Rocky_Aoki's Profile

Great post SAG.

Ex. 1 is interesting – I know the productivity ratio is supposed to be agnostic to macro economic conditions but you can see a very clear “dip” in all of the lines during the 2008-09 financial crisis as well as a general stagnation across all industries after that period relative to improvements beforehand. I wonder if this indicates a broader trend of slowing productivity improvement due to a lack of reinvestment in the traditional business (buildings, R&D, etc.) in favor of financial engineering (share buy-backs, increasing dividends, etc.)? If that were the case, I would think construction productivity stagnation would have been a leading indicator as the industry felt the impact of businesses ceasing investment in new projects.

Interesting post DS – as someone who has spent some time in operating environments, the “sounds like it’s going to blow” comment makes me chuckle. I agree that a systematic maintenance program based on IOT and predictive analysis can be extremely powerful but it is important to note two very significant additional items when having this conversation:

1) The hardest part about adopting any new technology is adoption at the frontline. In my experience, folks are very skeptical of this technology and sometimes resist adoption. Any roll-out of this type of next-gen maintenance system must be accompanied with money and robust plans for training the workforce that will make it work.

2) These capitally intensive heavy industries that your post describes are typically critical infrastructure and may be managing potentially dangerous materials. If we tie all devices together and then connect them to a network, we have to be sure we have very secure cyber security in place to prevent malicious actors from getting into the system and causing havoc. This type of attack has already occurred at Saudi Aramco and will no doubt happen again.

http://www.nytimes.com/2012/10/24/business/global/cyberattack-on-saudi-oil-firm-disquiets-us.html

Interesting post Jessica. One additional thought comes to mind: while saving soldiers lives by substituting them with machines is an undeniably positive outcome, I fear that removing the risk to our soldiers could make us even more callous to the harm that warfare causes. It may lead to further dehumanization of the “enemy” and since the collateral damage is remote and impersonal, we may be less sensitized to it. Balancing these tensions will no doubt be a crucial task for our military leaders and for us as a society.

Interesting article Mark – while I always struggled with the “particle-in-a-box” and “Schrodinger’s Cat” concepts in the quantum physics section of P-Chem, I can certainly understand the massive business potential of this technology. With reports that Moore’s Law is running out of steam (see below), this technology may restart and even accelerate the pace of computing horsepower improvements.

http://www.informationweek.com/cloud/googles-urs-holzle-moores-law-is-ending/d/d-id/1327457

Interesting article Nick – wholeheartedly agree that safety is the most important positive outcome from these advances in automation. I would be interested to see how industry safety statistics change (TRIR, fatalities, etc.) as more of this this kind of automated technology penetrates heavy industry. An interesting analog is the airline industry, which has become heavily automated. The report below found a statistically significant decrease in aviation accidents between 2000-2010 due to automation. If this trend is transferable (and I think it certainly is), worker safety will continue to improve in future years.

http://commons.erau.edu/cgi/viewcontent.cgi?article=1107&context=publication

Fascinating article MattM – while I would have intuited that airlines will face challenges in the future if a cost of carbon is imposed, I did not know about the potential physical impacts you discussed. A couple thoughts:

1) From my research on Maersk and the maritime shipping industry, I learned that the airlines contribute around 1% of total global CO2 emissions. This is significant and will grow as passenger-miles increase in emerging economies. I would contend that the size of this carbon reduction “prize” will make them a target for early regulatory action (for parallel, see incrase in fuel economy standards in passenger vehicles in the US).

2) I agree with airline’s incremental approach to the emissions reductions. In addition to the items you mention, some airlines taxi under the power of only one engine to reduce fuel consumption and therefore emissions. The “winglets” you see on newer airplanes are also a fuel savings tactic. While each of these incremental improvements may seem to make an insignificant reduction in emissions, their collective impact is significant.

3) Unlike some of climate change’s more intractable challenges, in this case the airline’s economic incentives are aligned with emissions reductions. With fuel being airlines most significant operating expense, much of their continuous operational improvement focus in on reducing this cost and therefore emissions.

