It has long been fashionable to vilify the oil industry. Starting in 1973 when OPEC first flexed its pricing muscles, “big oil” became synonymous with the worst of capitalism.
Nearly fifty years later the tradition continues.
As oil prices rose in the 1970s, two myths became urban legends.
The first was that the so-called “Seven Sisters” – the world’s largest privately-owned oil companies – colluded to artificially raise prices. This was based on the premise that the third-world OPEC producers restricting output weren’t smart enough to figure out how do this themselves.
This would be considered racist today.
Then there was the fable about the miracle carburetor that could enhance fuel economy. It was intentionally concealed to sustain high gasoline prices.
Both were fabrications, but never let the facts ruin a good story.
You know you’re in the big leagues of awful when you get your own TV show. From 1978 to 1991 Dallas was a fictional soap opera about a wealthy Texas oil family. Lead character J.R. Ewing was very rich and supremely rotten. His primary purpose when he awoke every day was to screw somebody. Hollywood’s stereotypical oil villain warped a generation of TV viewers.
Decades later big oil had morphed from corporate criminal to climate criminal. Fulfilling a Democrat pledge from the 2020 campaign, on October 28 the House Committee on Oversight and Reform convened public hearings with a preordained conclusion titled, “Fueling the Climate Crisis: Exposing Big Oil’s Disinformation Campaign to Prevent Climate Action.”
CEOs were required by law to appear. Michigan Democrat Congresswoman Rashida Tlaib interrogated Chevron CEO Michal Wirth. In a clearly hostile tone Tlaib thundered, “You can poison the planet so you can make money but we’re going to defend the planet so we can live.”
Three days later, leaving the G20 meeting in Rome on the way to the UN Climate Conference in Glasgow, U.S. Democrat President Joe Biden pleaded with OPEC+ to increase oil production because U.S. gasoline prices were too high. Shortly thereafter he ordered that more poisonous oil be released from the Strategic Petroleum Reserve for the same reason.
Biden’s contradictory 21st century climate politics are a sobering reminder that the oil business exists because it provides the energy and products that keep the world functioning, essentials that nobody is prepared to live without.
The only reason the climate emergency and energy transition got this far is because so few people understand how ubiquitous fossils are in their daily lives.
From late 2014 to mid-2021, environmental alarmists and vote-seeking politicians declared open season on fossil fuels in the name of climate change. There was little resistance from consumers.
Energy was cheap, interest rates were low, and the economy appeared to be growing. “Fighting climate change” was politically popular. Lower carbon energy alternatives were essential, so they were legislated and subsidized. New fossil fuel developments were obstructed or cancelled. Environmentalists cheered.
Development of new oil, gas and coal supplies declined sharply. One reason was that low commodity prices didn’t justify the investment.
But others included the mantra that fossil fuels were a “sunset industry” and would eventually become “stranded assets.” And it became fashionable – make that necessary – to starve the oil industry of capital through divestment and ESG investing.
A significant event took place in the fall of 2020 when legacy European supermajors BP and Shell announced that they were changing their business models to move from fossil fuels to low carbon renewables. This jaw-dropper provided more evidence that oil had no future.
They were joined by global mining giants like Glencore and BHP which investigated ways to remove coal from their portfolios to meet the expectations of the ESG investment phenomenon.
At the same time, warnings were ignored from OPEC, western oil producers and even the International Energy Agency that underinvestment in new oil and gas supplies would cause future problems.
The pandemic’s thundering background noise distracted attention from the greater economy. The world clearly had bigger problems.
But when the world emerged from the pandemic in 2021, things changed fast.
Prices for everything started rising. While originally this was blamed on startup issues and so-called “transitory” inflation as supply chains were re-established, it soon became clear that the world had gone from an energy surplus to an energy shortage.
Up to last year, political leadership on a rapid switch to low-carbon energy became a political badge of honor in Europe. Then the wind quit blowing, causing electricity supplies to fall and prices to rise. Backup power from coal and natural gas had been mothballed or eliminated because that’s what voters appeared to want. New supplies of domestic natural gas had been obstructed. More gas from Russia became a geopolitical football.
