Nearly a year ago, at the premier of filmmaker Fraser Denholm's documentary feature "Run Down Aberdeen", an open floor discussion with the audience followed the screening. During that discussion, local list Labour MSP Lewis Macdonald was heard to say that "high oil prices are good for Aberdeen". As, since the mid 1970's, the Aberdeen economy has become increasingly dependent upon the extraction of fossil fuels from the petroleum fields beneath the raging swells of the central and northern North Sea, for an MSP to make such a statement would seem to be - well - just common sense. Wouldn't it?
But, whenever we're confronted with something which appears to be common sense, as psychogeographers, we're apt to try to have a good look around the back. We're on the same page as grand old man of letters W. Somerset Maugham on this one:
"Common-sense appears to be only another name for the thoughtlessness of the unthinking. It is made of the prejudices of childhood, the idiosyncrasies of individual character and the opinion of the newspapers."
So, what of this common sense claim that high oil prices are good for our town? As an opener, we'd draw attention to our old blog-post "D is for Dutch Disease", in which we examined the inimical effect on our local economy of this over-reliance on the one business sector with particular reference to the resource-extractive aspect of that sector:
The A to Z of Aberdeen, D is for The Dutch Disease
The Dutch Disease is a concept in economics which explains how the development of a natural resource extraction business sector (like oil and gas) and its associated economic boom can over-balance an economy, causing decline in non-extractive value-adding sectors - particularly the manufacturing sector, but also in agriculture. The pathology of the Dutch Disease is accompanied by moral decline in the personal sphere (affluenza) and turpitude in the public sector (government) as it becomes entangled with big-money business interests. Hmm... sounds familiar?
Since we wrote that, there have been an number of developments. And other than the bland "good for Aberdeen" assertion, we collectively must ask what high oil prices mean: what is the cause; and what is the effect going forward (as they say)?
THE ENERGY TRAP
Recognition of evidence that global oil production is reaching (or has already reached) the "undulating plateau" at it's historic peak is now no longer the domain of the tin-foil hatters. Today this recognition comes, not from the usual-suspect voice-in-the-wilderness Peak Oiler blogosphere (The Oil Drum, The Energy Bulletin, The Post Carbon Institute and such), but from the likes of the US military, Shell Oil, and the White House.
United States Joint Forces Command
Joint Operating Environment
...by 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 [million barrels per day].
"Signals and Signposts"
We believe that the world is entering an era of volatile transitions and intensified economic cycles.
Supply will struggle to keep pace with demand. By the end of the coming decade, growth in the production of easily accessible oil and gas will not match the projected rate of demand growth.
Washington considers a decline of world oil production as of 2011
The Obama administration of Energy supports the … hypothesis of an "undulating plateau". Lauren Mayne, responsible for liquid fuel prospects at the DoE, explains : "Once maximum world oil production is reached, that level will be approximately maintained for several years thereafter, creating an undulating plateau. After this plateau period, production will experience a decline."
Concern about the future availability of energy dense fuel sources, which will be required to create a transitional and then a sustainable energy infrastructure are beginning to be expressed in academic circles.
Do The Math
The Energy Trap
Our reaction to a diminishing flow of fossil fuel energy in the short-term will determine whether we transition to a sustainable but technological existence or allow ourselves to collapse. One stumbling block in particular has me worried. I call it The Energy Trap.
In brief, the idea is that once we enter a decline phase in fossil fuel availability—first in petroleum—our growth-based economic system will struggle to cope with a contraction of its very lifeblood. Fuel prices will skyrocket, some individuals and exporting nations will react by hoarding, and energy scarcity will quickly become the new norm. The invisible hand of the market will slap us silly demanding a new energy infrastructure based on non-fossil solutions. But here’s the rub. The construction of that shiny new infrastructure requires not just money, but…energy. And that’s the very commodity in short supply. Will we really be willing to sacrifice additional energy in the short term—effectively steepening the decline—for a long-term energy plan? It’s a trap!
