The World Oil Industry’s Mad Gamble For Profits: Gaming Peak Oil, Denying Climate Change, Wrecking the Alternatives

For the world’s international oil companies, what does a combination of energy scarcity, political dominance, and captive consumers mean? Enormous profits.

And, for the rest of us, what does it mean? Increasing transportation costs, increasing risk of future economic shocks, and increasing damage due to human-caused climate change.

Since the mid 2000s, year after year, top oil companies have raked in over one hundred billion dollars in net earnings. This influx of cash to corporations sitting on dirty, dangerous and depleting resources, came as a result of a world transportation system dependent on liquid fuels of which oil composed more than 70% and on a resource, itself, that, since the mid 2000s, became far more difficult to extract. This combination of a peak in lease condensate supplies and a monopolization of that supply sent both oil company profits (along with power and influence) to heights previously unattainable.

It also has resulted in an industry entirely incentivized to ‘dance with the devil’ in order to extend and maintain that profitability. This devil’s dance includes begging the risk of increased economic shocks due to oil depletion, the active undermining of any viable alternative to oil as a transportation fuel, and a related and ongoing campaign to halt and/or delay action on human caused climate change. In such cases never before has an industry been so incentivized to profit from wanton destruction.

Playing Games With Peak Oil

Any time an oil supply crunch arises, the oil industry makes immense profits. These profits occur on many fronts. First, as world oil production peaks or struggles along a plateau, prices rise as captive consumers compete for the scarce commodity. The result is that all oil assets held by these companies suddenly become far more valuable. Profits soar, providing monies for additional investments into marginal, dirty, and destructive supplies like tar sands, fractured oil, deep water oil or polar oil. This massive additional investment extends the life of all oil supplies by pushing the plateau peak out for years or even decades.

So while oil companies make a profit on the economic shocks oil dependency causes to the system, the lifespan of these companies are extended through the use of more costly and polluting marginal supplies. This new access provides oil companies with a ‘smoke screen’ behind which they can publicly claim that peak oil and, more importantly, oil depletion does not exist. It provides fodder for their arguments and it sets up the world’s consumers for another fleecing as prices ramp higher or, even worse, when the next oil shock emerges.

This gamesmanship has been publicly visible over the past few years as industry supporting think-tanks, ‘experts,’ and media sources have published numerous articles declaring the end of peak oil and predicting world liquids supplies will exceed 120 million barrels per day by 2020. These claims, of course, are completely false. Lease condensate supplies have been on a plateau of around 75 million barrels per day since 2005. Total liquids production, which includes biofuels and natural gas liquids (which are less fungible as a transportation fuel), have only grown from 84 million barrels per day to 89 million barrels per day over the past 8 years. This anemic rate of growth would have to increase by nearly an order of magnitude to reach the amazing 120 million barrels per year predicted by 2020.

But, as with much information published by oil industry cheerleaders, the ‘data’ is less designed to be factual than to create the impression of abundance. Under such a smoke-screen, the oil industry can go about its work of manipulating public policy to suppress alternatives and efficiency increases so as to set consumers/the public up for more fleecing via a combination of over-consumption, scarcity and, in due course, during another oil shock.

Sooner or later, the next shock will come. Sooner if the oil industry is mostly successful in its dominance campaigns, and only more slowly if all they are able to achieve is a stale-mate. But, rest assured, the shock will come unless a wholesale pursuit of alternative fuels and transportation technologies emerge to shake the foundation of the world’s current energy supply structure. The depletion rates for most new oil sources are too high, the costs too great, and the resource intensity too high for more shocks not to emerge.

In the boardrooms, the above set of circumstances is probably what oil company execs are banking on. So we can take the false predictions of abundance, for what they are: industry fluff.

As an example, we can take into account a claim by oil industry cheerleader Daniel Yergin, in 2005, that world oil production would reach 101 million barrels per day by 2010-2012. Peak oilers, by contrast, thought world oil production would stall at around 84 million barrels per day. For my part, I made a prediction of around 90 million barrels per day by this time (link here).

Between the peak oilers and industry cheerleaders, who was more correct? In the end, Yergin’s prediction was off by a stunning 12 million barrels per day. Peak oilers, by contrast, were off by 5 million barrels per day. And, when it comes to lease condensate production, the peak oilers are still 100% correct.

Yet, because of its influence over media, the oil industry has managed to create the impression that peak oil theory is debunked. And, in doing so, it has also managed to reduce urgency to provide transitional technologies thereby making another oil crisis all but certain.

