Joe Kennedy on $100 Oil and His Deal with Hugo Chávez
Editor's note: This is an extended version of a story published in the Mar. 10, 2008, issue of BusinessWeek magazine.
Oil prices jerked upward on Feb. 27, hitting a record $102 a barrel before falling back. Observers called it a play against a weakening dollar, but whatever the reason, it is cold comfort to millions of lower-income Americans who face increasing prices at the pump and the prospect of higher home heating bills. No one knows that better than former Massachusetts Representative Joe Kennedy, who runs the nonprofit Citizens Energy Corp., which provides discount heating oil to Americans in need in 15 states and the District of Columbia. The charitable work of Kennedy—eldest son of Robert F. Kennedy, godson of John F. Kennedy, and nephew of Senator Edward Kennedy—is not without controversy, primarily because the discounted oil is provided to Citizens Energy by the Venezuelan government of fiery U.S. critic Hugo Chávez.
So here we are, looking at $100-a-barrel oil. What's behind the sustained move in the price of oil?
JOSEPH P. KENNEDY II
Obviously there are a lot of forces at work. But the difficulty when you're running a business like the energy business is that a slowdown, whether it's caused by concern over a particular government or storms or military actions or even increased use—which the press has overblown—can have an extraordinary impact. And with the hedge funds and other financial players entering the commodities markets, we've seen an enormous eruption in price. It's interesting, though, growth rates in terms of international use have not really gone up all that much in recent years and really haven't gone up a hell of a lot in historic terms. The truth is, the industry simply has not taken these unbelievable profits and put them back into finding new sources of oil.
What about the development of alternative fuels?The U.S. oil industry in the last five years has made something like over $800 billion in profits. None of them is putting [profits] back into developing new sources of crude. ExxonMobil (XOM) put zero percent [of profits] into renewable or alternative energy; BP (BP), six tenths of 1%; ConocoPhillips (COP), seven tenths of 1%; Shell (RDS), 1.3%; Chevron (CVX), 0.5%. And everybody says we're running out of oil. You know, 74% of the earth's surface—as we all learned in third grade—is covered with water. And we have developed less than 1% of the energy supplies contained underneath the surface of the ocean. So there's nothing to suggest to me that right now there's an imminent crisis.
What is the realistic future for alternative energy?I think it's going to take years for wind power to become a significant player in the overall electricity market. Unfortunately, corn-based ethanol in the U.S. has a big mountain to climb in terms of becoming financially viable, and it may take a while for us to recognize that. Look at how much we depend on coal for electricity generation or how dependent on oil we are for transportation, I don't think any of that is going to change dramatically in the next few years.
You just mentioned wind power, and the Citizens Energy Web site includes multiple photos of wind turbines. But your uncle, Senator Kennedy, teamed up with former Massachusetts Governor Mitt Romney to oppose a wind farm in Nantucket Sound. Is the "not in my backyard" mentality a problem for wind power?Oh, it's a big problem not just in Nantucket Sound. It exists in many, many communities across our country and in other countries. We find the same thing in Canada, particularly in more wealthy areas around the lakes and the St. Lawrence and the like, where there are huge wind resources.
We've had a pretty mild winter in the Northeast. How strong is demand by lower-income people?[Citizens Energy] is assisting probably something on the order of 250,000 families. You know we have strictures in this country that do not allow your electric company or your gas company to shut people off in the middle of winter. But heating oil customers get shut off left, right, and center because they get served by Ma and Pa dealers that may have a few thousand customers. So if they have a gas stove, they will open the broiler door and turn the burners on to keep warm. You're from New York, so you know that after the end of a very cold night in January or February, the next day you'll see there were all sorts of fires in poor areas of the city. There is no reason in the world why the price of oil has doubled in a year. And, you know, that creates a bit of an inconvenience if you're rich. It creates some hardship if you're middle class. But when you talk about the poor, the impact this has on 20% of the American public is just heartbreaking. And no one talks about it. No one cares. No one recognizes the devastation energy prices have on low-income, vulnerable people, particularly the elderly.
With the housing slump, and credit drying up, do you foresee demand climbing even higher?Demand for assistance is skyrocketing. These families get to a point where they've taken out an adjustable-rate mortgage and their interest rate gets jacked up no matter what [Ben] Bernanke does, and it just snowballs on them.
Will oil companies eventually face a windfall tax?I would certainly hope so. Addressing our energy problems is going to mean breaking some eggshells in Washington.
The heating oil you distribute is provided at a deep discount by Citgo, the national oil company of Venezuela, whose President, Hugo Chávez, has been a fierce critic of the U.S. How do you respond to criticism that Citizens is being used as a propaganda tool by Chávez?You know, I wrote to every oil company and asked them to provide us with just a little bit of heating oil so that we could assist the poor. I do it every year. I did the same thing with every OPEC nation and every major crude oil exporter in the world. The only country and only company that wrote me back and actually provided us with over $100 million worth of assistance was Citgo and the Venezuelan people. Now somebody gives me $100 million to try to help a lot of poor people...I'm going to thank them and acknowledge what they did. Listen, 10% of all gasoline that people in the U.S. use comes from Venezuela. A huge portion of the heating oil we use on the East Coast comes from Venezuela. So people should hold themselves to the same moral standard they're going to hold the poor to. If Chávez is an enemy, then anyone who believes that shouldn't use his oil. Now the question is: Is he any more of an enemy than Saudi Arabia, where a woman gets arrested for being raped and is sentenced to 200 lashes? Is that what we think is rational and normal?
Is there ever a line Chávez can step over where you would say: "You know what? We can't take your oil."Of course. And that would go not just for Chávez but for anyone who began to take serious actions against the interests of the U.S. But my goodness gracious, Hugo Chávez can quote Thomas Jefferson and Abraham Lincoln by heart. The American public's view of President Chávez was formed by the speech at the U.N. [denouncing Bush], which was, in my opinion, a huge mistake. And I've told him that directly.
What was his reaction?He gets it, but he feels very strongly that the Bush Administration illegally tried to throw him out of office and put a puppet regime of the U.S. in place. So it's definitely personal.
Who's going to be the next President?I think it's going to be Barack Obama. It has nothing to do with Hillary Clinton's competence. I think so many women in America have had to deal with the glass ceiling, and it's just heartbreaking when she was so close to winning. If she wins in Ohio and Texas, I think that this campaign will not be over, and it will go into a much more divisive and difficult fight. But you asked me a direct question about who I thought was going to win.