THE BUBBLE MARKET
Carbon bubble could threaten markets… maybe
After the dot-com bubble and the property bubble, prepare for the carbon bubble. Entrepreneurs meeting in the Maldives last week warned that shaky assumptions about future fossil-fuel use are buoying financial markets and that the collapse of this "carbon bubble" could trigger another crash one day."There is this suicidal river of capital flowing into fossil fuels," says Jeremy Leggett, a green entrepreneur ... based in London. "Let's get the risk acknowledged."[…]According to some studies, in order to have a chance of limiting global warming to 2 °C, humans cannot pump more than another 570 gigatonnes of carbon dioxide into the atmosphere before 2050. Yet a report by energy-industry initiative Carbon Tracker, commissioned by Leggett and others, found that the proven fossil-fuel reserves of companies and countries would add up to 2800 Gt if burned for their energy.That means up to 80 per cent of known reserves may have to be left in the ground if governments decide to limit total future emissions to 570 Gt.[…]Leggett's point, though, is that the carbon bubble is a risk that investors are overlooking. Pension funds, for instance, continue to put their money into gas, oil and coal companies without taking account of it.
It's not our intention here to examine the alarming geopolitical implications of this onrushing environmental degradation and energy supply bottleneck, chewy and crunchy though that will be. And, let us be clear, global oil production figures have never been higher. However, North Sea oil production is well past its peak, and is falling rapidly.
THE CAPITAL TRAP
While the oil price per barrel in US dollars peaked at near $150 during 2008 and then fell sharply, the price of North Sea oil has 'recovered' (as they say) and is today trading at $110. And in the intervening period, fluctuations in currency exchange rates have meant that, when expressed in Pounds Sterling or Euros, oil has never ever traded at a higher price. The combination of this all-time record high price along with both record global demand and falling UK output is an unfortunate triple-confluence of global trends for our provincial town. The implications of this co-incidence for the sustainability of high levels of economic activity and employment in our town are troubling, for - as oil reserves diminish - the grinding certainties of geological happenstance and the imperatives of the profit motive insist that it is the more difficult, more expensive to reach reserves which are tapped last - and the cheaper-to-exploit resources are those which are extracted first. The high oil price, for this 'province' (as they say) hastens the day when those easier reserves are gone, and all that remains is the difficult stuff - the reserves which require a high market price for oil before the return on investment realises the cost of exploitation. (Monetary costs only, that is. There are, of course, many externalities.) But worse even than that, the current excessively high return on investment acts like black hole for capital - sucking in investment which, as the necessity to stabilise and reduce carbon-dependency in our energy supply begins to bite, would be better reallocated towards putting our energy supply on a sustainable, renewable, decarbonised foundation.
Recently, news reports have pointed towards investment growth in support of a burgeoning renewable energy sector; Inverness, Perth, Glasgow, Edinburgh, Orkney all beneficiaries. Alas, little of that investment is directed towards Aberdeen, distracted as our local capital and skill base is towards the glittering prizes of riches wrung from the high-value fossil fuels lying in the convoluted strata kilometres beneath the seabed.
Enterprise area status a boost for Dundee's renewable energy hopes
Dundee's fledgling renewables sector has been given a major boost by being declared as one of Scotland's new enterprise areas.[…]It is hoped the dock's new status will encourage companies such as utilities giant SSE to progress plans to make Dundee a key focus of their North Sea renewables plans. The Perth-based company signed a memorandum of understanding with Dundee City Council, Forth Ports and Scottish Enterprise to explore options for a new manufacturing plant to be established at Dundee Port to service the offshore wind sector.Any such development would create hundreds of jobs directly and in the associated supply chain.
But here in Aberdeen the energy trap is compounded by the fossil-fuel-powered capital trap as investment disappears over the event-horizon of record oil prices into the black hole of non-renewable hydrocarbon extraction. And on the streets of our town, excessive pay rates in that extractive sector are visibly disappearing down the sink-sector drain of conspicuous consumption and a grotesquely distended housing bubble. Aspiration (as commonly understood) is all to often demonstrably mistaken for acquisition, and affluence is mistaken for wealth as late-stage consumerism mounts its final stand in the shopping malls of our inconsequential northern provincial town.
