Psychology in Oil and Gas

Gaming the system or playing into game theory. Oil and gas is a complex system with political and capital players looking for an edge.

You would be hard bent to find a single natural occurring material on planet earth that's hated more universally than oil. Politicians, activists, teachers/professors, your Sunday school teacher all have something to say about Oil and in turn Gas and Gas(oline) that is typically filled with negative context. What causes this phenomenon where so many people from all walks of life can be so heavily misinformed about liquid gold while relying on it daily? To start gasoline and diesel are the only products where the change in price is plastered across practically every corner of the road. From heavy crawling traffic in the city to wide open farm roads in the county, you don't have to look far for the familiar feel of the red and green lights that change with the wind. Filling up your tank isn’t always the most pleasant experience from the unique smell of the gas to the often times shady station you finally stopped at after your fuel pump cried for mercy. Many of us fill up multiple times a month giving us a column on our monthly budget to allocate to fuel costs. Overall, the need for this byproduct of oil is not the most pleasant experience but there's little desire to the alternatives.

Many politicians have made it their mission in recent years to target gasoline prices while sending the most absurd signals to the industry and the public. 'Shut it down', 'pump more', 'stop gouging', 'Putin’s price hike', the narrative changes more than the actual price on the corner. Just nine short months ago the Senate held a hearing to question the oil and gas executives about climate change and on that day a number of accusations were postured in a way to fully demonize their very existence. Quotes from well known politicians rumbled with vigor as they spewed out of the mouths of those these selfish politicians while those same companies that are asked to close their doors immediately are the ones who help feed and warm billions of people. Yet here we are less than a year later seeing these same politicians begging the opposite position.

The shift to a crisis on energy has become a realistic possibility right before their eyes as we watch Germany panic over heat while still in July or Sri Lanka’s streets filled with protesters starving for fuel and food. Actions have consequences but when dealing with a global economy you have the luxury of watching fellow governments and officials' policies play out for better or worse.

One thing for sure is the rally cries hurled towards oil companies by politicians, the type that would make Mel Gibson’s character in Braveheart blush, tend to be based on a misunderstanding of the consequences of shutting everything down tomorrow. Nordstream1 is back in the news reminding Europe how dependent they are on natural gas with a fear that Russia will not turn back on the flow of gas after some scheduled maintenance that brings the pipeline to a halt for 10 days. This set up the perfect opportunity to show what happens if the world does cut themselves from fossil fuels with the stroke of a political pen. This leads to the argument that wars are fought to secure oil and gas from different countries so therefore oil and gas is bad and removing it would stop the wars. But what is the replacement? Many of the worlds renewable energy requires rare earth metals and these minerals are not easily mined and carry an unflattering view when strip mined. Instead we will trade one resource for another that's even more rare and target a whole new group of countries to control these natural resources. Germany will be the hardest hit from a cut in natural gas from Russia yet the government there has pushed heavily in investment for renewable energy. Europe has had to reevaluate their stance on natural gas and nuclear power and now label it green in some circumstances.

Back in the US the energy secretary laughed heavily in an interview when asked 'What the Granholm plan is to increase Oil production in America?' even spitting out the phrase 'oh my God' between laughter. Wing and a prayer comes to mind when watching anything the US Secretary of Energy does. Pete Buttigieg, now Secretary of Transportation, has stated that 'people upset with near-record gas prices should buy an electric car'. Both pitting the blame on oil companies and champion what is perceived as a solution but there are 1.4B vehicles on the planet and 2.5M(0.0017%) Tesla sold after a decade. Little to no market penetration but not a bad grift of phycological warfare on those that don't understand energy to make Musk the richest man in the world.

Game theory can be applied to many facets for gasoline and oil especially when politicians get involved. A zero sum game is the only game in town for many looking to always win and you have to play the game to participate. Instead of allowing market dynamics of a global commodity to find it's true price through discovery with supply and demand, most times those in power seek to disrupt through lazy and poor thought out policy. Game theory tells us that its generally impossible to regain trust once a side has shown to go against the other. The public's trust for politicians isn’t near as important as the trust of politicians between each other or industry, especially when it's two parties working on trade agreements or expansion of massive capital. In the situation of a trade war or sanctions its "the stable state of things." According to New York University business professor Arun Sundararajan, “both countries imposing tariffs is the Nash Equilibrium of the game.” But what happens when large nations that aren't effected directly try to enforce sanctions across an ocean on major suppliers to countries who's very existence require that product to continue being supplied? France is already looking towards closure of natural gas supplies as it turns to fuel switching of oil. The complexity of the situation grows with every party added and the end results are as unstable as a CEO 'super genius' looking to buy a social media company. The problem becomes a humanitarian issue quickly as world leaders start choosing winners and losers based on geo location and socioeconomic status.

Biden is soon heading to Saudi Arabia in hopes of bringing more production of oil to global markets and imposing a change in the balance structure of the market to suppress rising prices. Regardless if you believe what spare capacity Saudi Arabia and UAE currently have available, the most important factor is how those that control the decision see their future. A quote commonly attributed to Sheikh Rashid reflected this concern:" My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel,". The thought that oil which was discovered in 1966 and began production in 1969, would run out within a few generations. Reflection on where one stands, what they have to gain or lose, and their availability to change those circumstances and outcomes weigh heavily on their decisions. On the campaign trail Biden spoke loosely about his intentions once elected in reference to Saudi Arabia prince Mohammed bin Salman Al Saud(MBS for short). “We were going to, in fact, make them pay the price, and make them, in fact, the pariah that they are,” Biden said in a 2019 Democratic debate. MBS had recently been reported to have started 'shouting' at Biden's national security advisor when he brought up Jamal Khashoggi's brutal killing and even though countries have interest and not friends, the ability to maintain allied relations with Saudi Arabia at the cost of higher energy prices is important. Sometimes the appearance of working on a problem over actually solving the issue is enough for most voters and with an easy scapegoat like the 'Putin price hike', little looks to be accomplished by this visit other than a trip to the desert.

Maybe Biden should take the shorter trip to the desert in West Texas and visit the most economical and environmentally friendly oilfields of the Permian first.