In American politics, there’s an idea that the president basically determines the price
of gas – that whatever you’re paying at the pump, it’s always “their fault.”
But that’s not very accurate. At the very simplest level,
the price of oil is pretty much a reflection of supply and demand.
The more oil there is on the market, the less that oil is going to be worth.
But of course, there’s more to energy markets than just that. Think about who controls the
energy market. Groups like the Organization of Petroleum Exporting Countries, or OPEC,
decide how much oil is going to be pumped, in order to basically set global prices. And energy
companies decide, based on market conditions, how much oil they’re going to be producing.
But unlike the consumers, who of course want low prices,
the suppliers have an incentive to keep prices high – even in times of crisis.
So oil companies could expand domestic production to face the crisis. You’d think that would
make financial sense for them. But for some reason, they’ve been very hesitant to do that.
“Instead of ramping up production elsewhere in the world investors and owners of these oil
companies are engaging in “capital discipline”, according to the CEOs of these oil companies,
and telling them that we don’t want you to go out and drill more oil
because we don’t think that is going to be profitable for us in the long term.”
“For the last ten years or so, the financial community has
given lots of money to these oil companies to engage in exploration, especially in fracking,
and those investments turned out actually to not be profitable.”
This is Matt Bruenig, of the People’s Policy Project. He’s a policy analyst, with a particular
focus on economics. And he’s pointing out something that happened a few years ago.
In the 2010s, investors lost money because oil supply was too high, and prices were too
low. Due to massive expansion of drilling, American shale alone lost 300 billion dollars,
while motorists enjoyed what amounted to a huge gas subsidy. So those investors learned:
they now encourage oil companies not to produce, in order to inflate profits.
In the words of one financial analyst: “It’s not the government
that is banning them from drilling more. It’s pressure from their shareholders.”
That’s why a survey of oil and gas executives
found that the overwhelming reason for low production was not government action,
but quote “investor pressure to maintain capital discipline.”
So that’s the truth about why energy prices are so high: it’s a system of upwards redistribution.
Gas companies are taking advantage of a crisis to under-produce, in order to protect their profits.
And the only way to prevent this is to stop being so dependent on oil and gas.
Just look at a country like France. In France, nuclear power is the leading source of energy,
housing is much denser, and public transportation is decent. So the French have been relatively
cushioned from the effects of oil price shocks, simply because they aren’t so dependent on oil.
Of course, switching your society’s built environment away from oil requires a lot of time.
So you need to think seriously about how to put the oil industry into a sort of managed decline,
while also controlling prices for ordinary
car-driving consumers – who often have no other choice but to drive.
“We can’t have it go on forever because obviously that would wreck the climate.
We also can’t end it immediately because we don’t have enough green energy to replace it,
so the oil industry needs to be put on a managed decline.”
But private investors are not in the business of temporarily propping up industries they think
are dying, in the face of huge efforts to phase out fossil fuel extraction.
They have no incentive to manage this transition in a way that keeps ordinary people in mind.
So if private actors are unable to manage this transition, public ownership might be necessary.
“By bringing public ownership you can manage both ends of it. You can make sure that production
continues when you need it and you can make sure it goes away when we want it to go away.”
“Norway is an example that I use frequently, they have a state-owned company which is now
called Equinor, and it has been running pretty well. They were mostly concerned
with capturing the profits of the industry and making sure it serves the social good.”
Now, Norway is not perfect. In many ways, Norway is very hypocritical about climate,
in large part because it is unwilling to actually end its oil exploration activities.
But if you’re interested in controlling gas prices while
also having the power to transition away from fossil fuel dependence,
public actors are still much better positioned to do that than private ones.
It would mean managing oil and gas extraction not through private actors motivated by profit,
but public actors, using that money not for stock buybacks and executive compensation,
but investment in green energy, dense housing,
and public transportation. A better way is very possible.