How energy communism has gotten us into this mess

My year 1988 was dominated by my mandatory spell of military service in Austria. It was also some form of rupture in my life as my world would never be the same after it. I shook off the shackles of youth and ventured out into the world. 

Back then, I was sitting with some other co-conscripts and we discussed the fate of the world (as those brand-new adults often like to do) by politicizing about anything. I grew up in the cold war world with two superpowers staring down at each other. And just one year before the collapse of the Soviet Union we did not even suspect that one of the big empires of those days might implode into smithereens in very short time. 

When it finally happened in 1989, we were elated. We felt like the constant threat of the evil empire and forced collectivism was gone at last. Communism was to be a historical mistake that would be corrected and looking at the sheer scale of the misery that communism caused in a large part of the world, we were sure that it would not ever raise its ugly head again. 

How wrong we were. And what does all this have to do with energy or more precisely LNG? 

Looking at most newsfeeds today one might think that capitalism is dying now and the failed ideas of socialism are making a comeback. But the truth is more sinister. 

In most countries, capitalism is either dead or at least seriously wounded. Even the US, thought to be the bulwark of capitalism, has become hopelessly corporatist and dependent on big structures. Small entrepreneurs - which were the backbone of the country just about 60 years ago and which made it strong - have faded. 

However, this shall not be a rant about the US becoming collectivist. What's nasty is that planning today has nothing strategic anymore. It's a linear drawing plan by numbers. You remember those kiddies drawing games where your pen had to follow the numbers in order to reveal the picture. Its a nice game for a little child but the result is no surprise at all. It has always been known in advance and there is certainty for the kid that there will be something interesting at least if it just follows those numbers. No result is not an option. In real life, it's the most likely result, though. 

Metrics have to be cast in iron, assumptions must be vetted and the future development of just about anything must be known and described in minute detail for even the most strategic ventures. Business Plans today are not exercises in business building and product development anymore but rather are affairs where a bunch of people tries to show another bunch of people that they can predict the future by using some algorithm and staying inside the confines of some accepted norms and metrics. 

Once, I pitched an LNG for fuel project for Central Europe and although the investment angels represented private enterprise and capital, their strategic focus was virtually nil. One would have been thought that private capital cares more about making a buck on a strategic infrastructural opportunity when they see one. However, LNG as a fuel did not exist yet in this region as an operating business. And I was careful enough to tell everyone before the meeting that only those with a high tolerance for Blue Ocean thinking and a strategic mindset need apply for this pitch. 

Still, the defining question on their mind was the resale value of an LNG truck when the fleet is going to be renewed. Really, this little detail is what's on their mind when it comes to making an investment that is going to enjoy a near monopoly for some years in the clean hydrocarbon fuel market in Central Europe if things are done alright? Assuming that the venture delivers on its promise, the resale value is going to be of no significance as diesel trucks won't be worth the value of scrap metal anymore once emissions testing goes closer to the real world emissions we still must inhale. And no matter how much the vehicle industry wiggles, there is no escaping this. Anyone tormented by "penny-pinching" considerations is not ready for a real shift and most certainly not ready for the entrepreneurial world. What would Steve Jobs or Elon Musk have responded to that? 

We are planning for a world with no accidents, a world where everything can be modeled and where accountants rule supreme. No misunderstanding here - accountants are a valuable profession and I shudder from imagining a world without them. However, if they are used for everything under the sun, this goes over the top. Same goes for many professions. I am a learned lawyer and I have a knack for some playing with contract terms but I would strongly dislike a world where lawyers call all the shots. 

The assumptions we work with are only this - assumptions. If you plan for 10 years of stable revenues in order to pay your debt off, you better put in some flexibility as the world will not evolve the way you imagine over those 10 years. Has anyone in 2006 imagined that shale oil from North America is going to change the way we see oil and gas extraction for good? Who in 2000 when the internet bubble burst did foresee the deep web as we experience it today. Phones got smaller and smaller until a lunatic from a company with a fruit as a logo came and sold the world on big smartphones with no keys. 

The energy world (just like the financial world and many other domains) of 2016 has become a mirror image of what communism was in the late Soviet Union - a stiff bureaucracy where managers try to do what they have always done in order to bring in the numbers. Because shareholder value is also just another value that is distorted beyond anything healthy. 

The world does not grow in a linear fashion. Every time it does, one must suspect that there is already something wrong with it. The real economy is chaotic and rolling with the punches. This also means that one needs to accept those punches as the reality he lives in and grow strong enough to take them with grace. Overplanning kills this entrepreneurial resilience. 

The Soviet empire lived by the beat of its 5-year plans - big energy lives by the beat of 5, 10 or 20-year investment cycles. Spot the difference. 

When we plan for those big projects we want the market to be shut out which is economic painting by numbers. This game is over. 

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