With oil companies racking up record profits it may seem absurd to suggest their days are numbered, and that investors should sell their oil company stocks by 2020. But that’s a suggestion in an article posted today on the MarketWatch website. That article in turn references no less an institution than The Economist saying “the day of the huge international oil company is drawing to a close.”
The bottom line is this statement, again from the Economist, that the Big Oil companies are “increasingly reliant on oil which is hard to get at: either because of geology (oil buried deep underwater and far from any shore); or because of chemistry (oil mixed up in tar sands and the like); or because of politics (oil in countries politically difficult to deal with).”
In other words, The Economist is making the argument that Big Oil is extremely challenged by the effect known as Peak Oil. Nowhere in the MarketWatch piece did they use the phrase “Peak Oil,” but we mustn’t get too caught up on the specific words being used. The reality is that oil companies are finding it hard to find easy-to-tap oil sources, and are increasingly turning to difficult/expensive-to-tap sources. Like use of Hydraulic Fracturing or Acidizing practices (collectively called Fracking or Fracing) to extract oil from rocks deep under ground – or deep-deep-deep-water drilling platforms – or mining methane clathrates from the ocean floor.
The result is that the Oil Giants are “spending more and more money to produce less and less of global oil output,” to the tune of “$100 billion a year between them on exploration and production.” (Quotes again from the Economist) But the level of investment has not produced results that satisfied investors, and oil company stock prices are flat.
The MarketWatch article then goes on quoting the Economist saying that the Big Oil companies might do better to work on downsizing themselves rather than keep throwing money at developing increasingly difficult oil resources.
The line of argument is all about the growing difficulty in tapping oil supplies. This is a Peak Oil argument through-and-through without using the phrase. However, curiously the MarketWatch article turns from that to making a Climate Change Risk assessment of why investors need to dump Oil Company stocks.
They name off evidence that climate change activism is beginning to reap beneficial changes in government policies and consumer choices.
First, the guys running the big oil companies aren’t likely to back down and willingly downsize their companies. Instead they show all signs of using their power to ram-rod through things like shipping oil on rail tankers, or the Keystone XL pipeline, or buying government officials to get oil-friendly policies, etc.
At the same time there’s a growing chorus of voices like Bill McKibbon, 350.org, the International Panel for Climate Science’s (IPCC), to ratchet up political pressure to make policy changes necessary to change resource consumption patterns necessary to combat climate change. There’s also efforts by some Billionaires to pressure investors to change their investment patterns away from Oil Companies.
The MarketWatch article claims “These efforts are guaranteed to snowball as the public becomes more aware of the irreparable damage being caused by Big Oil’s war against climate change and the environment. As awareness grows, it will become a more crucial matter of America’s economic and national defense policies as well as social issues, with more and more pension funds, institutions, corporations and mutual funds bowing to pressure.”
Therefore, the Oil Company stocks are going to face a massive sell-off from investors who seek investments that support positive efforts towards climate change, rather than support the problem-making oil companies.
Hurm… I’m not sure I buy all the reasoning. Will efforts by investors really make such a difference? It might, and we certainly need all the help on both Peak Oil and Climate Change issues we can get.
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