Climate Nightmares

There is, of course, an alternative scenario between the oil industry cheerleaders and the peak oilers. It lies along a middle ground of continuously struggling world oil supply based on increasingly expensive fuels. This middle ground jumps from oil and gasoline price increase to oil and gasoline price increase as new supplies are slowly, arduously tortured from the ground.

In truth, despite all the mad media frenzy about oil depletion and scarcity being a myth, this particular scenario represents the oil industry’s best, most realistic hope. Prices remain high enough for excessive profits, oil maintains its death-grip monopoly over transportation fuels, and slowly, ever-so-painfully, new unconventional sources allow for slowly increasing overall supplies.

The glaring problem with this scenario is it consigns the world to an ever-increasing contribution to world greenhouse gas emissions. All the new, unconventional sources pollute more than traditional oil. Fractured shale leaks methane into the atmosphere as part of its production process. Large volumes of the natural gas produced as part of the oil fracturing process is flared off into the atmosphere, greatly contributing to world CO2 emissions. And tar sands, cynically trotted out as a means for North America to achieve oil independence, is as polluting as coal even as its production requires a greater and greater burning of Canada’s natural gas supplies (currently 8% of Canada’s natural gas production is simply wasted in the production of dirty tar sands).

With unconventional fuels like the ones mentioned above composing an ever-greater portion of total world oil production, oil’s contribution to climate change increases even if net oil production remains level or even declines slightly. Even worse, unconventional fuels may allow for a slow increase in world oil production, while, possibly, more than doubling oil’s contribution to climate change.

For this reason, the world’s oil companies are heavily invested in climate change denial. They fund stealth campaigns via agencies like ALEC and the Heartland Institute to block any effect to establish solutions to climate change via feed in tariffs, renewable energy standards (that require an increasing portion of energy to come from renewables), vehicle efficiency standards, a carbon tax, or any other effective policy driving toward speeding or even facilitating a transition from fossil fuels to renewables. And in order to have any semblance of moral justification to pursue such an insane and harmful set of policies, these agencies must actively deny the likely, very harmful, effects of  human caused climate change.

The result is that an immensely powerful, wealthy, and politically connected industry is hell-bent on increasing the likelihood that Earth becomes hellish.

 

Blindness, Cynicism, and Greed

That the world’s oil companies, which in the 19th century brought light, mobility, and greater economic prospects to an ever-expanding number of people, have come to this pass is just one more example of the human tragedy the Greeks playwrights were so adept at portraying. Like many past tragic villains, the world’s oil companies have chosen blindness, cynical pride, and greed in their most recent groping for wealth and power. This tragedy, if it is allowed to play itself out, will result in the terrible downfall of many of the world’s most powerful energy companies. But, sadly, even as this happens, the economic and environmental shocks created will challenge the adaptive capacity of all human civilizations, perhaps even resulting in their end.

The reason for this is that despite oil company assurances, more economic shocks from oil depletion are on the way. At the same time, only a small window to start reducing world-wide fossil fuel consumption in order to prevent the worst shocks of climate change exists. Among scientists, the pessimists believe CO2 emissions must peak by 2015 to preserve a livable climate. The optimistic scientists believe this date is closer to 2028. Any average of these cases doesn’t give us much time and any continued burning of fossil fuels and increasing carbon emissions into the atmosphere comes at serious and terrible risk. In light of these two contexts, political and media sand bagging by the world’s oil (and related gas and coal) companies is very, very, very destructive.

A Call to Make A Stand On Keystone XL

It is for the above reasons that forcing the cancellation of Keystone XL is so important. Its cancellation will result in a slowed development of tar sands and, possibly, in reduced flows of tar sands to market. Such a cancellation will also require serious and rapid energy policy on the part of the United States to transition to much higher efficiency vehicles and vehicles based on alternate fuels — like electric vehicles and plug-in electric hybrids. It will also establish a strong precedent for beginning to reduce net carbon emissions — not just in the US, but worldwide. The reason is that by demonstrating the ability to turn away from tar sands, the US will have displayed leadership on a key issue of our time.

Keystone XL won’t be the only fossil fuel megaproject the US must turn its back on. But it would be the first. And setting a precedent now will make future contentious choices more easy to make.

It may seem a hard choice now. But, if we look at it rationally, it really is the only choice that includes a prosperous future.

Links:

Please be one of the one million public comments against the Keystone XL Pipeline

 

 

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