Over the weekend, I read the transcript of a presentation by Rex Tillerson, Chairman and CEO of Exxon Mobil Corporation, before the Council of Foreign Relations (June 27). Mr. Tillerson’s speech and subsequent response to questions reminded me of Churchill’s dictum about the Russians in the fall of 1939. Paraphrasing, both the Chairman’s speech and his responses illustrate a riddle, wrapped in a mystery, inside an enigma. In just a few thousand words, he offered a conventional argument against seeking energy independence and a general recipe for what he believes should be a national objective — energy security — assumedly a security generated by the abundance of energy supplies, particularly oil and natural gas, in the U.S. and friendly countries like Canada and Mexico. He waxed eloquently and repetitively about the existing free market for oil and gas. According to Tillerson, while the present market is subject to demand and supply fluctuations, the price of oil and gas, over time, will encourage and cover the cost of shale gas and tight rock oil drilling.

I found Tillerson’s statements, often, positive, always interesting, sometimes free of facts and full of absolute wisdom and unnecessarily provocative and, at times, troubling. Let me give you some examples.

Speaking of the wisdom of the market place, he indicated, “No one anywhere, any place in the world, has not been able to get crude oil they normally would need to fuel their economy.”

Sure, if they could pay the cost and price! Regrettably, the economies of developed countries (including our own) and, certainly, developing countries have been negatively affected by the recent high cost of oil. Contrary to what Tillerson indicated, some nations, in Africa, because of the cost, cannot obtain sufficient oil to fuel their economies. They have tough opportunity costing equations.

The market place for oil is global, while the market for natural gas is still primarily regional. Structural and regulatory impediments combined with Middle East tensions, current world wide economic problems and the lack of uniformity concerning access to relevant information limits the efficiency of energy markets and sometimes frustrates equity objectives.

Mr. Tillerson’s unabashed faith in and description of the free market place for energy is somewhat inconsistent with the monopolistic conditions now governing the market for oil and its derivative, gasoline. Over the Barrel would be more encouraged if he announced that Exxon Mobile supported an open market for fuels, including oil (gasoline), natural gas and its derivative, methanol, as well as other flex fuels.

But listen to what Tillerson said about natural gas. “We’ve done that analysis, and when you take into consideration the conversion costs or cost of natural gas engine or a flexible engine — because what most people are going to want, most commercial truck drivers and certainly what passenger vehicle people want, is they want flexibility because they certainly don’t want to get caught somewhere where they cannot refuel. When we look at the economics around that, and the likelihood of a broad-based infrastructure to serve the fuel disposition needs, we think it’s highly unlikely that it ever becomes material.” Later on, in his response to questions, Tillerson indicated that “…overcoming the conversion costs put it pretty unlikely to me that it becomes material as an alternative transportation fuel.”

Over the Barrel respects Mr. Tillerson’s managerial accomplishments at Exxon Mobile. He knows how to build a company and make profits. Given these facts, how he came to his conclusions concerning natural gas is a mystery, a puzzle and an enigma. Yes, at the present time, building an engine that can take natural gas, likely, will cost more, perhaps as much as ten thousand dollars more, than comparative conventional models with conventional engines — before current tax incentives.

But Tillerson forgot to mention methanol, a safe and an environmentally better fuel than oil, derived from natural gas. Study after study has indicated that the process for converting older cars to flex-fuel cars that are able to use methanol and ethanol, as well as gasoline, is inexpensive and the cost of producing new flex-fuel automobiles is very competitive with conventional vehicles. In a similar vein, it seems a bit disingenuous for Mr Tillerson to assert that the absence of a distribution system eliminates natural gas or its derivative, methanol, as alternative fuels, when Exxon as well as its multi national oil competitors, strongly influence if not control, local gas stations. The market for transportation fuel, which Tillerson suggests is free, is not free. If Exxon Mobile would push for a real open market, as Over the Barrel suggested earlier, the consumer would benefit from the competition and the price of gas would likely fall by a significant amount. Methanol, based on cost and efficiency data, would cost in real comparable dollars far less than gasoline (over a third less when you factor in production costs and efficiency ratios re. miles per gallon).

One last point — Over The Barrel recognizes that a competitive, healthy market for fuel, particularly related to natural gas and oil, would likely lead to proposals to increase drilling. It acknowledges the need to respond to environmental concerns regarding the drilling technique called fracking, now used extensively to secure hard-to-get-at oil and natural gas. It believes that collaboration among government, industry, academic, environmental and consumer groups is essential to develop innovative technology and a sensitive, fair and cost efficient regulatory regime that will respond to drilling concerns. Ever the facilitator, Over the Barrel believes that use of pejorative language to describe people and groups who might disagree with you, like “the illiterate public…and lazy,” as Mr. Tillerson did in his presentation, does not encourage participation in policy discussions and easily permit participants to follow the godly admonition to “come let us reason together (Isaiah 1.18).”