Akyaa – great article. It is always interesting to see the slightly different perspective that emerging countries have towards an oil and gas discovery vs. those from developed countries (which OlivaH commented on above). A couple thoughts:

1) You’re probably familiar with “Dutch Disease” aka the “resource curse”. In short, its the tendency for countries with an overreliance on extractive mineral revenues to suffer from economic malaise or corruption. I know that Ghana did a lot upfront when this discovery was made to take steps to prevent this from occurring, often taking lessons from the Nigerian experience. While it’s too early to tell if they will be able to avoid this fate, here is an interesting article on some ideas for preventing “dutch disease”: https://barthoavenati.wordpress.com/2014/11/21/avoiding-the-dutch-disease-by-promoting-the-nonoil-sector-of-ghana/

2) Re: natural gas, this will be tricky to make work unless Ghanna can find a market for it. A big problem with gas vs. oil is that it is not easily or cheaply transported. Your options are either a domestic natural gas network with local demand or to export it as LNG, which is very capitally intensive. Again borrowing from the Nigerian experience, building out a domestic natural gas market will be no small feat. Likewise, the global supply for LNG has skyrocketed in recent years, leading to a glut and making the economics difficult for new LNG projects.

A well researched article DT. Two thoughts:

1) Regarding company specific emissions data, many public companies are now releasing “Corporate Citizenship Reports” (see ExxonMobil example here: http://corporate.exxonmobil.com/en/community/corporate-citizenship-report) that detail emissions at a fairly granular level. These are self-imposed reports (i.e. not required SEC filing) in response to shareholder demands for more transparency. This is similar to the sustainability discussion we had last week on IKEA.

2) A key financial metric for oil companies is their booked reserves. An investor can look at current production vs. total reserves and get an idea of the longevity of the companies current portfolio – as such, changes to reserves move markets. Due to the low oil price environment, much of the oil in the oil sands is at risk of being debooked as at the current price it will no longer be economically viable to extract. An added carbon tax in Alberta will take a massive economic toll on a region already reeling from the current oil slump and potentially cause a significant degradation in many oil companies financial positions. See this article for a little more info on an ExxonMobil specific example of this type of reserves debooking: https://www.ft.com/content/53f66878-9d13-11e6-a6e4-8b8e77dd083a.

Nice article snoop. I do have a question re: one comment that was raised: “the current low oil prices are in some sense simulating what a lower demand carbon future could look like, providing a good opportunity to reflect”. Unfortunately I think the economic reality is the opposite – I would argue that a low oil price environment stimulates demand for oil. This is because it’s derivatives (gas, diesel, plastics, etc) become cheaper for consumers to purchase and thus the quantity purchased increases per it’s downward sloping demand curve. The best hope to stimulate further breakthroughs in alternative energy sources is actually a high oil price environment. In fact, the world will never run out of oil – we will stop producing it someday, but it will be b/c its costs are too high relative to other forms of energy (due to a supply/demand imbalance driven by resource scarcity or b/c of an imposed cost of carbon).

This is a well-researched article and solid representation of a major question for this company. A couple thoughts:

1) While XOM does have the wherewithal to make large investments into renewable energy, I would ask you to consider the Rex Tillerson’s fiduciary duty to his shareholders to maximize returns. Many of these shareholders are pension funds, endowments, and everyday Americans. Given that no alternative energy source can yet beat oil or gas on cost per unit of energy, these projects do not have the economics that their existing portfolio of traditional portfolio of projects do (in fact XOM has so many potential projects that they are primarily constrained by engineering talent and cannot execute all of them). Given this context, wouldn’t market penalize XOM and its shareholders for investing in sub-par projects?

2) amaleki’s point on dividend distributions vs. R&D spending is an interesting one and affects the public markets broadly. As we see indications that innovation has stalled, this is a question business leaders will need to face (and are starting to here: http://www.governanceprinciples.org/)

3) The investigation into XOM’s climate change “cover-up” has fizzled out (see WSJ article: http://www.wsj.com/articles/how-the-exxon-case-unraveled-1472598472). I would contend this was a politically motivated campaign designed to propel the NY attorney general onto bigger and better things – XOM was actually on the vanguard of climate change research in the 1970s and continues significant research today. Unfortunately, the company has done a poor job marketing itself and has become a favorite business villain (as Florentine points out), leading to continual bad PR.