Sunday, August 31, 2014

The Petro Goose Is Getting Cooked


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.


Hugh said...

So continued oil and gas development is dependant on continuing low interest rates?

the salamander said...

.. another timely & informative article thanks..
I often wonder where concerned & curious Canadians would be without the diverse objective information, articles, analysis, perspectives of Indy Journos like yourself and so many others.

Some of course are slammed by creeps like Ezra, or dismissed by our government ministers, or reviled by provincial agencies.. some darkly threatened - one assumes with the support or direction of our so called public servants.

What to make of Amy MacPherson being targeted and why? For pointing out complete conflicts of Minister Kellie Leitch? Or a fierce rancher & opponent of fracking in BC having his office broken into & all files stolen? A family doctor in Fort Mac being ridiculed for seeking cause of cancer in his practice? Or David Schindler for examining tailings pond leaching?

And how did Minister Peter Kent & PM Harper litigate, lose, appeal & thus delay for years their legal mandate to protect an endangered species, the boreal caribou.. last seen on our 25 cent piece?

Now its the wild salmon fishery being attacked by Norwegian owned farmed salmon & advocates like Alexandra Morton being ignored or stymied by our 'Fisheries' failures

We have a terribly flawed wannabe 'economist' using Canada as his personal experimental sandbox and a bovine cadre of MP's with mixed or twisted evangelical beliefs, very much in the vein of Stockwell Day's version of reality. All of these fine with the dazed concept that with only 240 ridings affected does not mean electoral fraud was pervasive & trench warfare tactics were used 'legally' to defend six of the 'wins'

The Harper era, its 'leader' his complicits & the related ludicrous events have never been about 'nation building', governance or responsibility .. its been flawed experimenting, self aggrandizing duplicity, greed, secret deals, fraud, toxic ideology, failure and coverup.. Expecting intelligence or accountability at this point, makes us not victims.. but volunteers !

Lorne said...

Perhaps now we know why the federal Conservatives dropped the adjective 'Progressive' from their name, Owen.

Owen Gray said...

"Regressive" would have been the right word, Lorne. They know how to look backwards. But they have no talent -- or wish -- to look forward.

The Mound of Sound said...

Just a few days ago the world's largest private bank,UBS, proclaimed fossil fuels essentially finished and urged investors to go into solar energy.

UBS reported that technological advances in solar panels and battery storage mean a 20-year home system will pay for itself in 5-6 years and provide enough energy for the household and an electric car. Who wouldn't invest in a system that could trim 2/3rds off your energy bills?

In Australia, where coal-fired electricity abounds, the public utilities are being hammered by an enormous surge in rooftop solar.

I suspect the Tar Sands are at risk of yet another collapse (it's happened before). With the energy companies already losing money, fossil fuel investors are bound to be getting antsy especially when they read the writing on the wall from outfits like UBS. This begs the question of which producers will be hanging around to clean up their environmental catastrophe.

Owen Gray said...

The Harper era will go down in history for its organized and orchestrated fraud, salamander.

It will not be celebrated. Eventually, it will be reviled.

Owen Gray said...

Those interest rates could help build infrastructure, Hugh.

Instead, they are in the service of those who would destroy the planet.

Owen Gray said...

They will declare bankruptcy, Mound, and demand that we socialize their losses.

This isn't creative destruction. It's destruction -- pure and simple.

Hugh said...

We continue to fill up our cars and trucks at the pump, expecting cheap plentiful gasoline.

Owen Gray said...

True, Hugh. It's not just the government that lacks foresight.

The Mound of Sound said...

I suspect that Hugh doesn't grasp the economics of fossil energy in the era of renewable electrical energy. When one energy form becomes more economical the transition can be rapid.

The USB report considered solar in terms of cost and return on investment, It was on this basis that the bank concluded fossil fuels are largely finished.

Owen Gray said...

I suspect that Hugh isn't alone in that perception, Mound. Just as fuel oil rapidly replaced coal as an energy source to heat homes and run locomotives, solar energy will probably mean that lots of hydro carbons will stay in the ground.

Hugh said...

I was thinking that the abnormally low interest rates we have may be prolonging our use of fossil fuels. If interest rates rose to normal levels, I expect oil/gasoline prices would go way up.

I don't see how renewables would replace all the energy from fossil fuels. We would switch to renewables, but would be using far less total energy.

Which means economic de-growth. Which means the end of our financial system.

Switching away from fossil fuels shows how important BC Hydro is and will be. Just some thoughts.

Owen Gray said...

I don't think our financial system has to fold, Hugh. Lots of pools of capital operate on the maintenance principle.

Returns are modest but regular. But fabulous returns on investment are neither expected nor achieved.

Anonymous said...

The resource barons aren't running out of money. They are sitting on all of the money, to give them total control.

The oil, gas and mine barons are, bottomless pits of greed. Every time those resource barons line up at the trough, and squeal for more money? Harper gives them another, $60 billion in tax reductions. Harper thieves from us, to give to the wealthiest outfits in the world.

Big business demand cheap foreign labor be brought over, for the resource barons to exploit. This may be another disaster, in the making. Some foreigners have been killed at the oil patch. They don't understand the language well enough.

The catastrophic dam failure at Mount Polley in BC? Harper, Premier Clark and Imperial Metals wear this one. This disaster was because of, pure unadulterated greed.

Harper, his cabal, Clark, her cabal and Imperial Metal, should be kicked off the planet.

I am very afraid for, our wild Salmon. Why should we have to constantly fight to save the Salmon? Why do we have to raise hell regarding, protecting our wild game and waterways?

Why are our, BC 400 year old Douglas Firs being hacked down?

Nothing is safe from government greed.

Owen Gray said...

It's been clear for sometime now, Anon, who benefits from the prime minister's policies.

As long as we tolerate Mr. Harper, the economy and the environment are no longer ours.

Hugh said...

From what I've been reading, our financial system needs continued gdp growth in order to survive.

Gdp growth needs energy. Switching to renewables means less total energy.

So if energy becomes less available, there will be zero or negative gdp growth.

Which would cause the financial system to break down, since it needs to grow continuously.
So the theory goes.

Owen Gray said...

That's just it, Hugh. A good case can be made that continuous growth is a fallacy.

Money has to circulate continuously. At the moment, there is a lot of dead money sitting at the top of the economy and it's not circulating.