International economics and politics impacting U. S. fossil fuel production
By S. Tom Bond
After beginning to rise in late January and February, the price of oil has begun to go down again. Statements made by the Saudis indicate they are aware of the coming end of the Age of Oil, and they intend to produce as much of it as possible before it looses its value. They have a tremendous advantage compared to the recent developments in extreme extraction-fracking, deep-sea drilling and Arctic drilling. Wells are already in place for their oil, and it only costs $20 a barrel to produce – prices which are well below the cost of extraction for the new methods.
Extreme extraction, including mountaintop removal, has been extremely successful – in attracting complaints, as its costs go far beyond what is put on the balance sheet. They include damaged aquifers, contaminated surface water, health effects, loss of surface property productivity and value, along with living handicaps for people in the neighborhood of extraction, and expense to local governments. As a result, lawsuits and scientific research are impacting extreme extraction techniques.
Global climate change due to burning hydrocarbons is accepted by 97 percent of scientists studying it, and most opposition is traced back to think tanks devoted to protecting carbon burning. The challengers are funded by the businesses they seek to protect.
Extraction is a mature process struggling to achieve marginal improvement, yet receives vast subsidies. Alternate energy, such as solar and wind power continue to make considerable advances, in particular solar technology. The University of Cambridge, UK, has recently announced a new process that will reduce the cost of solar-grade silicon by a factor of five. One of the biggest banks in the Middle East and the oil-rich Gulf countries says fossil fuels can no longer compete with solar technologies on price.
The international oil companies have major problems. The total extraction by the seven “majors” has declined by over 10 percent since 2009, even though they have raised their capital expenditure by 40-70 percent during that time. Their share of global production has fallen from 12.7 percent to 10.4 percent.
Intertwined with energy is the problem of the U. S dollar requirement for buying oil. After World War II, the U. S. dollar was tied to gold, and at the Bretton Woods Conference it was decided to make it the sole currency for international exchange. This made it necessary for countries to get U. S. dollars to pay for oil. When Richard Nixon was in office, the dollar was taken off the gold standard and allowed to float. At the present time, countries still have to buy oil in dollars, which acts as a wealth pump for the United States, since it can create new dollars, and no one else can.
This is an increasingly sore spot for world trade in energy. Those who have tried to sell for other currencies make for a sad list: Saddam Hussein, who took Euros; Muammar Gaddafi, who wanted gold-backed currency; and, Iran is selling oil in its bourse for several different currencies.
Now Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Two great pipelines are planned from Russia to China for natural gas, with construction to begin soon. Both need the exchange. There is no need for the dollar there, certainly. What happens when the dollars come home? A new investment bank is being set up by the BRICS nations (Brazil, Russia, India, China, and South Africa) to compete with the World Bank.
Presently the U. S. is a great military power. It spends more money on its military than the next 14 countries combined, and the others don’t count for much. The U.S. has bases all over the world with brushfire wars going in half a dozen places. The population is exhausted by these continuous little wars, and the draft remains quite unpopular. Even drone pilots are having enough after one tour of duty. The VA hospitals are a mess.
Russia is now in the place where the United States was during the Cuban Missile Crisis. This time the U. S. has missiles within easy range of Russia, but both have an ample supply of atomic warheads to set the whole world on fire.
These are interesting times, indeed.
Tom Bond is a retired chemistry professor and a farmer in Lewis County, W.Va.
© Appalachian Preservation Project, LLC, 2015. The Appalachian Chronicle is a publication of the Appalachian Preservation Project. The Appalachian Preservation Project is a social enterprise committed to preserving and protecting Appalachia. If you wish to support our work, please consider becoming a member.
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