The politics of oil2
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Talk scheduled for October 18th. Oil is essential to industrial society as we know it. The history of the industrialized world has been shaped by changes in the environmental, economic, social, and political dimensions of oil. In this session, we will learn about the history, the present challenges, and the future of oil in an environmentally-stressed planet. Participants will emerge with a deeper appreciation for the complexities of oil politics
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The politics of oil2
- 1. The Politics of Oil Dr. Rosalind Warner Rozwarner.com rowarner@Okanagan.bc.ca
- 2. The Politics of Oil ▪Features of Oil as a Strategic Resource ▪The Story of Oil (Sands) ▪The Oil Addiction ▪De-Toxing
- 3. Features of Oil as a Resource ▪Lootability ▪Pointiness ▪Rentier ▪Volatility ▪Oil &War
- 4. Features of Oil as a Resource: Lootability
- 5. Features of Oil as a Resource: The oil and gas people are so generous it’s ridiculous Pointiness
- 6. Features of Oil as a Resource ▪ Oil as a Strategic Public Resource – Publicly-owned – Publicly-funded – Publicly subsidized Rentier $5.2 trillion a year (IMF, 2017)
- 7. Features of Oil as a Resource Stable oil prices have made civilization prosper since 1945
- 8. Features of Oil as a Resource Volatility
- 9. Oil and War ▪ US Department of Defense is the single largest consumer of fossil fuels on the planet ▪269,230barrels of oil/day ▪ Spent more than $8.6 billion on fuel for the Air Force, Army, Navy and the Marines in 2018 ▪1.2 billion metric tons of GHG emissions, same as all the vehicles in the entire US, since 2001
- 10. Features of Oil as a Resource ▪Lootability ▪Pointiness ▪Rentier ▪Volatility ▪Oil &War
- 11. The Story of Oil ▪ The Military Machine ▪ The 1970s - Roots of Crisis ▪ The Seven Sisters ▪ The Story of the Oil Sands ▪ The IraqWar Heroes
- 12. The Story of Oil Oil andWar YoungWinston Churchill, First Lord of the Admiralty, converts the British Royal Navy from coal to oil in 1911
- 14. Features of Oil as a Resource Oil andWar Ramadi, Iraq, 1 June 1941
- 15. The Story of Oil The 1970s - Roots of Crisis The Seven Sisters
- 17. The 1970s – The Rise of OPEC
- 18. The Story of the Oil Sands
- 19. The Story of the Oil Sands, b. 1967 ▪ "This is a red letter day, not only for Canada but for all North America. No other event in Canada's centennial year is more important or significant." – ~ Premier Ernest Manning
- 20. The Story of the Oil Sands
- 21. The Story of Oil ▪The Military Machine ▪The 1970s - Roots of Crisis ▪The Seven Sisters ▪The Story of the Oil Sands ▪The IraqWar Heroes
- 22. The Oil Addiction ▪ Commuters vs. Polluters ▪ Oil & Money ▪ StrandedAssets
- 23. The Oil Addiction: Commuters vs. Polluters
- 24. The Oil Addiction: Commuters vs. Polluters 75% of the energy supply mix in 2040.
