How could something as big and powerful as the oil industry be in trouble, you may wonder. Well here is how.
The oil industry is part of a complex system characterized by hard, fixed assets that cannot be easily moved, modified, or ignored. The oil flows through this system of wells, pipelines, ships, trains, refineries, gas stations, etc. More volume means lower unit costs, higher profit. But what if the volume falls below what is profitable? The answer is money-losing assets which are only usable for oil and have no buyers.
Consequently, even though oil is more expensive to extract every day, they have to keep seeking more and more. This will continue until collapse.
At the same time, the oil industry is besieged on other fronts. People are demanding action on climate. Legislation restricting the burning of fossil-fuel could convert much of the oil currently being counted as reserves (assets) as only resources (non-assets). Actually most governments have already agreed to such a goal. see http://www.carbontracker.org/carbonbubble
In addition, in Europe and North America, more people are using public transit and demanding better service. Many can no longer afford the car culture.
Investors are getting nervous. The amount of new fixed capital to get a little more oil is daunting. See this linked article by Kurt Cobb for more on this:
The oil industry is part of a complex system characterized by hard, fixed assets that cannot be easily moved, modified, or ignored. The oil flows through this system of wells, pipelines, ships, trains, refineries, gas stations, etc. More volume means lower unit costs, higher profit. But what if the volume falls below what is profitable? The answer is money-losing assets which are only usable for oil and have no buyers.
Consequently, even though oil is more expensive to extract every day, they have to keep seeking more and more. This will continue until collapse.
At the same time, the oil industry is besieged on other fronts. People are demanding action on climate. Legislation restricting the burning of fossil-fuel could convert much of the oil currently being counted as reserves (assets) as only resources (non-assets). Actually most governments have already agreed to such a goal. see http://www.carbontracker.org/carbonbubble
In addition, in Europe and North America, more people are using public transit and demanding better service. Many can no longer afford the car culture.
Investors are getting nervous. The amount of new fixed capital to get a little more oil is daunting. See this linked article by Kurt Cobb for more on this:
Resource Insights: The hype cycle: How the oil and gas industry manipulates investors and the public: "Prepare yourself for another hype cycle in the U.S. oil and gas industry. "
