I have already written a couple of posts on this subject here and here. As Owen Gray reports below Conservative Canadian Prime minster Stephen Harper is in trouble because of the collapse of oil prices. We have apparently reached peak demand before we reached peak oil. Michael Klare writes that Double-Dip Oil Rout: Why an Oil Glut May Lead to a New World of Energy.
Recently, as if to underscore the magnitude of the current rout, ExxonMobil and Chevron, the top two U.S. oil producers, announced their worst quarterly returns in many years. Exxon, America’s largest oil company and normally one of its most profitable, reported a 52% drop in earnings for the second quarter of 2015. Chevron suffered an even deeper plunge, with net income falling 90% from the second quarter of 2014. In response, both companies have cut spending on exploration and production (“upstream” operations, in oil industry lingo). Chevron also announced plans to eliminate 1,500 jobs.
Painful as the short-term consequences of the current price rout may be, the long-term ones are likely to prove far more significant. To conserve funds and ensure continuing profitability, the major companies are cancelling or postponing investments in new production ventures, especially complex, costly projects like the exploitation of Canadian tar sands and deep-offshore fields that only turn a profit when oil is selling at $80 to $100 or more per barrel.
Klare points out that workers in the Alberta Tar Sands that were making triple figure salaries just a few months ago are now going food banks to feed their families. I suspect that similar things are occurring in North Dakota where fracking tight oil is no longer profitable.
As the price of oil continues on its downward course, the cancellation or postponement of such mega-projects has been sending powerful shock waves through the energy industry, and also ancillary industries, communities, and countries that depend on oil extraction for the bulk of their revenues. Consider it a straw in the wind that, in February, Halliburton, a major oil-services provider, announced layoffs of 7% of its work force, or about 6,000 people. Other firms have announced equivalent reductions.
Such layoffs are, of course, impacting whole communities. For instance, Fort McMurray in Alberta, Canada, the epicenter of the tar sands industry and not so long ago a boom town, has seen its unemployment rate double over the past year and public spending slashed. Families that once enjoyed six-digit annual incomes are now turning to community food banks for essential supplies. “In a very short time our world has changed, and changed dramatically,” observes Rich Kruger, chief executive of Imperial Oil, an Exxon subsidiary and major investor in Alberta’s tar sands.