- 25. The Oil Addiction: Oil and Money $2 trillion debt burden
- 26. The Oil Addiction: Oil and Finance
- 27. The Oil Addiction: Oil and Finance Increasing liability & risks
- 28. The Oil Addiction: Stranded Assets
- 29. De-Toxing ▪ Harder than weThink ▪ Easier thanWeThink
- 30. De-Toxing: Harder Than We Think Entrenched interests (lootability) Fairness (pointiness) Rapid change (Volatility)
- 31. De-Toxing: Easier than We Think Oil & Politics DO mix
- 32. De-Toxing: Easier than We Think Oil & Politics DO mix
Editor's Notes
- The Municipal District of Greenview received $77 million in taxes and fees from oil and gas companies in 2018 — more than any other municipal district in the province. The Narwhal visited two towns in the region to learn more about life in communities whose fortunes are deeply intertwined with the oil and gas industry In 2018, the district — a large area of northwestern Alberta notable for its large swaths of trees and Crown land — received 58 payments in taxes and fees, totalling more than $77 million ($58.3 million USD) from oil and gas companies, according to data published under the Extractive Sector Transparency Measures Act (ESTMA), which came into force in Canada in 2015. Just 5,583 people call the Municipal District of Greenview home (this includes only rural residents of the district, not people in the towns, which are governed separately), meaning per-capita payments from oil and gas companies equalled roughly $14,000 in 2018. This per-capita amount is approximately twice that of the Regional Municipality of Wood Buffalo, home to the oilsands — although Wood Buffalo (a different type of municipality that includes the city of Fort McMurray) received higher tax payments overall. The district collects revenue from oil and gas companies through taxes such as property taxes and taxes on machinery and equipment. According to Smith, the reeve, this revenue makes up “somewhere between, say, 95 and 97 per cent” of the district’s total revenue. According to the district’s financial statements, total expenses for 2018 were $89,868,181, meaning that the millions received from oil and gas companies are indeed a huge share of the money spent in the region — the $77 million the municipal district received in taxes and fees from oil and gas companies would make up more than 85 per cent of the district’s total expenses. It’s clear oil and gas companies are paying far, far more money into local coffers than residents or other businesses. Multiplex -- A farmer donated the land where the massive building now sits, just on the periphery of the town. The district paid for 83 per cent of it, as well as 80 per cent of the operating costs — thanks in large part to revenue from oil and gas companies. From the foyer, we can see the pool, the waterslide and the lazy river. There’s a full gym upstairs, as well as dance studios, party rooms and racquetball courts. The receptionist tells us between 250 and 300 people visit per day. The Greenview Multiplex in Valleyview, Alta. The facility includes a pool, a lazy river, a full-service gym, dance studios and racquetball courts. “It’s hard to believe,” Mayor Lymburner said of the facility in a town of fewer than 2,000 people. Photo: Amber Bracken / The Narwhal We also hear about new Stars Air Ambulance landing pads, a new medical clinic, new playgrounds, money for the seniors’ centre, money for the school — the list goes on. In Fox Creek, the local peace officer was waiting for a shipment of kids’ bicycle helmets to arrive — he’d be handing them out for free to kids riding without one. They were paid for by Shell. “The oil and gas people are so generous it’s ridiculous,” Hailes said when we visited him in Fox Creek. “The school doesn’t know what to do with it all.” According to a 2018 report from the Parkland Institute, the Big Five together brought in $46.6 billion in aggregate profits in 2017 — roughly equivalent to the total income of the Alberta government that same year. When Hailes takes us on a tour of his town’s new multiplex — our second such tour in one day in the district — he’s proud of the arrangements created with oil and gas companies. In exchange for having their names emblazoned on parts of the multiplex — the bleachers, the pool, the centre of the basketball court — the companies will pay maintenance costs for part of the facility. Otherwise, such big upkeep expenses could spell trouble for such a small town.
- Fossil fuel subsidies: the IMF says we pay $5.2 trillion a year - The International Monetary Fund periodically assesses global subsidies for fossil fuels as part of its work on climate, and it found in a recent working paper that the fossil fuel industry got a whopping $5.2 trillion in subsidies in 2017. This amounts to 6.4 percent of the global gross domestic product.
