A New Wrinkle in Our Time: Transforming the Oil Economy

An oil drilling platform off the coast of Santa Barbara, CA - 6 December 2011. By TheConduqtor - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=24642259

I’ve written before about how precarious the fossil fuel industry has actually been for many years now. A friend sent this brilliant summary of the recent oil price crash, and what we might do about it.

by Derek J. Tenannt

We will never go back to the ways society and economics worked in late-2019. There are myriad reasons this is true; I want to presence in this short piece one new possibility that we have likely never thought feasible before the pandemic shutdown endured by billions of humans around the globe these last few months.

Here I want to point to our “Master Resource.” Energy is at the base of everything, and legacy fuels: oil, coal, and natural gas; are where most of our energy comes from. Without energy there is no economy; control access to energy, and you control the economy. Oil has many aspects, one of which is the pollution it spews, through the process of releasing its energy through burning it; one is that by “cracking” it in refineries we generate the feedstock required for various fuels, plastics, and herbicides that are part of nearly everything we buy or do; one is the toxic ramifications of the underground extraction processes used today; and finally one is the ways in which controlling or manipulating the price of oil expands or contracts not just our economy but also society itself.

For the first many decades after we began to tap oil from the ground for energy in 1859, it was easy to find enough for our (then) limited needs. In some locales, there were even “seeps”; places where oil leaked out onto the ground, it was so close to the surface or under so much pressure below the surface. At first, we used this flammable substance to replace candles and whale oil lighting. As we found more uses for the byproducts of fuel refining, our thirst for oil increased. On average once a deposit is located now, it takes about five years to move from discovery to production. Thus exploration has become a significant expense for oil companies, and they must always search for new sources because wells always deplete.

The technique of fracturing shale rock, which contains both natural gas and shale oil, was invented in 1972 but was economically untenable, costing so much more than the resulting oil and gas were worth on the market. As we gradually developed all of the “low-hanging fruit” and had to go ever-deeper into Mother Earth to find deposits, costs rose and prices rose, until in the first decade of this century “fracking” became “feasible”. There is a huge caveat to the term “feasible” here. At times of great retail prices, fracked oil is cost-effective; however, most times, the price is close but not enough, and frack wells lose money. What keeps them in operation are the “loose” monetary policies that keep interest rates on borrowed money so low as to be free, and lenders willing to deploy good money after bad to keep the illusion alive that we can carry on increasing our oil use despite the changing climate, increasing toxicity of our environment, and rising economic inequality. One last note about fracking: a fracked well typically lasts only 3 – 5 years; the well depletes at an average of 30% per year, so we must always be drilling new wells to replace those that have run down or out.

In 2014 oil prices fell considerably, leaving the territory where fracking made even nominal sense and drastically increasing the debt used to maintain the illusion of energy “independence”. Because so many wells were losing so much money, even the major oil extractors had to curtail exploration. We are now entering a period of years where we have few new well sites available, one result of not doing much looking since 2014.

There is a tension between oil prices and the economy that contrasts the ability of an extractor to make a profit with the ability of consumers to pay for the oil and its byproducts. Over the last two decades, the “sweet spot” seems to be $70-$75 per barrel. More than that, and consumption of oil goes down (demand); less than that, and extractors lose their ability to profit and so they cut back on opening new wells (supply). Extractors resist extraction taxes (“carbon tax”) precisely because this increases the cost to the consumer and lowers demand, which in turn limits the potential profit they can realize from any given well.

There is one more critical piece of oil technology to understand before we can look at the next few months and what to expect as it pertains to society and economy. An oil well is not a pump, that can be turned on and off at will. Once you pierce the reservoir and begin extraction, the only way to stop the oil from escaping, until the pressures are equalized within and without, is to break the well. Remember Deepwater Horizon, 2010. The well casing cracked, meaning that oil was rising out of the reservoir and into the Gulf of Mexico, in places that were not set up to capture the oil. There was no way to stop the leaks without breaking the well. In many instances today, oil is pushed to the surface by injecting a solution of water and (literally) hundreds of chemicals and possibly sand into the reservoir. If you stop the outflow of oil that results, then the reservoir “re-balances” pressures, amount of water in the reservoir, and salinity among other considerations. Pores that facilitated oil flow by being water-wet (oil and water don’t mix) may instead become oil-wet and stop any future flow. Microfine sand can settle and block pores. Oil of differing types or quality may co-mingle and emulsify, again becoming resistant to extraction or lower in quality if they can be retrieved. There are as many ways to stop well production as there are types of oil and wells. Billions of dollars are spent each year for engineers and processes to ease the oil extraction; but there are hard limits on how effective these methods will be.

Fast forward to 2020. Up until now, every year the world has demanded more of our Master Resource, as economies grew (a major dysfunction of capital and monetary policies is to demand growth at any cost). When a significant (albeit small) percentage of that supply is from fracking, it is critical that more shale be fracked even to only maintain supply and overcome depletion. If the majority portion of oil is also impinged by lower demand and much of it lost due to lack of storage, supply can’t/won’t grow as capital requires. Cost is a direct function of supply vs. demand; and beginning with the lockdown in China in January, demand for oil globally has plummeted. In the US in April, gasoline demand dropped by about 45%.

Seen in another way:

And the US is not “exceptional”; demand around the globe has also collapsed.

In the US, our ability to store excess oil is approaching capacity; in other words, soon we won’t have anywhere to store the excess of supply over demand. Already dozens of tankers float offshore of several countries, unable to unload their crude cargo. Refineries are closing and staff being laid off, a long process both to shut and reopen the facility and so not a decision taken lightly or for “just a few weeks”.

If you have been paying attention, you will notice our air is cleaner as a result of our gasoline use falling to 1971 levels. Animals are more visible as the noise of traffic lessens. Isn’t this lower demand for oil something environmentalists have prayed for these past few decades? Isn’t the question of May and June really one of continuing to maintain these benefits of lower oil use, not about how we return to the days of endless commutes to bullshit jobs? In fact, isn’t the question that we should begin to answer this one: “Is it time to nationalize, to return to the Commons and control of the people, such a critical piece of economic infrastructure as the Master Resource itself?”

Removing oil from private gain into Common Good allows the price to reflect all costs: extraction, refining, use and disposal; as well as costs now externalized outside of profit, such as ecological remediation, social wellbeing, future planning and amelioration of societal costs such as health care, land use, lessening toxicity, and dampening the economic swings between booms and depressions.

Many have spoken or written about using the “carbon budget” we have left to burn before cooking our planet to death to focus on building the infrastructure we need to have an economy of “enough”, one of sufficiency not greed, and one that isn’t destroying the biosphere we rely upon for life. Corporations that must turn a profit will never, again never, put planet above profit. They will insist upon using all of their “assets”; meaning any attempt to “leave it in the ground” will fail. The people must step up and demand that energy, the foundation of economy and society, be used only for the common good and not for profit. We must allow some of the discovered oil to remain where Nature placed it. Your bought-and-paid-for politicians won’t do this. Your corporate-owned media won’t encourage you to demand it. Just the likely fact that this is the first you have heard of an idea so grand and logical as this should be proof that your interests, and the interests of your kin and your environment, will not be considered unless we come together and take back our collective power from the oil industry.

We are legion; they cannot resist us when we act as one.

Please spread this message far and wide.

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