Category Archives: Corporations

Crash in Oil Prices Should Bury Peak Oil Once and For All

by Arun Gupta Telesur January 29, 2015

In 1977 Isaac Asimov wrote of “The Nightmare Life Without Fuel.” Writing in the wake of the first Middle East oil shock, Asimov imagined cars and air conditioning becoming distant memories, cities mined for valuable minerals and hardware, and the last barrels of oil hoarded for agricultural and military purposes. A future of scarcity seemed in the cards after the 1979 revolution in Iran followed disrupted global supplies, reviving gas lines and rationing in the United States, and sending oil prices to a stratospheric $117 a barrel in today’s U.S. dollars.

The U.S. economy plunged into recession for the second time in a decade. Inflation, food prices and unemployment all shot up. Energy-importing Third World nations were devastated as expensive crude depleted their treasuries even as the U.S. Federal Reserve jacked interest rates, triggering the debt crises that remain unresolved to this day.

But high prices didn’t last long as Saudi Arabia opened its spigots to replace Iran as the West’s top oil supplier, oil exploration boomed in Texas, and vast new fields in the Gulf of MexicoNorth Sea and Alaska ramped up. By the mid-1980s two-hour lines at the filling station were a hazy childhood memory as I’d zip up to the pump and fill my gas-sipping Nissan Sentra for $5.

We are now replaying that era of energy shocks radiating from the Middle East, tight energy markets, expensive oil and an oversupply and bust. The cyclical nature of the fossil-fuel industry disapproves a concept that’s gained wide support, especially on the left, even though it’s flawed in every way: “peak oil.”

Asimov never used the term peak oil in his essay, but that was the underlying idea. Shell Oil geologist Marion King Hubbert developed peak oil theory in the 1950s, predicting domestic U.S. oil production would peak by 1970 and decline steadily thereafter. In exploiting an individual oil field, Hubbert contended, production ramps up quickly and hits a peak at about which time about half the recoverable oil has been extracted. As the oil becomes increasingly difficult and costly to pump out, the field goes into decline. Think of the production as a bell-shaped curve. The top point means half is gone and half is left. But because population and the economy continue to grow, so do energy needs. Hubbert held that his theory about an individual field was applicable to the continental U.S. oil production and even the entire world, which he predicted would peak around 2000.

After that, as one website describes, comes the nightmare future. “Worldwide demand for oil will outpace worldwide production of oil by a significant margin … the price will skyrocket, oil dependent economies are liable to crumble, and resource wars are liable to explode.”

Except panics over looming shortages are as old as the oil industry itself. One snake-oil salesman in 1855 implored buyers to purchase his petroleum-based cure-all “before this wonderful product is depleted from Nature’s laboratory.” The U.S. government warned numerous times in the 20th century that oil supplies would be depleted in a decade or two. The infamous 1972 Limits to Growth projected that by 2013 the world should have run out of “aluminum, copper, gold, lead, mercury, molybdenum, natural gas, oil, silver, tin, tungsten, and zinc.” Peak-oil theorists like Colin Campbell, Kenneth Deffeyes, Richard Heinberg and James Howard Kunstler have been declaring peak oil for more than twenty years but production keeps rising.

Despite this dismal track record many leftists embraced peak oil during the Bush era. It was a secular version of end times in the post-9/11 world. If movement building seems insurmountable, then it’s tempting to find solace in building post-carbon, do-it-yourself communities and wait for the wells to run dry at which point everything from the “war on terror” to climate change is resolved.

Fervent peak oilers are neo-Malthusians, believing the relentless growth of population and society on their own will outstrip natural resources. While Malthus’s ideas were discredited on scientific, historical, and economic grounds in the 19th century, they live on in peak oil, peak waterpeak mineralspeak soilpeak food and peak everything.

From a scientific perspective, peak oil posits geology as determining oil supplies. Of course oil is a finite and non-renewable resource, but the last decade of spiraling oil prices was caused by Middle East wars, Wall Street commodities speculation, and ecological disasters like Hurricane Katrina, not by natural limits. It’s the socio-economic system that determines how much oil, along with every other commodity, is produced, distributed, and consumed. Grasping why peak oil and its variants are flawed offers a deeper understanding of the global energy order, the politics of climate change, and capitalism itself.

