by Michael G. Livingston/ May 2005 issue of Socialist Action
If you understand the importance of oil to modern capitalism, you will understand a great deal indeed. Oil prices briefly hit $57 a barrel in early April, continuing an 18-month rise. Remember that in December 2003 oil prices were around $29 a barrel and expected by the know-it-all Wall Street analysts to stay at about that price in the coming year. Instead, prices have risen steadily while at the same time fluctuating considerably due to supply disruption and a fluctuating albeit high demand.
In mid-March, the U.S. Department of Energy predicted that the price per barrel would stay above $50 for the rest of the year. Analysts at the investment firm of Goldman Sachs warned of a possible rise (they called it a “super spike”) to $100 a barrel by year’s end. While the price spikes are important, what matters more is the long-term trend line. The prices had been relatively stable for some time until the end of 2003. Since then the average price trend has been steadily upward. By my crude calculations, the trend line shows
an average increase of 37 percent a year. At that rate, the cost of oil per barrel doubles every two years.
While the fluctuations around the average trend are due to conjectural factors, such as the war in Iraq and a lack of refining capacity, the overall increase
has other causes. The principal cause, the one that no one in the capitalist media wants to talk about, is Hubbert’s Peak—the coming decline in world oil
production.
Hubbert’s Peak is the point at which half of all the available oil is used up and total supply starts to decline. (The peak is actually the peak of a bell-shaped curve representing oil production). After that point supplies decline and prices climb.
Worldwide, Hubbert’s Peak is expected to occur between 2006 and 2015. The peak can also be calculated for individual countries but cannot be known absolutely until several years after the peak is reached. For example, the peak for U.S. oil fields in the lower 48 states was estimated by Hubbert (in 1949) to take place between 1966 and 1972. The actual U.S. peak occurred in 1970, and domestic oil production has been declining steadily ever since, in spite of advancing technologies and intense exploration.
In March of this year the oil industry analyst John S. Herod Inc. estimated the Hubbert’s Peak for the giant oil companies. Herod is widely respected by investors and is well known in investment circles for being the first group to point out that Enron had few assets and declining profits, and that their stock was over-inflated. Enron collapsed, much to most people’s surprise, 10 months after the Herod report on the company.
By Herod’s calculations, all of the large oil companies will hit their peak in the next four years. The French oil giant Total S.A. is expected to peak first in 2007. Exxon-Mobil, Conoco-Phillips, BP, Royal Dutch Shell, and Eni S.p.I (an Italian corporation) will all peak in 2008. Chevron-Texaco, with the largest reserves, will peak in 2009.
As demand continues to climb and the major oil corporations and the world approach Hubbert’s Peak, several things will happen First, prices will climb steadily. This will have a direct impact on all the economies of the world. In
the U.S., the cost of living will increase, consumer spending on homes, durable goods, and other items will decline, and unemployment will increase. This could result in a period of stagflation or, as some experts predict, a depression.
Second, profits will surge. While the rising price of oil will hurt the working people of the world, it will result in massive profits for the oil companies. The
cost of production is not changed in the short run by the declining supplies. In the medium run, new investment in production, refining, and transportation of oil will be required to get at the harder and harder to find remaining oil deposits.
Third, the corporations, unable to find enough new supplies, will use some of their profits to buy up other corporations to increase their reserves. This is
already starting, as reported in the April 5, 2005, New York Times.
The Times noted that “giant oil companies are flush with cash because of record crude oil prices, but short of fresh opportunities to develop fields. That
has led some companies, like BP in Russia, to seek growth through acquisitions rather than through exploration” (p. C1).
The Times report focused on the $16.8 billion acquisition of Unocal by Chevron-Texaco. More acquisitions are on the way as the giants acquire the
smaller companies and even other oil giants. Fourth, the U.S. will become even more dependent on oil produced in OPEC countries, and U.S. capitalism
will be even more likely to intervene for the sake of control of the oil supply (and oil profits), as it did in Iraq. The next most likely target is Venezuela, which has the largest known reserves outside of the Middle East and a government that refuses to be controlled by Washington.
The Bush proposal to drill in the Arctic National Wildlife Refuge (ANWR) and the recent passage of this proposal in the U.S. House of Representatives must be seen in the light of the upcoming peak in production. The amount of oil in ANWR is insignificant compared to world demand and, as even President Bush has acknowledged (see his statement in the April 21, 2005, New York Times, p. A17), will not lower domestic oil prices at all.
In fact, there is no reason to believe that any of the oil will reach the lower 48 states. The most likely destination is the booming Chinese market. What the Bush proposal will do is provide yet another source of super-profits for the oil companies while destroying a fragile eco-system. In addition, just to sweeten the pot for the oil companies, the Bush bill provides for an estimated $22 billion in tax relief and federal aid to oil corporations over the next 10 years. Apparently, it is not enough to be given access to ANWR; the oil companies also need massive corporate welfare besides.
Global warming, the most serious environmental problem facing our species, and our over-reliance on increasingly scarce supplies of oil are linked. A
starting point for dealing with both problems is to nationalize all oil companies in the U.S. and use the profits from oil production to convert to mass transit
and renewable energy. In the process, we would dramatically reduce greenhouse gas emissions by the approximately 70 percent reduction that is needed. Nationalization would also permit a just transition for oil workers away from oil production to renewable energy as the industry is systematically reduced. The current path followed by our misleaders such as Bush will lead to super-accumulation of wealth for their “base,” the rich and the super-rich. For the rest of us—it will lead to environmental catastrophe and economic ruin.
