As the COP26 climate summit in Glasgow wraps up, the oil and gas industries are once again the villains of the piece (coal of course is already beyond the pale). On the eve of the summit, Royal Dutch Shell’s CEO stated that the company would be absent from the climate talks after being told it would not be welcome. Teenage climate icon Greta Thunberg, whose tirades have repeatedly gone viral on social media over the past two weeks, tweeted “I don’t know about you, but I sure am not comfortable with having some of the world’s biggest villains influencing & dictating the fate of the world.”
Villains Of The Piece
Just prior to the start of the Glasgow summit, the US House Oversight Committee chair Carolyn Maloney accused ExxonMobil XOM in the US of “lying” about climate change since the 1970s “like the tobacco executives were (about smoking and the link to cancer)”. This is par for the course for Biden’s Democratic administration which has demonized the US oil and gas sector since achieving office. In the eyes of the administration, the oil giant had for years raised doubts about climate change, as in 1997 when its then-CEO Lee Raymond said the “case for global warming is far from airtight” and that scientific evidence was “inconclusive.” Perhaps Ms. Maloney in her indignation is unaware that even the highly qualified climate scientist Steven Koonin, undersecretary for science at the U.S. Department of Energy in the Obama administration, finds that climate science is far from “settled” in his masterly survey of the literature.
The Western oil majors have long been accustomed to being accused of being the new tobacco lobby, selling poison and destroying lives, with many of them adopting the role of supplicants begging for time to “transition” out of the hated fossil fuels into the sunny vales of “renewable” energy. But for non-Western state-owned oil producers, over which activist shareholders and virtue-signalling Western governments have little influence, the special ire expressed by various commentators is remarkable. Among the group of oil producers, Saudi Aramco, the world’s largest oil company, serves as a lightning rod.
Reliably vociferous Greenpeace expressed “grave concern” at “moves by the Saudi government to cripple the COP26 climate talks in Glasgow”. The NGO accused the Saudi government of being “smart, strategic and utterly cynical”, pushing back on including the 1.50 C goal — an arbitrary limit that seems to have taken on a life of its own — at the talks. Indeed, as an arsonist at the talks, the Saudis “light matches, drop them, start fires and walk away”, Greenpeace said
The Saudis As The Lightning Rod
But beyond the hyperbole and agitprop expected from the likes of such NGOs, even seasoned observers of oil markets seem to have taken to media-lynching the Saudis. A recent Bloomberg column accused Saudi energy minister Prince Abdulaziz Bin Salman of “delivering a masterclass in gaslighting” when he argued that the roots of the current energy crisis can be found in the decades of anti-oil policies adopted by the developed countries. “Gas-lighting”, to remind ourselves, refers to psychological manipulation over an extended period of time that causes victims to question the validity of their own perception, leading to confusion and a dependency on the perpetrator. That is a serious charge indeed.
The article goes on to accuse Saudi Aramco, the state-owned oil company, of ignoring the world’s biggest consumers’ requests to increase oil supply. It continues, “despite what Prince Abdulaziz would have you believe, OPEC+ exists to look after the interests of its members, nobody else.” You would have thought that sovereign governments and their national oil companies are tasked with representing the interests of their citizens. The sheer chutzpah of the argument that oil producers should decide on their supply and pricing decisions on the basis of their customers’ views rather than on the laws of demand and supply is astonishing.
Or perhaps it reflects the ignorance of basic economics. As Adam Smith, a founding sage of the discipline, famously observed, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.” One might ask what were customers’ views when oil prices collapsed in mid-2014 and led to massive fiscal imbalances and the economic impoverishment of oil producers?
Economic Incompetence or Political Calculation?
In a recent TV interview, Harold Hamm – the famous US oil and gas entrepreneur and lead player in the “fracking revolution” that catapulted the country to its position as the world’s leading oil and gas producer – was asked about the Western onslaught on the industry apparent at COP26. The TV host asked him, “do you feel like Custer” (referring to American cavalry commander who led his men and himself to death at the Battle of Little Bighorn in 1876)? His response: “this (Biden) administration does not understand Economics 101…and has it all backwards”. But perhaps it isn’t so much an ignorance of economics as much as the political awareness of the perceived benefits of hewing to the environmental left, the Democratic party’s activist base.
Mr. Hamm was referring to the Biden’s executive actions since attaining office, ranging from the revoked permit for the Keystone XL pipeline, suspended oil leasing in Alaska to the halting of permits to drill in oil and gas leases on federal lands. To that list, we could add the latest items. Joe Biden’s recent nominee Saule Omarova for the Comptroller of the Currency, a key financial regulator position, said this of coal, oil and gas industries: “We want them to go bankrupt if we want to tackle climate change.” And if shutting down the Keystone XL pipeline was not enough, the White House admitted early this week that it is studying the impact of shutting down the L5 pipeline which carries oil and gas liquids from Canada through Wisconsin and Michigan.
In another TV interview on November 6th, US Energy Secretary Jennifer Granholm threw her head back and laughed when asked if there was a plan to bring down gasoline prices – now at 7-year highs, having increased by 60% in the past year. She apparently found the question hilarious and reverted to the standard response of her administration: “would that I had the magic wand on this…Oil is a global market. It is controlled by a cartel. That cartel is called OPEC, and they made a decision yesterday that they were not going to increase beyond what they were already planning.” There was no recognition of the sheer absurdity of castigating the OPEC+ oil producers’ refusal to ramp up oil exports beyond scheduled monthly increases while the Biden administration is doing its best to curtail domestic oil and gas production.
As countries emerge from the covid lockdowns, oil demand is surging. According to BP, global oil demand has now bounced back above 100 million barrels a day, a level that marked the peak seen before the pandemic. October gasoline sales in India reached an all-time high — 8.3% higher than in October 2019 — as covid cases diminish, the economy recovers and mobility increases. While the country “promises” net zero carbon emissions 50 years hence to COP26 host Prime Minister Boris Johnson’s evident delight, it is also busy planning the start of multiple new refinery construction projects driven by economic growth and concomitant oil demand.
While the Saudi government has announced large investments in renewable energy to the approbation of the climate crusaders, the state oil company Aramco forecasts continued global oil demand growth for the foreseeable future and will boost its oil production capacity to 13 million barrels per day (bpd) by 2027 from 12 million bpd now. Other producers that plan significant production capacity increases include the UAE, Iraq, Guyana and Brazil. As the developing countries undergo economic recovery from the covid pandemic, veteran oil analyst David Blackmon states baldly, “forget about peak oil (demand), we haven’t even reached peak coal (demand) yet”.
Forget About Peak Oil – We Haven’t Even Reached Peak Coal YetDavid BlackmonDespite all the heavy dissemination of narratives and talking points about a climate emergency and the energy tr…
While the vilification of the oil industry continues apace in the West, promises by the developing countries — accounting for 80% of the world’s population — to constrain carbon emissions at annual climate summits do not override their legitimate aspirations for better standards of living which depend on reliable fossil fuel supplies. As willing buyers, oil-short developing countries will continue to have durable and mutually-beneficial partnerships with oil producers. Apologetic Western oil companies and insouciant protestations by President Biden’s officials play little or no role in this equation.