175
and income (Epstein 2014). The difference in the quality of life between modern
times and say, the Middle Ages, is largely due to the success of the Industrial
Revolution, which would not have happened without fossil fuels.
The very existence of our modern civilization owes a lot to fossil fuel. Low-cost
electricity from coal and natural gas, transportation across town or around the world
in petroleum powered aircraft, automobiles, trains, and ships, and the replacement
of dangerous town gas and coal in residences with non-toxic natural gas for water
heaters, furnaces, and ovens have all made life more convenient and healthier for
those with access to these resources. Fossil fuels were critical for the development
of steel, aluminum, plastics, concrete, and other modern materials that have largely
replaced traditional wood, leather, and stone. Fracking has opened up even greater
reserves of oil and gas, making fossil fuels more abundant than ever.
All is not wine and roses, however. According to recent articles on OilPrice.com,
the major oil companies are facing a host of problems ranging from low growth in
oil demand, stagnant crude prices, and extremely low gas prices. Business models
for big oil in the past were focused on continuous growth, with more spending and
exploration to find new reserves and build larger production portfolios. This “drill,
baby, drill” approach has worn thin with many investors, and companies are paying
bigger stock dividends or buying back shares to stay afloat. ExxonMobil is about the
only major company still pursuing the growth strategy.
During the coronavirus pandemic that swept the globe in early 2020, the oil and
gas industry was one of the first to stand down, pull back and collapse. This predated the virus with a price war between Saudi Arabia and Russia to try to reduce
the existing surplus of oil in the world, partly caused by aggressive U.S. shale production. Neither country could agree on acceptable quotas, and the oil glut was
exacerbated when China cut petroleum and LNG imports as it began shutting down
factories and keeping workers at home to limit the spread of the disease. This was
followed by the shut-down of the global airline industry as people stopped traveling
internationally, and then domestically, reducing jet fuel sales.
The stock market collapsed and factories in Europe and then North America
began to shut down, reducing demand even further for energy and petrochemicals.
Workers isolated at home in the U.S. from New York to California stopped driving
except for necessities, using far less gasoline than normal and dropping gas prices
to their lowest levels in decades. COVID-19 crashed oil demand by about 30 million
barrels per day, and on an inflation-adjusted basis, oil reached its lowest price since
the 1930s, including briefly touching $0 per barrel at one point. Pipeline companies
told producers to cut back production and to not complete new wells.
Wall Street has grown increasingly reluctant to invest in fossil energy, and the
collapse of oil prices did nothing to reassure hedge fund managers. Many investment companies and mutual funds are acquiescing to shareholder demands to divest
from fossil energy stocks, and this is reflected in the price declines for energy shares.
Divestment in the past has been driven largely by environmental concerns, but many
of the issues now are strictly financial.
Oil companies have never been popular with environmentalists, and with climate
change concerns now driving many protests, calls to halt offshore drilling and ban
fracking are becoming more frequent. Proposed oil and gas pipelines routinely
9.3 The Future of Fossil Fuel
and income (Epstein 2014). The difference in the quality of life between modern
times and say, the Middle Ages, is largely due to the success of the Industrial
Revolution, which would not have happened without fossil fuels.
The very existence of our modern civilization owes a lot to fossil fuel. Low-cost
electricity from coal and natural gas, transportation across town or around the world
in petroleum powered aircraft, automobiles, trains, and ships, and the replacement
of dangerous town gas and coal in residences with non-toxic natural gas for water
heaters, furnaces, and ovens have all made life more convenient and healthier for
those with access to these resources. Fossil fuels were critical for the development
of steel, aluminum, plastics, concrete, and other modern materials that have largely
replaced traditional wood, leather, and stone. Fracking has opened up even greater
reserves of oil and gas, making fossil fuels more abundant than ever.
All is not wine and roses, however. According to recent articles on OilPrice.com,
the major oil companies are facing a host of problems ranging from low growth in
oil demand, stagnant crude prices, and extremely low gas prices. Business models
for big oil in the past were focused on continuous growth, with more spending and
exploration to find new reserves and build larger production portfolios. This “drill,
baby, drill” approach has worn thin with many investors, and companies are paying
bigger stock dividends or buying back shares to stay afloat. ExxonMobil is about the
only major company still pursuing the growth strategy.
During the coronavirus pandemic that swept the globe in early 2020, the oil and
gas industry was one of the first to stand down, pull back and collapse. This predated the virus with a price war between Saudi Arabia and Russia to try to reduce
the existing surplus of oil in the world, partly caused by aggressive U.S. shale production. Neither country could agree on acceptable quotas, and the oil glut was
exacerbated when China cut petroleum and LNG imports as it began shutting down
factories and keeping workers at home to limit the spread of the disease. This was
followed by the shut-down of the global airline industry as people stopped traveling
internationally, and then domestically, reducing jet fuel sales.
The stock market collapsed and factories in Europe and then North America
began to shut down, reducing demand even further for energy and petrochemicals.
Workers isolated at home in the U.S. from New York to California stopped driving
except for necessities, using far less gasoline than normal and dropping gas prices
to their lowest levels in decades. COVID-19 crashed oil demand by about 30 million
barrels per day, and on an inflation-adjusted basis, oil reached its lowest price since
the 1930s, including briefly touching $0 per barrel at one point. Pipeline companies
told producers to cut back production and to not complete new wells.
Wall Street has grown increasingly reluctant to invest in fossil energy, and the
collapse of oil prices did nothing to reassure hedge fund managers. Many investment companies and mutual funds are acquiescing to shareholder demands to divest
from fossil energy stocks, and this is reflected in the price declines for energy shares.
Divestment in the past has been driven largely by environmental concerns, but many
of the issues now are strictly financial.
Oil companies have never been popular with environmentalists, and with climate
change concerns now driving many protests, calls to halt offshore drilling and ban
fracking are becoming more frequent. Proposed oil and gas pipelines routinely
9.3 The Future of Fossil Fuel