Those of us convinced that the climate crisis is the single biggest threat to our kids’ future are not known for a parallel worry about the profits of multinational oil. Nevertheless, a piece by one of Canada’s most outstanding journalists, Andrew Nikiforuk, made me very interested indeed.
In online news source The Tyee, August 29, 2014, Nikiforuk reported some rather astonishing news: the oil industry is losing money (A Big Summer Story You Missed: Soaring Oil Debt).
As the cheap and easily extracted fossil fuels run out, the processing of unconventional sources (fracking for natural gas and oil, scraping out the bitumen from oil sands) is far more expensive.
Andrew Nikiforuk noticed the unexpected news in July on the website of the US Energy Administration.
They (127 of the world’s largest oil and gas companies) 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.
In other words, the world’s biggest fossil fuel companies are spending more than they earn. They are running out of money.
Nikiforuk notes wryly, ‘why would such a radical development be news in the dog days of summer?’
Why indeed? Certainly no one but Andrew Nikiforuk seems to have noticed.
It isn’t really surprising when one examines something called ‘EROEI’ (pronounced E-Roy). The acronym stands for ‘energy returned on energy invested,’ or the ratio of how much energy it took in relation to the oil produced.
From the earliest discovery of oil, the energy returned on energy invested has been dropping. Back in 1901 at a gusher at Spindletop, Texas the EROEI was 100:1. One barrel worth of energy yielded 100 barrels. By the 1970s, oil companies were having to invest a whole lot more energy to get a barrel of oil. The EROEI had dropped to 30:1 — for every barrel of oil worth of effort, oil companies could produce 30 barrels. In less than 100 years, the energy productivity of the enterprise dropped precipitously by one third, but that significant decline in EROEI was not really noticed. With cheap and abundant fossil fuels a thing of the past, the unconventional fuels take a lot more energy to access. The EROEI drops to 7:1 for raw bitumen, and for processed bitumen it is 3:1.
The EROEI focuses on the energy invested, but more money is invested as well. Even with the continuation of federal subsidies to the oil sands companies, it is harder to make a profit with an EROEI as low as 7:1.
As the industry scrapes the bottom of the fossil-fuel barrel, the only way to keep making the money to find ever-more expensive barrels of oil is to keep the price high. Goldman Sachs estimates that for Big Carbon to stay cash-neutral the price of oil needs to be $120/barrel.
PM’s Arctic Rhetoric
While we ignore the soaring oil debt, we are also wearing blinders to the climate crisis. Stephen Harper made his annual summer trip to the Arctic, without a single reference to the biggest security threat to our North — the melting ice due to global warming.
Stephen Harper filled his Arctic rhetoric with allusions to the potential of military invasion of Canada by Russia. He argued that since we now knew Russia invaded its neighbours, due to the illegal invasion of the Ukraine, we should also fear a military invasion in our Arctic, where we are also
The Arctic and its governance models have been typified by cooperation. All Arctic nations, and those with an interest, are part of the Arctic Council. The Inuit Circumpolar Conference has a seat at the table as ‘permanent participants’. Canada chairs the council at the
moment and Russia is a member. What Harper hopes to achieve in such inane sabre rattling in the Arctic is lamentably obvious. He hopes to shore up Conservative support—but at what cost?
And so the summer’s news that oil companies are losing money, the ice is melting, and Canada will benefit by shifting away from fossil fuels remains the news no one noticed.