- Trans Mountain expansion project: Partisan pipeline politics versus Canadians’ best interests | Corporate Mapping Project According to CAPP, as of 2017 oil and gas royalty revenue declined 59 per cent since 2000 despite a 112 per cent increase in oil production. --the period 1974 to 1982 was characterized by what can be described as a new OPEC-dominated order in international oil, --during this period, OPEC and other non-OPEC oil producers had increased their share of oil revenues and the balance of power between the oil transnationals and producers shifted substantially –however, the contradiction of the OPEC order was similar to those which undermined the power of the majors --high profits led to more non-OPEC oil production ie. North Sea and Alaskan; high prices meant consumer countries began to use their energy more efficiently, developed alternative sources, minimized dependence --second contradiction: oil wealth encouraged and fuelled regional ambitions and a growing militarisation of the Middle East; Iran sought to establish regional dominance both under the Shah and the Ayalotallah; breakdown in political unity of OPEC with the outbreak of the Iran-Iraq war --by the mid-1980s, West much less dependent on OPEC supplies, and by 1987 a substantial unused production capacity outside the Gulf in countries like Mexico, Venezuela, Indonesia and Nigeria --excess supply has forced prices down throughout the 1980s - with cheaper imported oil supplies once again, the world is now shifting back to oil dependence on the Middle East, rife with regional conflicts
- University, since the global war on terror began in 2001, the U.S. military has produced 1.2 billion metric tons of greenhouse-gas emissions, or as much as 257 million passenger cars annually, roughly as many registered vehicles as there are in the entire U.S. That's a higher annual output than whole countries like Morocco, Sweden, and Switzerland. The total emissions from war-related activity in Afghanistan, Iraq, Pakistan, and Syria is estimated at more than 400 million metric tons of carbon dioxide alone. It's difficult to get a full picture of the military's fuel consumption and greenhouse-gas emissions. Even though the U.S. never officially ratified the Kyoto Protocol, a 1992 international agreement between world powers to fight climate change, it pushed to exempt the military from the environmental standards laid out in the agreement. That includes having to document and report on carbon dioxide emissions. The 2015 Paris climate accords closed that loophole, but since Donald Trump has pulled the U.S. out, the military once again has carte blanche to burn all the fuel that it wants. In a report out earlier this summer, Costs of War broke down where all that fuel is going. About 30 percent of the energy use goes to infrastructure, and the Department of Defense spent an estimated $3.5 billion in heating, cooling, and electricity costs in 2017 alone. The remaining 70 percent is "operational," meaning the actual fighting and all the hardware it takes to support that, including fuel for tremendously fuel-inefficient vehicles, planes, and ships. The Department of Defense has been taking steps to "green" some of its bases, though that's less about carbon footprints and more about freeing those bases from relying on costly fuel convoys that are prone to attack. Similarly, gas-electric hybrid battleships need less fuel and therefore fewer refueling stops, so they're strategically preferable. But even those reductions don't go far enough. For 2017 alone, the U.S. military bought 269,230 barrels of oil a day and spent more than $8.6 billion on fuel for the Air Force, the Army, the Navy, and the Marines, and the military remains the single largest consumer of fossil fuels on the planet, according to the Union of Concerned Scientists. A greener military is still more environmentally destructive than a smaller military. And defense isn't like a normal industry: Closing down a base doesn't mean that a competitor will immediately come in and open a new one, like with a chicken-processing plant or a community drugstore.
- Winston Churchill in 1904 (photo: Imperial War Museum / Wikipedia) It was Winston Churchill, then Britain’s First Lord of the Admiralty, who made oil the strategically important fuel that it is. Together with Lord John Fisher, he proposed in 1911 that the British Royal Navy switch from coal powered ships to oil. The change was necessary in order to keep pace with the German naval build-up, with oil being viewed as a superior fuel. The conversion took seven years to complete and resulted in the maintenance of oil supplies becoming a strategic military objective. The first target for investment was the Anglo-Persian Oil Company (APOC) that had been set up in 1908 to explore and extract oil from what is now southern Iran. On 14 June 1908, just weeks before the commencement of hostilities in Europe, Winston Churchill succeeded in getting the British Government to invest £2.2 million in APOC, as explained by Daniel Yergin in The Prize — The Epic Quest for Oil, Money and Power. Clearly, the British were not alone in recognizing oil’s potential and there are some who argue that Germany’s proposal to construct the Berlin to Baghdad railway as well as their close ties with the Ottoman Empire caused great concerns for the British. This could explain why, within months of the war beginning, British troops landed in Mesopotamia (now Iraq) in November 1914 to defend the APOC oilfields around Basra.
- -oil central to war efforts, reconstruction efforts after WWII, particularly significant for economic recovery and growth in Western Europe and Japan
- A British firing party provides cover for Royal Engineers building a temporary bridge near Ramadi, Iraq, 1 June 1941. Public Domain photo: UK Government. Following the Second World War, we have other examples. At the time of the first oil crisis in 1973, we see that the United States Congress, seriously concerned about the potential for oil supplies to be cut off, ordered an investigation into how it may be possible to use military force to gain access to oil supplies in the event of a supply disruption. The report, published in 1975 and entitled “Oil Fields as Military Objectives” concluded that the risks associated with military action in the Middle East were too high, the prospects of success were poor and the consequence of failure would be disastrous.