You know the rest. European electricity and natural gas prices skyrocketed. Multiple industries have shut down as uneconomic.
Oil prices in 2021 were supported by OPEC+ supply management, but that will end this year. Now that more eyes are focused on future oil supply and demand, more analysts believe higher prices are inevitable. Producers with strong cash flow began 2022 still reluctant to reinvest at historic levels.
Fortunately, there has been a long overdue “channel change” in the past six months.
Inflation is now accepted as real, not just “transitory.” Central banks have announced they will be responding with higher interest rates. This is intended to slow down the economy. Be assured it will.
The UN’s Food and Agricultural Organization reported that in November 2021, the global basket of human nutrition basics was at the highest level in 18 years. Rising gas and coal prices impact food prices through fertilizer costs which have risen sharply. As has energy for agricultural equipment, transportation and refrigeration.
The “Great Reset” never mentioned rising food costs.
Global priorities are changing fast. Pollster IPSOS released its findings for November 2021 titled, “What worries the world.” The coronavirus slipped from first to third, putting the economy back on top. The number one issue was “poverty and social inequality” while number two was “unemployment.”
Climate change slipped to number nine, behind taxes and inflation. Sixty-five per cent of those surveyed in 28 countries believed, “…things in their country are on the wrong track.”
This makes things interesting. The old saying in politics is to find a parade and get in front of it. Tackling climate change was a great vote-getter for years.
In late 2021 the Wall Street Journal ran a commentary about how European politicians are pivoting as voters recalibrate their needs in the face of economic reality and rising energy costs.
It was titled, “Many climate ambitions will end with 2021 – In the U.K., Germany and France, leaders walk back as their plans’ exorbitant price tag becomes clear.”
Writer Joseph C. Sternberg predicted that European political leaders would talk very little about climate issues in 2022 as costs escalate.
A major reversal has already taken place in the UK. Before the COP 26 climate conference, Prime Minister Boris Johnson advised voters that decarbonizing their home heating system would be legislated and expensive. But after energy prices exploded the deadline for houses to install climate-friendly central heating has been set back by 10 years from 2025 to 2035.
Detecting the sudden directional change in political winds, EU HQ in Brussels ended 2021 by finally including gas and nuclear as acceptable under their so-called “green label” for energy investments. Up to this point, only renewables like wind, solar and biomass were eligible for favored tax and policy treatment by central planning.
The last people to figure out how much the priorities of the rest of the world have changed will be in Canada which still enjoys the world’s lowest natural gas prices.
This will change as the federal carbon tax jumps 20 per cent this year. Other taxes will increase as federal and provincial governments are forced to manage the huge public debts accumulated to keep the economy functioning during the pandemic lockdowns.
Global capital investment for oil replacement remains subdued at US$400 billion for 2022, just over half of what it was in 2014. Although spending in Canada will be higher – which is great for the economy – it still isn’t where it could be based on cash flow, or should be based on global demand.
That will also change as year unfolds, made easier as capital providers recalibrate whether the pre-COVID energy transition plan will work in the very different post-COVID world.
The most refreshing changes will be in the tone of anti-oil vitriol and the pace of energy decarbonization narrative.
It is widely acknowledged that with whatever we’ve been told we must do to tackle the “climate emergency,” the world clearly went too far too fast.
Fossil fuels were ignored or taken for granted. Replacement low-carbon energy sources were exposed as oversold in their ability to reliability and economically replace oil, gas and coal on a large scale.
Nobody will ever fall in love with the oilpatch.
But giving this industry and its players the respect they deserve will improve immensely in 2022 and beyond.
David Yager is a Calgary oil service executive, energy policy analyst, writer and author. He is President and CEO of Winterhawk Well Abandonment Ltd., a methane emission reduction technology company. His 2019 book From Miracle to Menace – Alberta, A Carbon Story is available at www.miracletomenace.ca.