There’s few clearer signs of the carnage in the global economy than US oil trading as low as -$40 a barrel, the first time in history it has ever traded negative. There’s simply too much supply in the US due to demand crashing, and therefore there’s nowhere to store them. The main delivery point in Cushing, Oklahoma, is full to bursting. So traders are paying investors to take them off their hands.
US oil will at some point bounce back. The futures trading – the price investors expect it to be worth down the line – shows that there is still a market for it. And internationally, Brent – which North Sea oil is valued in – is trading at $25.5 a barrel, because it’s more easily shipped around the world. Still, let’s not downplay what is a historic moment. Those who have argued for local authority pension funds and civic institutions like the Church of Scotland to divest from fossil fuels due to the long-term financial risk – as well as ethical repugnancy – of oil do not look so silly now. And the consequences geo-economically will be hugely significant. Big oil exporters like Russia and Saudi Arabia have a real problem. US President Donald Trump has said he’ll consider imposing tariffs on Saudi oil to force them to cut production. If oil isn’t greasing the wheels of global markets, it’s another sign that those markets can turn rusty and protectionist barriers be erected. That could lead to some countries seeking to boost their green energy capacity to increase energy sovereignty and reduce their reliance on a fuel source in decline.
And what of North Sea oil? With some of the highest production costs in the world, it does not look like it has a remotely credible future at the moment. The GMB union has said it is in “real danger of being wound up”, and it seems like it would be only prudent to prepare for that possibility. More government subsidies for the sector won’t save jobs long-term. The industry has already lost a huge 185,000 jobs since the oil price slump began in 2014, and that was before this latest downturn.
However, a lot of the skills contained in this industry are exactly what is need for Scottish renewables production. While a Just Transition from oil to green energy production has long been touted, few concrete steps have been put in place for the sort of labour force redeployment that would be necessary to ensure job security. That would also require significant changes at the green energy side, with licensing for renewables development in Scotland also dominated by ruthless multi-nationals, like EDF Renewables, which notoriously gave the vast majority of sleeve contracts on the huge NnG offshore wind farm off the Fife coast to Indonesia rather than local suppliers Bifab. A Just Transition can only be just if it puts the skills of local workforces before the interests of corporate giants, in both oil and renewable energy sectors.
Professor Raphael Heffron, Chair of Global Energy Law and Sustainability at the University of Dundee, has argued that what has kept North Sea oil production going is that the profits are flowing out of the UK.
He told DeSmog last week: “There’s a reason why we have these corporate backers of different types of capital funds supporting such a market, because most of the money and profits are not staying within the UK.
“As we think about the crisis, and we think about how our economies are going to rebound after the crisis, wouldn’t it be great if the profits from our energy use in the UK, are invested properly in the UK instead of going to…foreign companies and foreign executives?”
Heffron compared the Scottish Government’s Just Transition Commission with those in other parts of the world, and argued that its powers are far too limited to actually deliver.
“If you want something for 2030 you need to be investing in the supply chain now,” he said. “You need to be changing legislation and regulation now. You can’t be spending four or five years debating the various outcomes…you need to be thinking about the structural changes.”
The economics of tinkering around the edges of what global corporates want should be swiftly placed in the dustbin of history. Either the Scottish Government steps up and leads boldly from the front on Scotland’s economic future, or it is going to be irrelevant to the mammoth changes taking place around it.
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