funding to continue the business effort. The furthest thing from our charter was to actually create any product. We were brought in to simply play a paper-shuffling game of justifying the unit's existence to corporate for a few more years. The stories we heard of oil executives jumping ship from the New York headquarters to work out in Florham Park, NJ, were many and rich. Suffice to say, there was a whole lot of ticket-punching going on, but nobody believed in the longevity of the businesses.

As it happened, a year later, I was working at AT&T in Morristown, just a stone's throw from EE. In short order, Lee Raymond, the now-retired CEO of Exxon, was brought in to wind down the whole mess and stanch the incredible losses emanating from Florham Park.

Raymond observed that oil wasn't going away, while Exxon would never amount to much in these new areas. He presided over the selling off or closing of all the EE business efforts.

In truth, EE had served its purpose. During a period of hysteria over high oil prices and Arab control over much of the world's crude, Exxon had successfully deflected some public criticism, and appeared to be spending money on diversification in order to seem to be 'solving' the problems associated with high oil costs.

Once Reagan was in office and the publicity crisis had passed, Raymond, a rising 'go to' guy at the firm, was brought in to restore sanity.

I think that's what's occurring now, too.

Rex Tillerson is no fool. I loved the Journals reference to Tillerson's snide remark about alternative energy, i.e., that he expected to be driven to his funeral in a car powered by gasoline or diesel fuel. And he will be.

But, for now, it's once again time to show public humility at being in the oil business.

Who better with whom to partner than noted scientist Venter, on a project that sounds like something out of pure science fiction.

Imagine- an algae that consumes greenhouse gases and spews out usable energy. Can it get any wilder, more perfect, or safe?

I can just see Tillerson and other senior Exxon execs around a conference room table one-upping each other on what the alternative energy project should have as its aim, and roaring with laughter at the final result.

How many years will it be before any real progress is made on this wild-algae chase? Well, Daniel Nocera's work on fuel cells has consumed about a decade, and he figures he has at least half that time, again, to go before perfecting his work.

Who knows how long Exxon can manage to make this tilt at an enormous windmill take? Most likely, long enough to see a return of either the Oval Office or at least one chamber of Congress to Republican control.

In the meantime, this far-fetched, impossible-sounding quest will soldier on, consuming a trickle of Exxon profits, while reaping huge publicity gains.

Don't ever underestimate Exxon management.