Even the term peak oil is problematic, obscuring how the energy industry works. We may imagine oil as gushing out of a steel derrick in a barren desert, but energy companies are after hydrocarbons in any form. Cars on a highway could be powered by fuel derived from tar sands, natural-gas or its condensates, shale oil, biofuels, heavy oil, or coal-to-liquid. One scenario by the U.S. Energy Information Administration estimates such non-conventional sources could account for more than one-third of all oil produced by 2030.

Then there is the concept of a peak. Even though Hubbert was off by only one year—domestic production peaked in 1971—production looks nothing like his bell curve over time. It rose after each seventies shock, went into a twenty-year funk after the mid-eighties crash, and in the last five years it has soared to near its 1971 peak.

The inherent flaw of peak oil is that it naturalizes capitalism. Energy reserves are determined by price, investment and technology. The current oil boom, driven by innovations in fracking and drilling, tar-sands production, low-cost investment capital and persistently high oil prices, have smashed Hubbert’s theory to bits like brittle shale.

The inaccuracy of peak oil hasn’t stopped prominent figures like Paul Krugman and George Monbiot from flirting with the concept. Monbiot admitted his error in 2012, correctly noting the problem is not too little oil, but too much: “There is enough oil in the ground to deep-fry the lot of us, and no obvious means to prevail upon governments and industry to leave it in the ground.” On the left, Michael Klare has pushed versions of peak oil in books like Resource Wars and The Race for What’s Left. In 2005 Klare declared that “the world is headed for a severe and prolonged energy crunch in the not-too-distant future.” In 2008 Klare wrote that “the current energy crisis is almost certain to be long-lasting.” In 2012 he asserted that “oil prices are destined to remain high for a long time to come.”

Like the hardcore peak oilers, Klare confuses the energy economy with oil reserves rather than analyzing how economic, political, and technological forces turn tight markets into gluts, and booms into busts. While Klare tends not to endorse peak oil outright, he often quotes the ideas favorably. In recent years he has shifted to peak oil-lite, proclaiming the end of “cheap oil” or “easy oil.” Most any gas station these days refutes the “cheap oil” notion. The U.S. average is currently $2.03 for a gallon of gas, close to the inflation-adjusted average in the 1950s.

As for “easy oil,” that’s relative. In 1947 when the first commercial oil well was built out of the sight of land in the Gulf of Mexico it was an engineering marvel and in all of 18 feet of water. Today, Brazil has committed $82 billion to develop a “pre-salt basin” of oil under 6,900 feet of water and additional 17,000 feet of seabed. Japan is in uncharted waters with a pilot project to exploit methane hydrates, a form of frozen hydrocarbon on ocean floors that may be twenty-five times the size of all potential natural gas reserves. While there are uncertainties about these projects, especially methane hydrates, they show huge sums of investment are readily available to an energy industry that can rapidly innovate to develop profitable resources.

Klare, however, dismisses new hydrocarbon sources. He claims shale and tar sands oil is “tough oil” that “will have to overcome severe geological and environmental barriers.” The energy industry, however, doesn’t give a hoot about the environment. As Naomi Klein, author of This Changes Everything, puts it, “[Its] business model is fundamentally at war with life on earth.” And just as low gas prices refute the end of cheap oil, the output from Canada’s tar sands, more than 2.5 million barrels of synthetic crude a day, and U.S. shale formations, nearly 4 million barrels a day, proves tough oil is meaningless.

