What's the Future of Beleaguered Fossil Fuels Industry?


Perhaps no economic issue — even trade — is as divisive as the energy industry. Once a standard driver of economic progress, the conventional energy industry has become increasingly vilified by the national media, sued by blue state attorneys general and denounced throughout academia. Some suggest that the industry should be demonized and hounded much as occurred in the case of tobacco.

Yet, is this attack entirely justified? Unlike tobacco, energy is a huge economic driver, and conventional fossil fuel industries employ roughly 2 million people nationally, while hosts of industries — notably agriculture, manufacturing and warehousing — depend on reasonable energy prices and consistent delivery. Overall, fossil fuels last year accounted for 81 percent of all U.S. energy consumption.

The one great exception is California, long a major oil-producing state, where fossil fuels are about as popular as herpes. In order to enhance its obsession with promoting climate “leadership” — likely to reduce emissions globally by a mere 0.4 percent by 2030 — the state has declared war on this industry, even though most Californians still depend on the gooey stuff, particularly for transportation. Once, we produced a lot of fossil fuel, but now we import a majority of it from abroad, taking an economic asset and turning it into a permanent deficit.

Doom or future boom?

In the past, advocates for “green energy” tied their agenda to concerns over “peak oil,” suggesting that renewables will save us from dependence on an increasingly scarce resource. More recently, given the huge increase in U.S. energy production, the argument has shifted to the notion that there’s too much oil, and that prices will not support the industry.

Others suggest that the industry be undermined for environmental reasons. Yet, the reality is that most advanced countries — and developing countries even more so — depend heavily on coal, oil and gas. Some of these countries, like China, talk a good game, but continue to construct ever more coal plants, seek to buy more oil, including from the United States, and nurture an expanding automobile sector.

Seeing the demand, frackers and offshore drillers have reason to stay in the game. Indeed, according to some projections, an improving global economy and a decline in production from the energy bust will drive prices up, perhaps to well over $100 a barrel, within the next three years.

Prospects for energy-related development have been improved by the ascendency of the Trump administration, which has a strong fossil fuel constituency. Energy Secretary and former Texas Gov. Rick Perry wants to make the U.S. “dominant” in the global energy market. Increasing U.S. energy production also plays an important geopolitical role in challenging the power of global menaces such as Russia, Saudi Arabia, Iran and Venezuela.

Read the entire piece at The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book is The Human City: Urbanism for the rest of us. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo by Downtowngal (Own work) [CC BY-SA 3.0], via Wikimedia Commons


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Wait, What?

I don’t know that anyone in the environmental-concern-trolling community is seriously worried that there is “too much oil”. Oil, gas and coal are finite resources: Eventually the world will run out. Currently the world consumes about 30 billion barrels of oil per year. Experts argue about how quickly it can be taken out of the ground, but no one is seriously arguing that it will last forever. BP recently raised their estimate of total world reserves to 1.7 trillion barrels, or enough to last the world 55 years or so.

I am a little older than your average reader, so I won’t be around 55 years from now. But if actuarial statistics hold true, my son will live to see the world run (mostly) out of oil. It won’t happen all at once of course – some reserves will play out as early as the 2030’s, while others will still be producing oil long after the 55-year forecast. But when the big reserves go dry, the money that it will take to pump those last few barrels out will be shocking. Oil will become a commodity similar to Rhodium, where various factories duke it out for each share of the entire world’s production based on who can use it most efficiently to produce the most value for their shareholders.

While this is the nature of a free market, we should point out that people who just want to keep their A/C running for less than $500 a month are going to be in for some hot summers.

You alluded to the problem with this scenario: “Overall, fossil fuels last year accounted for 81 percent of all U.S. energy consumption.” As long as fossil fuels are relatively cheap, this means that energy consumption is a convenience that can be enjoyed by pretty much the entire population. Within our lifetimes, though, it may become a luxury. At $100 per barrel, even poor people can afford to drive to work. At $600 per barrel, each gallon of gas will cost more than several hour’s wages. This is not all bad: The use of public transportation will skyrocket. But cities (and people) who didn’t start planning way back in 2017 will be worse off than Connecticut and Kansas put together.

As you mentioned, California is in deep kimchi. It is a state where public transportation is about as common as Trump supporters, and half as effective.

Now we hear that Rick Perry wants to make the U.S. “dominant” in the global energy market. How exactly? By pulling the fossil fuels out of the ground even faster? That will seem like a great idea for three to five years, and may even last long enough for Perry to win the California primary when he runs for President again. But are we really pretending that the “cheap layer” of fossil fuels will last for 30 years? Because it won’t.

According to the American Fuel and Petrochemical Manufacturers, (an oil and gas lobby group), there are 163 billion barrels of oil in the United States, (which would be more than Saudi Arabia, China, and Canada combined.) At our current rate of use (about 7 billion per year), that means we have about 25 years of oil left. (And only about 20 years of that will be affordable by non-millionaires). Natural gas reserves are a little more than that, but at some point we need to take into account that natural gas costs money to pump, to store, and to use in our cars. Even if we assume that there really are two quadrillion cubic feet of natural gas just jumping out of the ground into conveniently-placed storage tanks, it still isn’t enough to create global energy dominance. Even if we only supply the U.S., at current rates, the natural gas will last less than 100 years. If we start supplying the whole world, plus switch everyone over to natural gas when the oil gets too expensive, the natural gas will last about 10 years. That means we have 25 years of oil, plus ten years of gas after that, and then all that is left is stems and seeds.

People vilify oil companies, and honestly some of that is misplaced. Most oil companies at least pay their taxes, which is more than we can say for a lot of other industries (*cough*, *pfizer*, *cough*). But oil companies also spend a great deal of time and money fighting environmental regulation, denying the basic science of ozone pollution, and literally lying to everyone about climate change. Scott Pruitt, who now is in charge of the EPA, recently released more than 7500 emails indicating that he has always been on the side of the previously mentioned American Fuel and Petrochemical Manufacturers, in each of these fights. In fact, AFPM provided the wording that Pruitt’s office used to oppose ozone limits. They literally just sent him the wording as if the state of Oklahoma was part of their press office.

Oil companies have been sued repeatedly, but that doesn’t prove they are being slandered. Maybe they deserved to be sued. If an oil company builds a pipeline through my wheat field, and one leak poisons the soil for a hundred years, I kind of hope there is a lawsuit. Anything else would seem a little unfair, to me at least.

But the wind is blowing a different direction now. The new administration believes environmentalists are always wrong, and oil companies are always the victim. The poor Koch bothers are the real victims here, because a handful of scientists at the EPA once called their deregulation bill a “backroom deal”. We don’t know how they managed to scrape by in the face of such mean-spirited criticism. (Actually we do know: They scraped by quite well, with enough left over to make substantial campaign contributions to Scott Pruitt.)

I am not sure that the actions of the fossil fuel industry have shown them to be qualified to be in charge of U.S. energy policy. But that hardly matters, because now they are.