“I blame the oil companies”
The Congressional hearing today is titled, “Gouged at the Gas Station: Big Oil and America’s Pain at the Pump,” which says it all: posturing and the blame game are the focus. Although prejudice against ethnic groups and religions is generally decried in this country (sadly not globally), other prejudices abound and are acceptable to many who would be shocked to be considered biased. Yet people often judge who you are not what you do, with oil companies the prime example. Guilt by association, almost like homeopathic guilt, remains common.
This is very much true nowadays when one discusses, for example, climate change or energy security. The oil companies, who are hardly without sin, have taken far more than their share of the blame in both areas, in part because they are unpopular with the American public and thus easy targets. Senator Elizabeth Warren can blame high oil prices on the desire of Chevron and Exxon to have high profits, knowing that few voters in liberal Massachusetts will take exception to the claim. (Did Exxon call up all the traders in New York, Rotterdam, Singapore and elsewhere and tell them to pay more for oil? Did Chevron bully OPEC+ into cutting production, or coerce central banks to stimulate their economies and thus oil demand?)
And there’s a long tradition of assuming that consumers are fooled into buying unneeded things like cars and gasoline by advertising: “Who Killed the Electric Car?“ included the claim that GM’s EV1 would have succeeded if only they had used attractive females in their ads. Thus, the problem in Ukraine is that Europeans are ‘hooked’ on Russian gas, as opposed buying one of life’s necessities in a form that is relatively clean and economically. The New York Times actually went so far as to blame U.S. oil company lobbying against sanctions imposed by Ronald Reagan to deter building of gas pipelines from Russia to Western Europe for the subsequent addiction. Of course, Reagan overrode their lobbying to impose sanctions, only removing them when they clearly failed.
Of course many insist, as the New York Times’ Farhad Manjoo that this is a ‘fossil fuel’ war, which is rather puzzling. Arguably, Russia’s fuel exports have helped them earn the money to engage in expensive aggressive action, but fossil fuel income is not a necessary condition for military aggression; the history of warfare that long predates even coal use. And European dependence on Russian gas (and the world’s dependence on Russian oil) has not slowed political actions against Russia, from sanctions to weapons deliveries. The refusal to end imports of Russian gas, an action that would increase the economic damage to Russia somewhat, does matter but at the same time, no governments are urging oil companies to continue buying Russian oil, despite the surge in prices that has resulted from some companies’ voluntary refusal to purchase from them. The vulnerability from dependence is clearly limited.
Of course, the most egregious case of political posturing recently comes from the State Department’s Amos Hochstein who, in a CNN appearance, brings up the canard about the unused leases to counter oil industry complaints about the administration’s leasing pause, and he criticized companies that don’t want to drill (or not enough to satisfy him), even though shale wells are profitable at $85/barrel.
The unused leases represent what is known in business as ‘inventory’. Car companies always buy new parts even when they have a month’s (or three) worth of parts in their warehouses. Similarly, oil companies can’t operate without a backlog of undrilled leases because they can’t immediately line up new leases once the old ones are drilled. This is especially true when the government can’t be counted on to release new land for leasing, as now. Duh.
And while Mr. Hochstein is correct that nearly any shale well drilled now would be profitable at $85/barrel, let alone $100, he is implicitly assuming that those prices will prevail for most of the life of the wells. Again, this reflects an ignorance of the industry (and economics more generally); high prices typically last as long as supply is disrupted, and peace in the Ukraine, or even a truce, will see prices drop sharply and probably fairly quickly as Russian oil re-enters the European market in volumes.
So, the hearings today will be classic, in the sense of ‘rounding up the usual suspects,’ but also, to quote MacBeth, “It is a tale told by an idiot, full of sound and fury, signifying nothing.” It will be interesting to see if the industry executives note that the self-same critics in the recent past lambasted them for increasing production despite the many teenagers insisting that climate change dooms us all and the oil companies are too blame. It reminds me of nothing so much as Rudyard Kipling’s poem “Tommy,” where the soldier laments his treatment until “the troopship’s on the tide” which led me to rewrite that poem, visible here:
Oilman with apologies to Kipling - YouTube
Sources:
How Europe Got Hooked on Russian Gas Despite Reagan’s Warnings - The New York Times (nytimes.com)
Opinion | We’re in a Fossil Fuel War. Biden Should Say So. - The New York Times (nytimes.com)
Watch White House Adviser Hochstein on SPR Release, Well Leases, OPEC - Bloomberg