It’s the quest for hydrocarbons in general and geopolitical maneuvers that’s made the current oil crash rapid and steep. The last major crash was in the mid-eighties, and that taught Saudi Arabia to plan ahead. It’s amassed $750 billion in currency reserves and is pumping oil at full tilt rather than give up market share. The Saudis are willing to weather low prices to punish rivals like Iran and to force some unconventional black gold like shale and tar sands into the red. Conspiracy theorists see Washington’s hand because of the pain inflicted on Russia, Iran, and Venezuela, which all need high oil prices to meet their budgetary needs, but as the Socialist Worker points out, “Saudi Arabia’s decision not to prop up prices is the product of its rivalry with U.S. oil producers, not coordination with U.S. policymakers.” Daniel Yergin, author of The Prize, the Pulitzer Prize-winning history of the oil industry, contends we may be entering a new oil era where the United States supplants Saudi Arabia as the “swing producer” that can exert direct control over oil markets.

Critics contend that given ever-increasing thirst for hydrocarbons historically, any assumption about future usage based on current supply is dicey. That’s true, but “proven reserves” of oil and natural gas, which is the most conservative category, keep rising. One figure that has remained consistent over decades is the “reserve-to-production” ratio. In 1995 the world had an estimated 51 years of oil supply based on consumption that year. After burning through half-a-trillion barrels of oil since then, the global reserve-to-production ratio in 2013 was at 53.3 years.

While peak oilers snipe that Middle East producers overstate their supply, the opposite is the case. Officially, Saudi Arabia has 267 billion barrels of oil, but in twenty years, Saudi Aramco estimates it will have 630 billion barrels of recoverable reserves. That’s on top of current production rates of 4 billion barrels annually. The same is true for the United States, Canada, Venezuela, Iran, and Iraq. They can potentially produce far more oil than what’s listed in their reserves. One study of U.S. oil fields found the actual production was more than seven times the initial reserves reported. Conservative estimates of Brazil’s pre-salt oil fields put it at 14 billion barrels, which means they would eventually produce more than 100 billion barrels.

State companies like Saudi Aramco, known as “nationals,” often resist U.S. pressure to pump more oil because that could lead to a price crash. The nationals control 90 percent of global reserves, so many large fields remain untapped. The “majors”—corporations like ExxonMobil, Shell, BP, and Chevron—are left to grab what they can, such as shale oiltar sands, or search in extreme environments like the Arctic Ocean. This tendency only reflects the market imperative to maintain profitability, not a harbinger of the end of oil. But since Klare focuses mainly on the majors, his view is one in which oil is rapidly dwindling. In 2005 he wrote that “in the absence of major new discoveries, we face a gradual contraction in the global supply of petroleum” because “major private oil companies are failing to discover promising new sources of petroleum.” Yet since 2003 global proved reserves have increased by more than 350 billion barrels, and that is in addition to over 300 billion barrels consumed in the same period.

Shortfalls in supply often stem from U.S. policy to control the global spigot of oil. Obama told the U.N. General Assembly in 2013 that because “a severe disruption could destabilize the entire global economy,” he was prepared to use military force to “ensure the free flow of energy from the [Middle East] to the world.”

Since the 1990s, Washington has disrupted many major oil producers. This includes the invasion of Iraq, the overthrow of Muammar Gaddafi in Libya, sanctions on Iran, and dirty tricks against Venezuela. Ironically these actions tightened the oil market such that domestic fracking and tar sands became profitable. But the world is not about some free for all scramble for oil as in Klare’s “resource wars.” He contends that “unsettled resource deposits—contested oil and gas fields, shared water systems, embattled diamond mines—provides a guide to likely conflict zones in the twenty-first century.”

Other than those countries Washington designates as rogue states—like Iran, Iraq, and North Korea—every state accepts, even if grudgingly, the U.S.-managed global oil order. Even countries on the out are looking for an in. The drop in oil prices helped create the conditions for a rapprochement between Cuba and the United States, and it may be pushing Iran to reach a deal with the White House over its nuclear energy program.

A more accurate view of the global oil order is provided by physicist and geopolitical analyst Tom O’Donnell who terms it “one global barrel.” He argues that the pre-1973 oil system had no meaningful open market, making it a form of mercantilism. Back then the majors backed by Western states controlled the production of oil-rich countries. Supply disruptions to one company could affect an entire consuming country. The new system developed after Third World states nationalized oil companies. The global oil order now works through the market, mainly the London and New York commodities exchange, and is dominated by U.S.-protected Gulf States in OPEC and managed by international institutions such as the Organization for Economic Cooperation and Development and the International Energy Agency. Above it all is the U.S. government.