Scots can cash in on £375bn oil bonanza
SCOTLAND’S North Sea oil and gas industry can deliver a £376 billion bonanza over the next 40 years and secure Aberdeen as “one of the global energy capitals” of the future, according to a report published todayThe PricewaterhouseCoopers (PwC) study said the oil boom was there for the taking if government and industry leaders can “grasp the many opportunities”.
Mark Higginson, senior partner at PwC in Aberdeen, said: “We have a remarkable – and potentially unrepeatable – opportunity to position the city as an international energy centre of excellence… However, this isn’t simply going to fall to Aberdeen by right. We need to shape our own destiny and the journey must start now, with everyone focused on a single, definitive strategy that embraces core objectives of maximising oil reserves, exploiting the new frontier areas west of Shetland and the Arctic, becoming a talent magnet and more effectively serving the needs of industry...”
The study, titled Northern Lights: a strategic vision of Aberdeen as a world-class energy capital, advised stakeholders to collaborate more to build on the city’s long track record in oil and gas, without which there was a risk that the opportunities within reach may slip away.
Aberdeen City Council
Alternative Energy Strategy for Council Owned Public Buildings
Whilst each project to develop alternative energy technologies will require detailed analysis and evaluation before being progressed, this strategy will provide the overall context in which future projects will be developed.
May 2011 Version 4Appendix 2: Overview of Available TechnologiesThis strategy will consider a number of alternative energy technologies some of which are outlined below. It should be noted that for Council owned public buildings planning permission for alternative energy technologies is not required unless the equipment is valued over £100,000.
Time and again we are frustrated when we see clean, sustainable energy sources, which are available to exploit in abundance all over and around Scotland, referred to by Aberdeen's people and businesses as "alternative energy". The use of that phrase "alternative energy" is telling. It tells you everything you might want to know about the people and businesses that use it. Rather than use words like "sustainable" or "renewable" or "clean" when discussing non-polluting energy sources they instead label these sources of energy as "alternative". In the UK, the use of that word has pejorative connotations, usually to do with "alternative" lifestyles like strict veganism, communal living, far-left political beliefs or religious cults or other hippy-dippy stuff which is to be mistrusted, feared, scorned and therefore belittled whenever possible. By using this kind of language the people and businesses of Aberdeen show that their default position associates clean energy sources with questionable fringe actives and beliefs which are to be scorned. This sets the context in which they frame their discourse and actions, for language is never neutral.
And thus we despair that it's becoming increasingly unlikely that significant capital will be reallocated away from the atmosphere-threatening hydrocarbon industry to build a sustainable local economy based upon clean energy sources here in time to secure the vaunted title "Global Energy Capital" [sic] which local business development companies claim for our town. For the one-way-bet certainty afforded by an oil-price which, despite globally defective demand; despite recession or depression, remains proudly above the psychologically significant $100 per barrel mark is a huge distraction to capital, which (as we have all seen since 2008) always discounts the future.
Flashing like the urgent "HOLD NOW" buttons of a slot machine stuck on a jackpot payout, this ton-high oil price militates against any thought of significant reallocation of capital crossing the minds of the oil companies and their executives here. The certain play of continued and renewed investment in the oil-bearing strata beneath the seas of the UK's continental shelf satisfies the needs of capital oh so much more than adequately. Why would capital (the need to increase itself being its primary reason for existing - integral to its true definition) redeploy away from so certain a one-way bet into something a just little more risky?
The tickers tick up on global heat budget, CO2 concentration, social inequality, species extinction, deforestation, ocean acidification, resource depletion and political instability and conflict. But the ticker also ticks up - ever up - on the free-market price of a barrel of oil. That same ticker begins to look like a countdown to the deadline for establishing a sustainable economic future for Aberdeen. The high oil price an obstruction, a distraction. It's in the way of the future.
Local labour politician Lewis Macdonald stated at the screening of 'Run Down Aberdeen' that "high oil prices are good for Aberdeen". Politicians, it seems, also discount the future.
Unfortunately, we have to live there.