Oil has dominated global economics and dictated the shape, terms, and function of the geopolitical map for nearly 200 years. While two centuries is the merest of blips on the timeline of human history, it’s hard for us today to imagine a world without oil in all of its myriad forms and byproducts, not to mention its hefty environmental externalities.
For better and for worse, we live on a petro-planet. Since the black gold rush of the mid 19th century, oil has made the world smaller, connecting people as well as markets and making international travel a matter of hours and not months or years of voyaging. It’s changed human relationship with the Earth and with each other, forming an intricate web of complex political economy and power brokering, leading to all-out wars as well as unlikely alliances that continue to shape our lives in both obvious and shadowy ways.
“In the modern era, no other commodity has played such a pivotal role in driving political and economic turmoil, and there is every reason to expect this to continue,” a Brookings Institution study states. The oil sector is currently in uncharted territory as the geopolitical power of the shale revolution, which shored up the United States’ dominance of the world stage, begins to fade and the world leans into the global green energy transition in earnest. But even now, true to Brookings’ word, oil still reigns supreme in the world’s industrial, economic, and political landscapes.
In April of 2020 when oil prices went negative for the first time in history as the novel coronavirus swept the globe and OPEC+ lost control of markets as its members feuded, the possibility of the world outgrowing oil in the near term seemed more realistic -- and imminent -- than ever before. But now, as the dust of the pandemic’s first wave begins to settle and oil markets recover, it’s becoming painfully clear that an overnight overhaul of the current energy regime has not come to pass. The world still needs hundreds of billions of barrels of oil, and there is no shortage of companies and countries who are eager to capitalize on petroleum’s twilight years.
Even U.S. shale, which was hardest hit by the “Black April” oil price crash, is working on reinventing itself -- a process which is far from unfamiliar to the incredibly volatile sector. “But their next act may have to be the boldest yet as climate change forces tough choices,” an Investor’s Business Daily report read last week. The early “drill baby drill” reckless enthusiasm of the early shale revolution is fading and a more measured approach is developing in the Permian Basin. “For their next iteration, U.S. shale oil stocks must find a way to survive in a future with governments, activist investors and consumers pushing for companies to reduce emissions,” the IBD report continues. “Meanwhile, the costs for competing energy sources — solar, wind and EV batteries — keep coming down.”
While it’s clear that there is still money to be made in shale, it’s also inarguable that oil won’t be relevant or profitable forever. Depending on who you ask, it’s past time for Big Oil in the United States to follow in Europe’s footsteps and evolve into Big Energy in order to stay from becoming obsolete, bankrupt, and beholden to countries in Europe and Asia who didn’t drag their feet when it came to building up clean energy infrastructure and establishing themselves as leaders in the clean energy sector.
True to the United State’s bipartisan nature, a war is unfolding in Texas over these imperatives. Texas lawmakers are circling the wagons to protect their state’s prominent oil sector while other industry leaders insist that it’s time to adapt or die.
By Haley Zaremba for Oilprice.com
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