Until something better comes along oil will dominate
IT IS SO fashionable in some circles to denigrate oil companies, and anything to do with petroleum, that reason is flung out the window by a combination of emotion and ignorance, plus a scant consideration of what life would be like without petroleum products.
Recently, Forbes Magazine carried an article that listed the benefits petroleum brought to humanity in the last 100 years. One mentioned was that without oil it would still be impossible to move anything faster than 25 miles per hour (40km/h). We would still be using horses and oxen.
Steam-driven trains predated oil, of course, but until petroleum greases and lubricating oil became available, they too were stuck in the 40km/h zone.
Challenge
Some claims made for oil’s importance to a modern economy are open to challenge. Environmentalists have a well-polished armoury that they use every chance they get, but for those of a more practical bent oil’s key role in modern life remains.
For example, take a modern home, furnish it, paint it, carpet it, concrete or asphalt its driveway, fertilise its garden and water it with a hose. Then fill its cupboards with clothes and park a car in its garage.
Next, strip out anything that contains a substance derived from crude oil. The result is astonishing. Out would go the paint on the walls, followed by the carpet, the driveway would not be concreted – or covered with asphalt. The garden would have to do without fertiliser; the furniture would be stripped of its foam stuffing and its faux leather covering. The hosepipe would have to go as well. Most clothes would go. The laminated doors of the cupboards would vanish and there would be no car.
A horse hitched to a pole by a leather strap might remain, the garage having gone the way of the house: both structures’ pressure-treated roof beams would not pass either. As for the bricks, oil fired the kiln they were made in.
The homeowners would be left standing on a bare plot, naked as Adam and Eve, their naughty bits covered by leaves.
There are, of course, holes in this scenario, but it makes the point. For those who think it exaggerates our oil dependence will be enlightened by the following alphabetical list of petroleum-based products. It is by no means complete.
Air conditioners, ammonia, anti-histamines, antiseptics, artificial turf, asphalt, aspirin, balloons, bandages, boats, bottles, brassieres, bubble gum, butane, cameras, candles, car batteries, car bodies, carpets, cassette tapes, caulking, CDs, chewing gum, combs/brushes, computers, cortisone, crayons, cold cream, denture adhesives, deodorants, detergents, dice. Dishwashing liquid, dryers, electric blankets, electrician’s tape, fertilisers, fishing lures, fishing rods, floor wax, footballs, glues, golf balls, hair colouring, hearing aids and heart valves all have petroleum origins.
Also, paint, ink, insect repellent, lip balm, lipstick, perfumes. And so on. Notice the alphabet has still some way to go.
Modern life is simply impossible without petroleum. The industry is deeply embedded in commerce and industry. The world is criss-crossed with oil pipelines. Hundreds of oil tankers are constantly at sea ferrying feedstock to refineries. As the Forbes Magazine contributor put it succinctly, “The Ocean isn’t full of fish; it’s full of oil cargoes.” It would take a Herculean effort to wean the world economy off oil.
Despite a century of warnings of peak oil, and outbursts of “Oh my God, what will we do when it runs out?” oil is still available. Technology is pushing the oil doomsday far into the future, by which time no doubt we will have another dominant and plentiful source of cheap energy. Most probably, it will be natural gas, followed by hydrogen-powered fuel cells and modular nuclear reactors.
Predictions that oil would run out within a generation have been made in every generation. Of course, it will, one day, but not as soon as doomsayers might wish. The latest conservative prediction is that we will still be using oil for 60 percent of our energy needs in 2035. It will then still have some years to go.
Oil has made the greatest impact on poverty in history. It is vital if we are to improve the lives of the three billion people living in poverty today. Without access to oil, they will never escape it. The idea that wind generators and solar panels alone will do the job is risible.
Implausible
Equally implausible is the idea that we can return to some imagined Golden Age when people allegedly lived in rural bliss. Such thinking is confined to those who have a modern lifestyle. They already “have”. The have-nots are not keen on the idea of remaining peasants eking out a precarious living. They know how hard it is.
Yes, oil companies are large. Yes, they handle massive amounts of money, but they need it to meet the costs of drilling for oil in increasingly out of the way places in conditions that stretch to the limit the bounds of possibility.
Conspiracy theorists, who believe oil companies are involved in some vast secret plan to manipulate nations, encourage wars and rule the world, have fevered imaginations.
The oil industry is a business like any other. Oil companies can go bust, get bought out by a rival, and fail to make a profit.
What profits they do make are miniscule compared to the capital required. In some years, many of them would have made bigger profits selling groceries. Should you have any doubt about the potential power of disruptors, especially during this phase of great technological advancement and individual empowerment, Stephen Witt’s How Music Got Free is a must-read.
Having worked in finance, I feel compelled to list a book that takes a refreshing, and far from comforting, look at the industry. In Other People’s Money: The Real Business of Finance, John Kay pushes us to question how the industry has approached and performed its basic function of intermediating savings and other loanable funds to productive activities.
The combined message of these books is a pervasive fluidity that makes the path ahead unusually uncertain. This state of affairs will challenge decision-making in companies, governments and households.
Our understanding of this shifting terrain is complemented by two books on behavioural economics written by the giants in the field: Phishing for Phools, by George Akerlof and Robert J Shiller, and Misbehaving by Richard Thaler.
Both remind us of the challenges to the “rational” responses that are modelled in many conventional theories and still dominate the mindset of too many leaders in both the public and private sectors. And they highlight why we should work harder to reduce the risk of inadequate decision-making, especially in this highly fluid context.
Poor decisions, and by people who should have known better, played an important role in undermining Blackberry. Losing the Signal, by Jacquie McNish and Sean Silcoff, tells the story of the company’s fall from a dominant position that also provided a virtual definition and naming of the sector. This once high-flying company fell victim to a series of internal corporate conflicts and stunningly poor individual and collective responses.
My final recommendation is Unfinished Business: Women Men Work Family, by Anne-Marie Slaughter. Research and personal experience have made me a huge believer in the power of cognitive diversity. Yet, as a society and as individuals, we continue to undermine the type of inclusiveness – of gender, race and culture – that is needed and attainable.
Slaughter provides a compelling narrative of the what, why and so what of foregone opportunities. She also supplies possible solutions that are relevant not just to policymakers and business leaders, but also to parents looking to level the playing field for the next generations. – Bloomberg