- –after the Second World War, control of newly-discovered oil reserves in Saudi Arabia was held in the hands of the large multinational oil corporations
- --the international oil regime was organized through the giant transnational oil companies, the so-called Seven Sisters, namely Exxon, British Petroleum, Royal-Dutch Shell, Gulf, Mobil, Standard Oil of California, and Texaco, --five American, one British and one Anglo-Dutch --the Seven Sisters cooperated with each other, controlling supplies either by sharing sources through joint ventures or dividing up sources by explicit agreements; to control their markets, they agreed to divide markets, fix world prices, and discriminate against outsiders --faced with a few mammoth oil companies which controlled technology and market access, cooperated with each other, and operated with the strong backing of their powerful home governments, underdeveloped countries were forced to bargain from a position of weakness --as a result, in return for the payment of a small fixed royalty to host governments, the international oil companies obtained control over the production and sale of much of the world's oil
- --for the ten to fifteen years in the post-war era, the Seven Sisters managed to keep out competitors: upstream, ie. in crude oil production, was blocked by the majors' control through concession agreements of many oil-rich areas and by the long lead times inherent in finding and developing oil --downstream, in oil refining, transportation and marketing because, not having their own crude oil supplies, competitors had to purchase oil from the majors; --the oil business became the world's biggest international industry --assets and sales figures of these companies came to dwarf the gross national product of many smaller countries --the majors ensured market stability and high profits and consumers developed the expectation of uninterrupted supply --but built into this order were certain contradictions, which helped to bring about its demise --high profits of the industry began to attract new producers, called the independents who came to supply a growing market share and compete with the majors --beginning in 1954 smaller American firms in addition to the European, Japanese began to seek concessions in existing and new oil-producing regions --in 1952 the Seven Sisters produced over 90 percent of crude outside of North America, by 1968 produced only 75 percent --changes also took place in the company control of pricing --increased competition for supplies meant increased production, and by the end of the 1950s supply outdistanced consumption, the Seven Sisters, no longer able to restrict supply, were unable to maintain the price of oil at the old level --as a result, international oil companies reduced the posted price of oil in 1960 --while changes in the structure of the international oil industry were undermining the dominance of the seven sisters, changes in the oil producing states were improving their bargaining position vis-a-vis western foreign investors --formed their own institutions for international cooperation: OPEC was created in 1960 in a response to the unilateral decision by the oil companies to reduce the price of oil --had little success for the first ten years, but by 1970, an important and effective tool of the producer states –this is because of the altered position of the Western consuming states --as domestic sources of oil declined dependence on foreign oil increased, making West more vulnerable to supplies of oil --the long-term implications of these factors were felt by the West when OPEC imposed its oil boycott during the 1973 war, sparking the First Oil Shock --at this point, American firms operating in Saudi Arabia functioned as an agent for its host governments rather than its parent government --during the embargo, the true ambiguity of the oil multinationals' role became more apparent, as they obeyed host countries’ instructions and imposed tight controls over the supply and distribution of oil --the post-war american dominated oil order thus broke down in 1974
- Into the breach stepped the marginal oil producers – the smaller players and companies who had been drawn into the world’s largest business by the promise of government support, governments who were increasingly recognizing the cost of their dependence on imported oil and the need to find alternative supplies -Mexico was one possibility, Canada was another---
- Kenneth F. Heddon becomes president of Sun Oil Company Limited. Construction begins at the oil sands plant (then known as Great Canadian Oil Sands) in Fort McMurray. J. Howard Pew, president and chairman of Sun Oil said, "The tar sands, or more properly the oil sands, of the McMurray area constitute probably the largest potential oil field in the world, and it has been the dream of many oil technologists to find an efficient and economic process of separating the oil from the sand in such a condition that it will be readily processed in a modern refinery into gasoline, diesel and fuel oil, and road oils. The engineers of Abasand Oils Ltd., at Fort McMurray, have for some time grappled with the problem and have worked out a treatment which appears efficient and economical . . . It is expected that trial runs will be made before the end of the year and that the plant will be in full operation early in 1940." (SOURCE: peel.library.ualberta.ca) To this day that prediction rings true, as separating the oil from the sands is an ongoing challenge. Technology has improved with each decade, and many of the most significant milestones have only recently been achieved. Making the most of this incredible resource truly is a work in progress.