Klare implies national interests still reign supreme and nations are constantly on the brink of war over shrinking energy supplies. While China may chafe at U.S. control and Russia and the United States are at odds, the global oil order is marked by conflict, competition and cooperation at the same time and often in the same place. In Russia, Western oil companies continue to do business despite sanctions. In Iraq some opponents of the war crowed that Russian and Chinese oil companies that won concessions there marked the “declining influence of American capitalism.” But the scope of revamping Iraq’s oil infrastructure is so large that much of the lucrative drilling and exploration work is going to U.S. oil services firms. More important, Washington policymakers are generally indifferent to who is producing Iraq’s oil as long as it flows freely into the global market and U.S. influence holds over the Iraqi state.

If we could fast forward through time to find when oil production and consumption peaks, that would tell us nothing about the social impact. The 1980s crash was due to an increase in supply and drop in demand. Oil consumption may seem to march in lockstep with population and economic growth, but it is elastic. A barrel of oil today generates three times as much economic activity as it did in 1976. Unbelievably, U.S. oil consumption was lower in the first half of 2014 than the high point in 1989. Factors include lower car usage and increasing fuel efficiency that hit a record of 23.6 miles per gallon in 2012. Yet most European economies produce 50 to 60 percent more economic activity per unit of energy as does the United States. We could slash our oil consumption in half in a decade with a concerted effort. It could keep going down until oil is reserved for far more valuable uses such as road building, metal making and specialized lubricants, chemicals, plastics, and pharmaceuticals.

Oil consumption needs to drop dramatically because of the dangerous planetary effects. But that has nothing to do with peak oil. It’s a matter of how we reorganize our society and economy on the surface of the earth so we stop using the stuff that’s under it.

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Debut of Politico’s ‘Morning Shift’ Raises Ethical Questions Around IFA Sponsorship

by Arun Gupta In These Times October 14, 2014

I was pleased to learn in late September of Politico’s plans to launch a labor reporting desk—I am of a “more the merrier” mindset when it comes to journalism, especially on a topic so underreported as labor.

Politico apparently sees money to be made in labor journalism, even as this vital beat fades in newsrooms across the country. According to the Huffington Post, “Politico’s market research suggested that stakeholders in government, lobbying and Fortune 500 companies were looking for the ‘nitty-gritty’ details of labor policy.” “Labor and Workplace Policy” will join Politico’s portfolio of 13 other “Pro Verticals,” paywall-protected sections that cover single topics like education, transportation, technology and the military. Subscriptions to the verticals can run into the thousands of dollars, the HuffPost says.

It’s an important service, even if Politico’s focus sounds less like traditional labor reporting (on topics like organizing campaigns and contract negotiations) and more business-oriented: The site promises to cover “developments at [the] Department of Labor and NRLB [sic], as well as intelligence on unions, immigration, minimum wage, unemployment, retirement, pensions and pay, health care and ACA implementation, workforce training and court cases.”

Politico has retained top-notch talent in veteran reporter and editor Timothy Noah, author of The Great Divergence, and outstanding labor reporter Mike Elk, who wrote for In These Times from 2010 to 2014. (Elk was involved in a successful unionizing effort at In These Times with the Communications Workers of America and fought the layoffs of staff writers, including himself, whose yearlong positions were funded by a one-year grant that was not renewed.)

However, the Politico labor vertical made a curious decision in its first week. Its newsletter, “Morning Shift,” debuted October 7 with the tagline, “Your daily speed read on labor and employment policy” and a sponsorship from the International Franchise Association—a trade group representing franchised businesses like McDonald’s and Domino’s Pizza, as well as their franchise owners . Two days later, Morning Shift covered a labor issue of enormous importance to the IFA— whether McDonald’s has a legal responsibility for working conditions in franchises—but never mentioned the sponsor’s stake in the story, and editorialized in a way that could give the appearance of favoring the IFA’s position.

