2019 was a disaster year for the climate. It was a year of wildfires, drought and extreme weather. At the same time, it brought with it a storm of protest rose internationally. Under the wings of Greta Thunberg’s school strikes and climate action groups such as Extinction Rebellion and Code Rood, public awareness grew significantly, signalling a common desire for that change is necessary.
These events have left their mark. The oil sector has lost political clout in Western countries. Fossil fuel company employees have become demoralized when friends and family question them about working for the wrong company. A company like Shell is suffering from a burnout epidemic and it is less and less successful to attract young talent. In addition, oil extraction is becoming more and more expensive, competition from renewable energy sources is increasing, and their ‘social license to operate’ is crumbling in many Western countries. The oil industry is starting to see that the days of this almighty industry are numbered.
Now, in early 2020, two events have happened that will change the oil industry forever: a price war between Saudi Arabia and Russia, and, of course, the Corona crisis. International air traffic has largely stalled, people all over the world are working from home (meaning no traffic jams) and the demand for oil has collapsed, from 100 million barrels to 80 million barrels a day. Of course, some of the demand will come back when measures are lifted, but the economic crisis sparked by the Corona crisis will bring down oil demand over a longer period of time. Many people will lose their jobs, companies will go bankrupt, purchasing power will fall, economic growth will shrink, people will go on holiday closer to home, etc. We all know the story by now.
Then there is the argument between Putin and the crown prince of Saudi Arabia. The crown prince wanted to reduce the supply of oil to keep the price high. Putin did not like that and refused to cooperate, after which the Saudi’s decided to flood the market with cheap oil. Oil prices fell and the Corona crisis came on top of that. Prices went from $ 70 a barrel of oil to $ 30 and experts expect it to drop further to $ 10 a barrel. The price is expected to remain low.
In order to limit the damage, the OPEC (Organization of the Petroleum Exporting Countries, including Saudi Arabia, Iran, Iraq, Venezuela) and Russia have recently decided to limit oil production.
What does all of this mean for a company like Shell?
Shell’s has never been in such rough weather as it is right now. The company has declined tremendously in value in a very short time and has lost billions. In response, Shell has announced cutbacks. They plan to spend $ 9 billion less in 2020, by buying back fewer shares and scrapping planned investments. Especially the more expensive forms of oil extraction will be cut. Shale oil in the US, tar sands in Canada, or converting coal into oil in South Africa. Incidentally, these are also the most CO2-intensive forms of oil extraction. This is actually good news, but it is likely that sustainable projects, for which a meager 2 billion has been allocated, will also be cut. At the same time, the company is keen to continue paying a generous dividend to shareholders.
Investing less will also lead to mass layoffs. In the US, thousands of people working in the oils sector have already been sent home. 100,000 people work for Shell, 10,000 are in the Netherlands. Since a lot of Shell work is outsourced – Shell rents oil platforms, technicians, transport and cleaners, many petrol stations are not owned by Shell but franchises – the first blows will be felt there. But fewer projects also means less work for Shell itself, so staff will be the first to get cut. No more pay increases, more layoffs and that in a context of personnel who already had a hard time explaining why they work at Shell. These people will be confronted with a lot of uncertainty in the midst of an economic crisis, which will not improve the atmosphere in the workplace at Shell and other companies in the sector.
Shell hopes to absorb some of the blows by lobbying hard for supportive policies. There is a lot of advocacy in The Hague for keeping this ‘vital economic sector’ afloat. Within the Netherlands, this concerns tax breaks, working time reduction and public investments that will boost oil demand again. In addition, pressure will be exerted to delay or postpone certain climate measures. In other countries, the oil industry goes even further: Tax rebates, oil purchases by the state, direct money or less remittances, lifting controls on environmental or safety regulations.
In the slightly longer term, Shell lobbyists will do their best to send the hundreds of billions of state support in the “right” direction. For Shell this means investments in sectors that purchase a lot of oil and gas (airports, roads, transport companies), with the result that climate policy is further eroded. Outside Europe too, state support will certainly be called upon to restart oil and gas extraction.
The world was already extremely troubled in 2019 and that is not likely to diminish this decade. For example, the question arises what consequences this crisis will have for fragile oil countries such as Venezuela, Iraq, Iran. Most OPEC countries and Russia can supply super cheap oil, but the question is how long their state budget will last, especially now that investments are needed to combat the Corona crisis and the economic crisis. Both Putin and the Saudi Arabian prince have already spent a lot of money on expensive foreign wars.
The challenge for the climate movement
What impact will all this have on climate policy, the sustainable energy sector and the production of electric cars and buses? Crisis policy and low oil prices will be a major challenge. The whole oil sector is in crisis mode even more than other economic sectors for the rest of the year and possibly the next few years. This can create opportunities if the climate movement manages to capitalize on these opportunities quickly and vigorously.
It is important to make it clear, right now, that workers in the oil sector would benefit from a government-backed move to a sustainable and future-proof industry. There has been a shortage of highly trained technical personnel for years. Now is the time to free good technicians and engineers from the oil industry. This does mean that we have to make a clear distinction between the employees on the one hand and shareholders and management on the other: You do not get people on board by calling everyone in the oil sector a criminal. This fits seamlessly with the principles of the People’s Bailout: rescue workers and communities, not corporate executives. It also means that the need for building relationships between climate activists and workers in the oil sector and their unions is becoming extra important.
An oil sector that calls on government for support is in a weak negotiation position. It is now easier than ever for politicians to link industry support to hard conditions for sustainability, permanent oilfield closures, plant decommissioning, stricter emissions and environmental standards, reparations for affected communities and ecosystems and retraining of workers. This lobby-battle is taking place right now, not in a few months. No bail out without a phase out!
It is also becoming feasible in some countries to bring parts of the oil sector under democratic control (nationalization). In some parts of the industry, the need will rise to such an extent that bankruptcies will follow. It is crucial to avoid those bankruptcies at the expense of personnel, safety and the environment. And now is the time to prevent those companies’ infrastructure from falling into the hands of speculators who bet on continued oil and gas extraction. It is better for the rest of the oil industry if the government buys that infrastructure from the market and phases it out in a controlled manner: A bailout to phase out.
None of this goes without saying. Although there is strong public support for such ideas, it will not be realized with only opinion articles, hashtags and petitions. It is up to the climate movement to exert pressure on the “green” political parties on the one hand so that they stand up for their ideals, and on the other hand to assist them by putting forward clear ideas and plans that can convince the cabinet. For example, the corona crisis shows that years of cutbacks and privatization in health care are very bad ideas.
Investments in truly vital sectors such as healthcare, education and science are essential if we are not to tumble from one crisis into another for the rest of the century. Even for those who always put the economy at number 1, it has now become clear that a healthy society is essential. The corona crisis also shows that we are globally deeply connected and that the Netherlands is by no means an island that will not be hit. It is time to end such arrogance.
If foresight is the essence of government, rather than always being one step behind, policies need to be made now that address not only the corona crisis and the economic crisis, but also the climate crises.
As a movement and as a society, we cannot afford to squander these crises.
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