The oil industry has stopped laying golden eggs. Its profits are being squeezed. That news has not been widely reported. But, Andrew Nikiforuk writes, it has been hiding in plain sight on the U.S. Energy Administration website:
Last July the government agency, which has collected mundane statistics on energy matters for decades, quietly revealed that 127 of the world's largest oil and gas companies are running out of cash.
They are now spending more than they are earning. Profits have lagged as expenditures have risen. Overburdened by debt, these firms are selling assets.
The math is simple. The 127 firms generated $568 billion in cash from their operations during 2013-2014 while their expenses totalled $677 billion. To cover the difference of $110 billion, the energy giants increased their debt load or sold off assets.
The reason for the cash squeeze is that oil is harder to find and harder to get at:
Most companies are now investing in high-cost and high-risk projects to mine difficult hydrocarbons such as bitumen or shale oil, according to Carbon Tracker. Hydraulic fracturing, the land equivalent of ocean bottom trawling, adds to the cost of oil, too.
It's not only the firms deploying fracking that are racking up high debt loads. Chinese state-owned corporations, for example, plopped down $30 billion to develop junk crude in the oilsands over the last decade.
And the oil companies are making these investments as demand for oil is flattening:
But given that oil demand in places like Europe, the United States and Japan is flattening or declining, many analysts don't think that high-carbon, high-risk projects (which all need a $75 to $95 market price for oil to break even) make much economic sense in a carbon-constrained world.
Yet our present government has put all its eggs in the bitumen basket. This is a not government known for its foresight. Mr. Harper gave his full throated support to the American invasion of Iraq. That didn't work out so well. And he also didn't see the 2008 recession around the bend.
Others, however, saw this price squeeze -- and its economic consequences -- coming long ago:
Marion King Hubbert, a Shell geologist, predicted this development decades ago and presented the cultural conundrum clearly: "During the last two centuries we have known nothing but an exponential growth culture, a culture so dependent upon the continuance of exponential growth for its stability that is incapable of reckoning with problems of non-growth."
The petro goose is getting cooked.