Oil and gas companies are shedding value, taking on debt, and losing favor among financial institutions and investors.
Oil and gas companies were already facing structural problems before Covid-19 and are in long-term decline.
Update, June 29: Chesapeake Energy Corp., a massive US oil and gas company that led the fracking boom, has filed for Chapter 11 protection in a bankruptcy court in Texas following the collapse of energy demand in the Covid-19 crisis. The following post, first published April 20, explains why companies like it faced challenges predating the pandemic. (It’s not clear whether Chesapeake received stimulus funds before filing for bankruptcy.)
As countries across the world have gone into lockdown in response to Covid-19, economies are in free fall. Almost every sector is taking a hit, hemorrhaging jobs and value. And almost every sector will be shaped, for years to come, by the speed, amount, and nature of public assistance it receives. There is a finite amount of time, resources, and political will available to get economies going again; not every sector will get what it wants or needs.
In short, the decisions legislators make in response to the coronavirus crisis will have an enormous influence on what kind of economies emerge on the other side.
In March, I wrote about what an ideal recovery and stimulus package would look like. Then I wrote about how shortsighted it is for Republicans (enabled by learned Democratic passivity) to reject aid for the struggling clean energy industry.
In this post, I take a look at why it is equally shortsighted for President Trump and congressional Republicans to remain so devoted to the fossil fuel industry.
The dominant narrative is still that fossil fuels are a pillar of the US economy, with giant companies like Exxon Mobilproducing revenue and jobs that the US can’t afford to do without. Even among those eager to address climate change by movingpast fossil fuels to clean energy— a class that includes a majority of Americans — there is a lingering mythology that US fossil fuels are, to use the familiar phrase, too big to fail.
But the position of fossil fuels in the US economy is less secure than it might appear. In fact, the fossil fuel industry is facing substantial structural challenges that will be exacerbated by, but will not end with, the Covid-19 crisis. For years, the industry has been shedding value, taking on debt, losing favor among financial institutions and investors, and turning more and more to lobbying governments to survive.
It is, in short, a turkey. CNBC financial analyst Jim Cramerput it best, back in late January, before Covid-19 had even become a crisis in the US: “I’m done with fossil fuels. They’re done. They’re just done.”
“We’re in the death knell phase,” he said. “The world has turned on [fossil fuels].”
Cramer’s take is not yet conventional wisdom, but he’s right. Evidence in support appears in an April report from the Center for International Environmental Law (CIEL) called “Pandemic Crisis, Systemic Decline.” Let’s walk through it.
The UK-based think tank InfluenceMap recently did an analysis that tracks corporate lobbying in the face of the Covid-19 crisis. It found that, across the globe, the oil and gas sector has been the most active in lobbying for interventions, seeking, as CIEL summarizes, “direct and indirect support, including bailouts, buyouts, regulatory rollbacks, exemption from measures designed to protect the health of workers and the public, non-enforcement of environmental laws, and criminalization of protest, among others.” In Canada, Australia, and the UK, the industry is arguing that it must be subsidized and deregulated in order to survive.
In the US alone, the industry is seeking access to a range of stimulus funds, relief from a variety of pollution regulations, and use of the strategic petroleum reserve to bolster prices. Journalist Amy Westervelt is tracking at least a dozen other lobbying efforts. Recently the Federal Reserve changed its rules to allow bigger businesses access to “Main Street loans” (widely seen as a sop to oil and gas companies) and, as Emily Holden reports for the Guardian, records show that fossil fuel companies have already gotten $50 million in loans meant for small businesses.
The petrochemical and plastics industry, which is in large part an extension of the oil and gas industry, is exploiting the crisis as well. It has lobbied the federal government to declare an official preference for single-use plastic bags and suggested that more fresh produce should be wrapped in plastic.
The virus has not slowed down the Trump administration’s attempts to assist the industry. It is gutting fuel economy standards, which, by its own estimation, will increase pollution and eliminate 13,500 jobs a year. The EPA has dramatically eased the enforcement of pollution regulations and moved forward with its “secret science” rule, which will make it more difficult to understand and address the health impacts of air pollution — and more difficult to study the coronavirus.
During a supply glut driven by historically low prices, the Interior Department is rushing to lease federal land for oil and gas development, despite an anemic response, rock-bottom prices, and calls from conservative and taxpayer groups to suspend leasing in the face of the coronavirus.
The administration seems determined to bail out struggling shale gas companies, despite that overleveraged, debt-ridden sector being long overdue for a shakeout. (For more on that, check out Amy Westervelt’s reporting at Drilled.)
Trump is negotiating with Saudi Arabia and Russia on oil supply cuts, and has the Department of Energy buying up millions of barrels of oil for the strategic petroleum reserve, all to try to boost the price of oil to help struggling oil majors. A group of GOP senators is lobbying for fossil fuel companies, including coal companies, to be eligible for the small business recovery fund.
In April, EPA Administrator Andrew Wheeler announced that the administration, in defiance of an enormous body of evidence and recommendations from EPA scientists and staff, will not tighten restrictions on soot pollution.
