In a startling admission of the end of the oil age, the Wall Street Journal headlined recently: “Energy Companies Face Crude Reality: Better to Leave It in the Ground: High costs, low prices and tough new environmental rules forcing companies to cancel plans to produce oil.”
“A new era of low crude prices and stricter regulations on climate change is pushing energy companies and resource-rich governments to confront the possibility that some fossil-fuel resources will remain in the ground indefinitely.”
ExxonMobil has reversed plans to produce 3.6 billion barrels of oil in Canada, saying it is not cost-effective to extract oil from tar sands there any more.
Part of the cost is due to political change in Canada. New left-leaning government in Alberta and Canada recently introduced carbon taxes and a cap on emissions.
But most of the cost is just that the technology itself is extremely inefficient. The EROI of extracting oil from tar sands is much worse than for any other energy resource. It takes 1 unit of natural gas to create fewer than 3 units of oil.
When peak oil was a concern, it was thought that a desperate world would pay any price for the last of the oil. But in a surprise turn of events, the real problem has turned out to be “peak demand.”
ExxonMobil calculated that oil prices will not be sufficient within the next 5 years to make it worth the cost to extract the oil from the Canadian tar sands. Why 5 years? SEC disclosure requirements changed in 2010.
SEC Brought Reality into Oil Reserves Estimates
Since January 1, 2010, SEC reporting requirements for publicly traded oil and gas exploration and production companies required that they must have a plan to produce oil from their reserves within 5 years — or they must stop listing such reserves as assets.
The SEC aggressively investigated this “use it or lose it” 5-year rule in the last few months of 2016, as companies fell afoul of the law.
Oil and gas companies that improperly included reserves on their books without a realistic 5-year development plan or didn’t remove listed reserves that they could not develop within 5 years now face significant enforcement risks for misleading estimates of reserves. The 5-year rule led to huge write-downs of oil and gas assets impossible to profitably extract under current prices.
If oil prices rise, or costs or operating efficiencies improve (but few hundred-year-old technologies go on to achieve radical cost cuts), then that changes. But ExxonMobil alone had spent $20 billion on this potential 3.6 billion barrel reserve at the center of its growth plans, highlighting how dramatically the prospects have dimmed.
And ExxonMobil is not the only casualty. As oil prices remained at historic lows through 2016, averaging just $43 a barrel in the US, BP warned that an abundance of already discovered oil resources and slowing demand growth will likely mean some barrels are never recovered. Canadian capital investment in the oil sands fell about 30% in both 2015 and 2016 and is expected to slide another 11% this year.
Will Global Tyrants be Hard Hit by End of Oil?
The connection between reliance on a fossil fuel economy and corruption is well documented as the Resource Curse. Of all the petro-states, many have autocratic rule. Only Norway has consistently managed its oil wealth while remaining democratic.
Image Credit: Wikipedia
Image Credit: PlanetRulers
Russia, the world’s largest oil producer, devolved from near democracy after the fall of the Soviet Union, into one of the world’s most corrupt kleptocracies under the 16-year rule of ex-KGB officer Vladimir Putin.
“By now, Russia’s reputation for corruption is a cliché, but it is impossible to overstate how it defines public life at every level, all the way to the Kremlin. Russia is one of the few countries in the world to slip steadily in Transparency International’s annual rankings. Out of a hundred and seventy-eight countries surveyed in 2010, Russia ranks a hundred and fifty-fourth, a spot it shares with Cambodia, Guinea-Bissau, and the Central African Republic.
“Corruption has reached such extremes that businesses involved in preparing the Black Sea resort of Sochi for the Winter Olympics of 2014 report having to pay kickbacks of more than fifty per cent. The Russian edition of Esquire recently calculated that one road in Sochi cost so much that it could just as well have been paved with, say, nine inches of foie gras or three and a half inches of Louis Vuitton handbags. In October, President Dmitry Medvedev announced that a trillion rubles—thirty-three billion dollars—disappears annually on government contracts. This is three per cent of the country’s G.D.P.”
Russian oil wealth led to kleptocratic rule by and for billionaires.
A Slow-Moving GOP Coup in the US Predated Trump
US Intelligence agencies concluded Putin used sophisticated troll armies to fool Americans into installing a US puppet president supportive of Putin’s kleptocratic regime.
But well before the shocking election results, the contrast in small “d” democracy between the red states and the blue states reflected the level of each state’s dependence on a fossil fuel. If the US comprised different nations, like the EU, the difference in democratic voting laws between Oregon and Oklahoma would be as stark as the difference between democracy in Sweden and dictatorship in Hungary.
Fossil interests have gradually subverted America’s democracy in a slow-moving coup that has taken years to come to fruition in Trump. Good governance was already impossible when citizens live in two parallel universes of facts that American voters have been increasingly immersed in since the end of the Fairness Doctrine.
The forthrightly fascist Trump was a shock, but the Republican party had already implemented a slow-moving coup.
In Other Democracies These Abuses Would be Unthinkable:
- A popular-vote-winning Democratic president unable to pick his own Supreme Court Justice because the “people should vote” in the following election.
- Following the flagrantly corrupt Citizens United rule, “corporations are people, my friend.”
- Two Senators per state disproportionately give Republicans in empty fossil-fueled states an advantage over Democrats in populous blue states with diverse economies.
- Gerrymandered districts reduce the number of Democrats in the House.
- Electoral votes are based on total House and Senate seats, reinforcing that Democratic disenfranchisement.
- Republican-held states target suppression of Democratic voters, students, minorities, and the poor.
Democrats suffer taxation without representation. Wyoming voters have well over three times the electoral college vote weight of a Californian.
In other nations, when one party is systematically deprived of legitimacy, this de facto single-party rule is rightly seen as evidence of tyranny. Now there is the corruption of the Trump cabinet, with almost every seat literally bought by billionaires.
The US is not the only nation to live under this kind of fossil-fueled corruption. Globally, 2.7 billion people live under dictatorship. But now the oil age is gradually ending.
The fossil energy energy industry certainly hopes for favorable treatment by the Trump administration, but even here, there is a realization that that train has gone. According to Paul McConnell, research director for global trends at Wood Mackenzie:
“From an energy point of view, we think this administration will be a net positive for the fossil fuel industry, but having said that, there are trends in the energy space around the cost of renewables and lower demand growth that mean the energy picture will get cleaner, regardless of what the administration wants or what the administration is trying to promote.”
Will the end of the fossil age as we “leave it in the ground” also mean an end to petro-state corruption and autocratic rule? We’ll see.
Background: Why Putin Wants a Trump Kleptocracy