Fossil Fuel Rollercoaster to Nowhere Clatters On

February 3, 2016

rollercoaster

Are low oil prices good or bad news for climate change?

Mixed bag.  Low gas prices could depress demand for electric cars.
But the same low prices make extraction in the frontier areas, tar sands, shale, deep ocean and arctic, unprofitable.

Like the last flares of a dying star, the fossil fuel industry will be on a vicious rollercoaster in coming years.

New York Times:

The newest measure of the oil industry’s falling fortunes came on Tuesday in the form of a $3.3 billion fourth-quarter loss reported by BP.

For all of 2015, BP said it lost $6.48 billion, compared with a profit of $3.78 billion in 2014 — before plummeting oil prices began taking their full toll.

Exxon Mobil, the industry’s largest player, reported a 58 percent decline in its quarterly profit, hurt also by the fall in oil prices. The results beat analyst estimates but Exxon’s profit of $2.78 billion was down from $6.57 billion the year before. Its exploration and production business lost $538 million in the United States, though its total global upstream earnings for the quarter were $857 million.

Minnesota Public Radio:

Business Insider:

The plunge in oil prices is already having far-reaching effects on countries whose economies are dependent on oil exports.

But in Iraq, the stakes of cheap oil are even higher than in Saudi Arabia, which is instituting unprecedented taxation and austerity, or in Nigeria, which is now asking for an $11 billion World Bank loan.

What little remains of Iraq’s government and social order might collapse if oil remains in its current price trough — with dire consequences.

According to a Monday AFP report, Iraq is now selling oil at half of the country’s apparent fiscal break-even price. Right now, Iraq is selling its oil at around $22 a barrel, half of what it would need to fetch for the country to be able to fund the upcoming year of government budgetary obligations, the report said.

But Iraq’s situation is actually even worse. As recently as the 2014 fiscal year, Iraq was formulating its national budget on the assumption that oil would remain at around $90 a barrel and that the country’s oil exports would continue to climb (which they have).

Iraqi government revenue experienced dramatic annual increases between 2009 and 2013, almost entirely because of oil. That’s all over, now that oil is expected to stay under $40 a barrel through the end of the year.

Though Iraqi oil is comparatively cheap to extract, it also contains unusually high levels of sulfur, meaning that it typically sells for around 10% less than Brent crude, the global price benchmark. The Iraqi government is still making money pumping oil — just not nearly enough to fund the country’s anticipated national budget.

Ali Khedery, the CEO of Dubai-based Dragoman Partners and a former adviser to US Central Command with extensive on-the-ground experience in Iraq, warned that cheap oil threatens the country’s last remaining semblance of order.

“You are looking at a significant possibility of state collapse due to civil unrest,” he told Business Insider.

Bloomberg:

For the last 75 years, almost every economic crisis has been preceded by an oil price spike. The worry now is that low energy prices are pushing the global economy into a tailspin.

While the idea is counter-intuitive, it’s gaining traction because a growing share of the world’s consumers and investors are in the very places getting hammered by the rout in commodities prices. Apple Inc., for example, blamed weaker sales last quarter on lower economic growth in some oil-rich countries.

“I never thought I would wish, let alone pray, for higher oil prices, but I am,” said Han de Jong, chief economist at ABN Amro Bank NV in Amsterdam. “The world badly needs higher oil prices.”

The problem is that the world’s economy relies far more today on emerging countries than 15 or 25 years ago — the last periods of ultra-low oil prices. In another twist, the U.S. has emerged to vie with Saudi Arabia and Russia as the world’s biggest oil producer. In the past, the harm done to exporters was more than offset by importers’ gains.

And with the exception of China and India, most big emerging countries are oil and commodities rich. Such economies now account for about 40 percent of global gross domestic product, about double their share in 1990, according to the International Monetary Fund.

From Russia to Saudi Arabia, Nigeria to Brazil, economic growth is slowing down to a crawl and, in many cases, is contracting.

 

 

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5 Responses to “Fossil Fuel Rollercoaster to Nowhere Clatters On”


  1. Like every other economic boom and bust scenario, governments hitch on to what they see as a good thing, getting revenues for services without requiring their constituents to pay for them.

    In the same manner, “constituents” (meaning, collectively, us) use atmospheric and ecosystem services without paying for them, and without consideration of the costs to them of our other behaviors. Moreover, the “regulatory system” we have, roughly speaking, “economics”, has no natural mechanism for pricing in these impacts or the non-linearities they entail.

    Accordingly, anticipating these with proactive measures is impossible in the current situation, and we are left reacting to them. This means we’re just another critter whose numbers and welfare are dictated by a web of interrelated quantities best described by coupled differential equations, e.g., Lotka-Volterra, and, while some of us can see that, all of us remain at their complete mercy.

    Doesn’t suggest intelligence has much survival benefit, at least on the large scale, does it?


  2. I suspect a lot of this is due to market rigging on the COMEX. The reason is to put the screws to Russia and Iran.

  3. toddinnorway Says:

    Low oil prices strangle investments in new oil production. This is an unconditional positive trend for reducing GHG emissions. But many “haircuts” will be performed in the process and all those juicy financial returns in oil companies simply will not happen. The vast majority of the people working in the oil industry are very resourceful, well-trained and educated and adaptable and will find useful alternative work, hopefully in the renewables industry!
    Remember, the world is spending about 1 billion dollars a day less on oil than it did 2 years ago. This spare cash can be invested in renewables, EVs, super-efficient hydrids and energy efficiency instead, if we make the right choices.

    • toddinnorway Says:

      Should have said…”the world is spending about FOUR billion dollars a day less on oil than it did 2 years ago…”


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