Thursday, August 25, 2016

The future of oil (1980)

From the August 1980 issue of the Socialist Standard

North Sea oil and gas once—seen as the saviours of British capitalism—should be seen in relation to British and world capitalism, and to long-term energy requirements. In essence none of the economic and social problems is new, not even the environmental ones. For example, when wood was the domestic and industrial fuel in Britain the government, belatedly, had to step in to prevent the woodlands being entirely destroyed.

The history of this century has seen several big change-overs in the predominant source of energy. Coal, which had been mined on a small scale by the Romans but was then neglected for centuries, came into its own as wood supplies dwindled. Output rose from 5 million tons in 1750 to 60 million a hundred years later, and reached its peak of 287 million tons in 1913. Then rapid decline set in and current production is about 125 million. Now, in the words of a report by the world’s seven leading oil companies: “Oil, which once ousted coal as the dominant energy source, can do little more than meet the current level of demand over the next twenty years. After that it will be down hill all the way.” (Financial Times, 22 April 1980.)

Oil became dominant with the motor age. Imports of oil products into Britain, only 200,000 tons in 1913, were 100 million tons in 1973. Since then the fast development of North Sea oil has nearly reached self-sufficiency and there is the prospect of a surplus for export during the 1980s. Now a new phase opens, following the agreement reached in June at the Venice meeting of seven industrial nations (USA, Japan, Canada, Germany, France, Britain and Italy) to reduce their dependence on oil by 1990 and to cover the gap by developing coal production and making increased use of nuclear energy, solar energy and other resources.

In view of what has happened in the past to many plans and declarations of intent, this one should be regarded with caution. Indeed, within days, Margaret Thatcher was explaining that the agreement did not mean what it seemed. If, however, British coal production was doubled, it would bring total output to the level of 1922—but with one big difference. It would not increase the number of miners, now under 300,000, to over a million as it was in 1922. With the revolution in mining techniques, the main increase in the number of jobs would not be in the pits but in the industries producing the sophisticated and costly mining machinery and equipment, and the resulting total would be nothing like a million. One result of the coal revival is that all the big oil companies are now making massive investments in coal mining and in the use of coal to make oil and chemicals.

While British oil production has been soaring, in the USA it has fallen. In 1961 American oil output was by far the largest in the world, double that of Russia, which enabled America to be self-sufficient up to 1970. Now, consuming a third of all world oil production, America is the world’s biggest importer, at a cost in 1980 of about £45,000 million. In home output they now rank third, with Saudi Arabia and Russia well ahead; though increased exploration under the stimulus of high world oil prices will result in an increase of production for some time.

According to Western observers (where widely different conclusions must however be accepted with reserve) Russian capitalism also has its energy problems. Mark Frankland (Observer, 22 June 1980), after discounting the wilder forecasts, considers that Russian oil production and exports may soon reach a peak and begin to decline. On the other hand, Russia has one-third of world gas reserves, the largest coal reserves, considerable unused hydro-electrical potential, and fast-growing nuclear power.

In Frankland’s view, Russia’s difficulty is that, owing to location, it is becoming “monstrously expensive” to develop new oilfields. Other observers believe that the wasteful use of energy in past years has made it increasingly difficult for Russia to expand its manufacturing and agricultural output. The Financial Times (1 April 1980) says that Russia and her East European dependencies “use twice or three times the amount of energy used in the West for a comparable output”.

Major disruption to all the oil importing countries was caused in 1973 when the Organisation of Petroleum Exporting Countries (OPEC) enormously increased their prices. Dominating oil production, and with 80 per cent of all known resources outside Russia, they were able to band together, threaten to withhold supplies and force the importers to pay more. In 1973 they put prices up from $3 to $8 a barrel, and have since raised it to $35. Some forecasters expect $65 by 1990.

After years of weak, competitive marketing, during which the OPEC countries had been accepting payment in fast depreciating dollars and pounds (while having to pay constantly rising prices for the industrial goods they imported), they have learned the old capitalist principle of selling at the highest price the market will bear. Their action was met with sanctimonious accusations of “greed” and “irresponsibility” and with threats of armed force to take over Middle East oil.

As happens with all monopolies, OPEC itself is temporarily in some trouble. High world oil prices, and the depression, have reduced sales and current production is in excess of demand. But OPEC still commands the situation, and the American Department of Energy takes an alarmist view of the chaos that could be created if output by some of the main suppliers declines (as in Iran) or is deliberately cut to raise prices further. Later on in the 1980s it may be, as suggested in the Sunday Telegraph (15 June 1980) that “OPEC’s domination of world oil supplies is likely to be eroded . . .  by the build-up of production in non-OPEC areas, notably Mexico, the North Sea and the Far East”.

Dr. Hammer, Chairman of Occidental Petroleum (Sunday Telegraph 29 June 1980) looks to two big additions to world oil production; first China and, more importantly, the commercial working of shale-oil. According to him, shale-oil reserves in America are two and a half times greater than all the Western world's known oil reserves. In the past extraction has been too costly, but this is changing with the spectacular rise of world oil prices.

New panic broke out when Russia invaded Afghanistan, with the implication, in the eyes of Western observers, that it was the prelude to a drive towards Middle East oil. Exceptionally, The Times (24 June 1980) suggested that the Western Powers should “seriously consider selling equipment to the Soviet Union to expand its oil production, Afghanistan or no Afghanistan".

As regards the problem of world reserves of oil, past experience has been that, in spite of constantly growing consumption, each decade has shown an increase in estimates of total untapped reserves. A survey quoted in the Financial Times (3 June 1980) shows that proved world reserves rose from 554 billion barrels in 1970 to 655 billion in 1979. Other estimates put the ultimate peak of reserves at a very much higher figure before decline sets in.

The real problem is a different one. In oil, as in coal, when the easily accessible sources are worked out, the tendency is for each ton produced to need an increasing amount of labour, showing itself in the enormous investments of capital required for North Sea oil and for the expansion of coal output. Investment in North Sea oil in 1979 was £2,000 million.

One aspect of the current situation is the odd belief of many economists and politicians that because North Sea oil is under British control and does not have to be imported, this spells prosperity for the working class. They forget that they are dealing with capitalism, which does not produce for use but for sale at a profit. They should look at the history of coal production; for decades before 1913, when coal was king, British capitalism had huge coal reserves under its control and a big export market, but this did not prevent miners suffering long spells of heavy unemployment and being forced to accept wage reductions in periodical depressions.

While the Venice conference was in session, the Daily Mail (24 June 1980) announced that doubling of coal production meant “a rosy new future for the miners”. But in the House of Commons the same day Thatcher explained that the increase of output was to take place in America, Canada and elsewhere with lower production costs, and said: “I do not expect what happened at the Venice summit to have any impact on coal in this country unless we have sharply increased productivity and thereby competitive prices” (The Times, 25 June 1980).

For miners it spells, not a rosy future, but having to meet cheap coal imports.
Edgar Hardcastle

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