- In 1990, after a long-standing feud with neighbouring Kuwait, Saddam Hussein’s Iraqi army invaded the country. Iraq had accused Kuwait of slant drilling into Iraq’s Rumaila oil field, and then of overproducing oil beyond OPEC treaty limits, causing a drop in world oil prices. This was the beginning of the Gulf War. As the American led allies became involved and began advancing toward Iraq, the retreating Iraqis began setting fire to the oil wells and to lakes and trenches of oil they had created. By February 1991, the fires were ignited by the retreating Iraqis in an effort to destroy Kuwait’s oil infrastructure and to slow the advancing allies. To some extent the delay worked, but the fires of over 600 wells and oil ponds created an environmental disaster of epic proportions. Specialized oil well experts were brought in to quell the fires. At first four major US companies were contracted and some from other countries including Kuwait, and then the Canadians were called. Canada extinguishes the most, and the last fire SafetyBOSS of Calgary became the leading effort, and although called in last, ended up capping the most wells, although all efforts were initially slowed by landmines around the sites which had to be cleared first at a high degree of danger. The Canadian company put out 180 fires in just 200 days, a rate none of the other experts could match The last fire was put out by Canada’s SafetyBOSS on November 6, 1991. The company had set up its equipment and plan so that the last fire would be extinguished by the push of a button, and prepared the honour for the Emir of Kuwait.
- How your online shopping is impeding Canada’s emissions targets In the exurbs, it's possible for a single-earner family with a decent middle-class job to buy a home big enough to host a family party, with a two car garage, a garden, and a luxuriously large kitchen. A carbon tax works because it makes commuting from the exurbs prohibitively expensive. Leaving the exurbs means not having a garage big enough to work on restoring a 1966 Mustang. It means giving up the backyard pond and the garden and the barbecue. It means taking a capital loss on a home that is no longer desirable, given the cost of getting to work. If economists want to sell carbon taxes, we have to face up to their distributional consequences. In Toronto, there are (roughly speaking) two groups who would gain from a carbon tax. The first group is those who cannot afford to use carbon. According to this study, the Torontonians with the smallest carbon footprint are those who live in the high rises and housing projects of East York. They have small living spaces, hence low heating costs, and take public transit. A BC-style carbon tax, which includes a refundable tax credit for low income individuals, would make these people better off. The second group that gains from a carbon tax are those prefer a lower carbon lifestyle, and can afford to indulge their preferences. They're the people who think of their car (if they own one) as a recalcitrant, overpaid, employee, but pamper their bicycle with special botanical chain oil from Mountain Equipment Co-op. They live in Toronto's waterfront condos, or in areas like little Italy. A reduction in income or consumption taxes, financed by an increase in carbon taxes, would be a clear gain for the higher income, lower carbon demographic. Per capita green house gas emissions, all residential uses. Source: VandeWeghe and Kennedy, 2007 The biggest losers from a carbon tax are people like my cousins in the exurbs. The map above, taken from a paper by VandeWeghe and Kennedy, highlights the parts of Toronto with the highest per capita carbon consumption in red. These are place where people live in reasonably large houses, and commute long distances to work, generating whopping carbon footprints.
