The Pathfinders Column from the February 2015 issue of the Socialist Standard
What on earth is going on with the price of oil? For the past five years it’s been stable at somewhere north of $115 a barrel, but since last June it’s fallen by 40 percent to below $70.
The fall in price has caused pandemonium in energy boardrooms just as companies have been sinking unprecedented amounts into R&D looking for new sources of the increasingly hard-to-get black gold and other fossil fuels – an estimated $670 billion last year alone. Samsung are just in the process of launching Prelude, the biggest ship ever built, with a water displacement equal to the world’s six largest aircraft carriers combined (BBC Online, 16 December 2014). Its purpose? To act as a giant floating platform to exploit deep-ocean natural gas fields and liquefy the gas on the spot instead of pumping it through expensive pipelines to existing facilities on shore. Prelude is supposed to be the prelude to an entire fleet of LNG monsters, but now that the rug has been pulled from under it, it may turn out to be the world’s largest floating white elephant instead.
Environmentalists will be delighted that new drilling projects in the Arctic are likely to be shelved, ditto further exploitation of the super-dirty Canadian tar sands. Meanwhile anti-fracking campaigners in the north of England will be ecstatic that Lancashire County Council have vetoed Cuadrilla’s plans to drill for shale gas at two sites near Blackpool, and even more so at the fact that fracking companies who have sunk millions into new drilling sites across the world have been left high and dry with ‘stranded assets’ as the oil price crash has wiped out the value of ‘alternative’ shale and left their operations uneconomic.
Motorists too will be able to celebrate by flooring it in their gas-guzzlers, while shrinking gas bills are expected to lead to a warm glow among household consumers. Providing of course that the energy companies heed the government’s urgent demands to lower their tariffs in line with the price fall. But energy companies won’t be too keen to respond, and not just for the obvious reason that they make more money out of customers that way, but also because, as they are fond of pleading, oil prices can go up as well as down, and they don’t want to catch themselves flat-footed with a price cut just as Brent crude decides to go stratospheric.
So, good news all round then? Well not exactly. Low oil prices will encourage consumption, which will wipe the smile of the faces of those environmentalists, considering that 14 out of the last 15 years have been the warmest on record (BBC Online, 16 January) and that sea level rise is now estimated to be 25 percent steeper than previously thought (BBC Online, 14 January). Still,New Scientist finds reasons to be cheerful, with an optimistic guess that the price-crash might spell the beginning of the end of the world’s oil dependency (‘Over a barrel’, 17 January).
Wholesale gas prices have also dropped 20 percent since November, and may drop further. China is moving away from coal and towards gas, which will stiffen the price, but then on the other hand, Japan is moving away from gas and back towards nuclear, which will weaken it.
Worse news is to follow for the benighted energy corporations, bless ‘em, with a new paper (Nature, 8 January) which could be seen as kicking them when they’re down. Building on estimates by the International Panel on Climate Change (IPCC) that, in order to keep within the target global temperature increase of 2oC, total carbon emissions from now until 2050 cannot exceed 1,240 gigatonnes, the report authors quietly went about their sums, totting up the actual potential gigatonnage that’s left in the ground. Their conclusion was that with remaining reserves (defined as recoverable under present economic conditions) equating to nearly 2,900 gigatonnes, and total recoverable resources around 11,000 gigatonnes ‘the disparity between what resources and reserves exist and what can be emitted while avoiding a temperature rise greater than the agreed 2o C limit is therefore stark.’ In other words, about a third of oil reserves, 50 percent of gas and 80 percent of coal must be left in the ground. To the industry’s argument of mitigation through proposed Carbon Capture and Sequestration schemes (CCS) the authors give short shrift. CCS is too little, too expensive, too uncertain and too late anyway. The damage has already been done. There’s no more wiggle room.
Worried, the Bank of England is conducting an enquiry into the risk of a global economic crash if governments are reckless enough to pay attention to climate scientists and start tightening the climate change rules, rendering fossil assets essentially worthless. However Shell and other firms are more sanguine, seeing no great risk to their business model because they don’t believe that politicians, for all their bluster, will stick to their promises on carbon limits (BBC Online, 7 January). Which sounds about right.
So why did the price drop? Partly because, with global warming, northern winters are getting milder. Partly because the recession has led to low economic activity and therefore low oil consumption. Partly because America got carried away with its fracking bonanza and stopped importing oil, unintentionally creating a world glut. And partly because Saudi Arabia, OPEC’s leading producer, is refusing to curb output because it’s having a price war with Iran and Russia. With $900 billion in cash reserves Saudi Arabia can easily afford to sell low (their extraction costs are around $6 a barrel) thus murdering the opposition, as well as all those Yankee frackers who thought they were riding the gravy train (Economist, 8 December 2014).
In other words, the price drop is due to a number of contingent factors which may or may not apply at any given point in the future. Now that quantitative easing has been applied in Europe, the oil price has seen a 2 percent uptick. If OPEC decides to curb output, the oil price will rocket and with it the value of shale assets. The plan to turn the Arctic into an oil well will be back on the table, and the Canadian tar pits will start to look inviting again.
What’s so weird about capitalism, and not in a good way, is how a global fall in the price of one key commodity can reverse global policy overnight. It’s even worse with ‘long latency’ commodities where changes at industrial source take years to feed through to the market, by which time they may have precisely the wrong effect and start a panic.
How is humanity supposed to plan for the future, given this yo-yo economics? How are we supposed to make our civilisation sustainable, and guarantee a planet in good health for our descendants? We can’t, basically. For that we would need a steady-state economy, with patterns of production and consumption that didn’t keep yo-yoing up and down unpredictably and didn’t depend on thousands of fast-buck investors who at any moment might either blow it into a giant gas bubble or drain every last gasp out of it. Gambling in a casino might be fun, if you can afford to flutter. But it’s no way to run a planet.
PJS
No comments:
Post a Comment