- In 2015, about 26 per cent of our emissions came from oil and gas production. These emissions have risen 76 per cent over the past 25 years, as Canada experienced the highs and lows of an energy boom that brought economic prosperity across the country. Oil and gas will continue to be valuable natural resources, but we need to think about how to use them best in a low carbon economy — for instance, could we make better plastics and materials for durable applications that lock carbon away, rather than releasing it into the atmosphere? Canada needs a strategic policy that can tailor oil and gas production pathways to meet future needs — not today’s energy mix. Reducing emissions means addressing the fuels, primarily oil and gasoline, used in transportation, which accounted for 24 per cent of Canada’s emissions in 2015.Heavy duty transport — particularly diesel-burning transport trucks — is a different story. Government data show that the single fastest-growing source of emissions in Canada has been heavy-duty freight trucks — up an astonishing 205 per cent since 1990. Fossil fuel sector in denial over demand destruction - Carbon Tracker Initiative Typical industry scenarios see coal, oil and gas use growing by 30%-50% and still making up 75% of the energy supply mix in 2040. These scenarios do not reflect the huge potential for reducing fossil fuel demand in accordance with decarbonisation pathways.
- Gaius Publius: The Dying Fossil Fuel Industry | naked capitalism t’s not just OPEC that needs to be prepared. A report [pdf] published in October by the Group of 30 (G30), a Washington DC-based financial advisory group run by executives of the world’s biggest banks, warns investors that the entire global oil industry has expanded on the basis of an unsustainable debt bubble…. The industry’s long-term debts now total over $2 trillion, the report concludes, half of which “will never be repaid because the issuing firms comprehend neither how dramatically their industry has changed nor how these changes threaten to soon engulf them.” [emphasis added] An $2 trillion debt burden — with $1 trillion doomed never to be repaid — will kill even the largest industry once investors become convinced they’ll never get their money back.
- Such investments "could be at high risk of becoming economically unviable as prices in renewable electricity further decline," it warns. "At a minimum, this plausible future would suggest that governments ensure that the risks of further investments in oil and gas infrastructure be borne by private interests rather than taxpayers," the report reads. Major investors in the oil sands have begun to leave, including Norway-based Statoil, which pulled out of the oil sands in December because it couldn’t make money there. World's biggest sovereign wealth fund to ditch fossil fuels | Business | The Guardian The world’s largest sovereign wealth fund, which manages $1tn (£786bn) of Norway’s assets, has been given the go ahead for the largest fossil fuel divestment to date by dropping more than $13bn of investments. Norway’s parliament voted plans into law on Wednesday for the fund to dump investments in eight coal companies and an estimated 150 oil producers.
- Even majors such as ExxonMobil are not immune – the company recently announced that it no longer considers 20 percent, or 4.5 billion barrels, of its proved oil reserves to be extractable. This reduction applies mostly to the company’s oil sands deposits in Canada, which are expensive to extract and use, and therefore particularly sensitive to dips in oil prices. The write-down could be the largest single company revision in the history of the industry. Another is the worldwide accepted goal to curb emissions to keep global temperatures from rising more than 2°C above pre-industrial levels. To realize this goal, an estimated one-third of all oil reserves, half of all gas reserves and over 80 percent of current coal reserves need to remain unused through 2050. Given the popularity of clean energy across the political spectrum, and the need for $90 trillion worth of infrastructure investment over the next 15 years, it makes sense to aim that investment toward low carbon projects. This could be the end of Canadian tar sands | Grist
- The oil and gas sector is the largest and fastest growing source of GHG emissions in Canada. Because policies to adequately address these emissions have not been a major part of Canada’s Pan‐Canadian Framework on Clean Growth and Climate Change (PCF), any emission reductions from the plan are predicted to be overwhelmed by increased emissions from expanded production of oil and gas. [https://www.stand.earth/canada-oil-gas-emissions]
- The oil and gas sector is the largest and fastest growing source of GHG emissions in Canada. Because policies to adequately address these emissions have not been a major part of Canada’s Pan‐Canadian Framework on Clean Growth and Climate Change (PCF), any emission reductions from the plan are predicted to be overwhelmed by increased emissions from expanded production of oil and gas. [https://www.stand.earth/canada-oil-gas-emissions]
- The desire to bring back US jobs to heartland states is already being realized in states like Florida, Kansas and Colorado, where over 21,000 factory workers are making the majority of domestic wind farm components. The number one fast growing job in America this decade? Wind turbine service technician. The solar industry is growing fast as well, creating jobs at a pace 12 times faster than the rest of the US job market.