The subject line of the October 9 email edition began, “Morning Shift, presented by The International Franchise Association.” After an exclusive about a possible new president of the Communications Workers of America and a dig at Grover Norquist about plans for his “next union-busting ground game,” an ad appeared in the middle of the text, as is commonplace for IFA verticals. This one read: 

A message from The International Franchise Association. The franchising industry includes more than 770,000 establishments and employ 8.5 million workers in the United States. Learn how the franchise business model works and the positive impact franchising has on America’s economy by visiting www.franchisefacts.org.

I clicked on the IFA link. The website says, “Small franchise businesses are the key to the American economy.” After a video touting the benefits of franchising like “picking your staff and choosing which benefits to provide at your location” as health, vision and dental icons pop up, the site unleashes a thinly veiled attack on the effort by the Service Employees International Union (SEIU) to organize low-wage fast-food workers.

America’s 770,000 franchise small businesses are under attack by labor special interest groups—hurting workers, small business owners, communities, and our nation’s economy.

FIGHT FOR WORKERS AND SMALL FRANCHISE BUSINESSES

That a labor report would be sponsored by a trade association for a sector where unions and workplace rights are virtually nonexistent and wage theft and poverty is rampant gave me pause. The Morning Shift is supposed to be nonpartisan, according to the Huffington Post. That’s possible, given that law firms, unions, lobbyists and Fortune 500 companies will be among the likely subscribers, and they might see a partisan bias as compromising the accuracy of the information and analysis.

Still, a sponsor with a vested interest in how information is reported can create serious conflicts of interest. Politico could be more transparent about the possibility of such a conflict if it noted IFA’s involvement in the McDonald’s story—which it never does. Further, at times, the Morning Shift appears to slant its reporting toward IFA in the October 9 Morning Shift report.

The item in question is a three-paragraph “NLRB Update.” Since November 2012, when SEIU unveiled its fast-food organizing campaign, 181 complaints by workers involving unfair labor practice charges such as wage theft have been filed with the NLRB Office of the General Counsel against McDonald’s. Another seven class-action suits covering tens of thousands of workers have been filed in federal courts claiming McDonald’s Corporation conspires with its franchisees to engage in systematic wage theft. SEIU wants the NLRB to rule McDonald’s and its franchises have “joint responsibility” for employees.

As I’ve reported, 90 percent of McDonald’s 14,000 U.S. restaurants are franchises. Franchisees usually sign a “master contract” with the corporate parent, which, as I wrote, “micromanages key aspects of the business—menus, promotions, insurance, software, advertising, cleaning and so on. At the same time, McDonald’s takes pains to spell out in contracts that it has ‘no implied employment relationship’ with a franchisee or their workers. SEIU aims to hold corporations liable for their franchises’ actions.” A joint-employer ruling could allow SEIU to unionize workers or improve wages, benefits and conditions across thousands of stores at once instead of fighting one franchisee at a time.

SEIU scored a major victory in July when the NLRB general counsel ruled in favor of McDonald’s workers in 43 cases and “authorized complaints on alleged violations of the National Labor Relations Act.” The general counsel explained that if the parties cannot reach a settlement, “complaints will issue and McDonald’s, USA, LLC will be named as a joint employer respondent.”

The International Franchise Association makes no bones about the fact that this is a doomsday scenario. At an IFA-sponsored conference, Aziz Hashim, President and CEO of NRD Holdings, which owns numerous franchises such as Popeye’s and Dominos, said the ruling “threatens the basic foundation of franchising.” If a joint-employer ruling forces McDonald’s to assume legal responsibility for employees in franchises, it could negate the rationale for franchising and become a watershed in low-wage worker organizing. The parent company would have nothing to gain from outsourcing its workforce.

Morning Shift mentioned McDonald’s liability if it lost a joint-employer ruling, but it failed to mention this downside for franchises.

The Morning Shift account also contained wording that seems slanted toward the IFA. Morning Shift stated, “If the NLRB rules against McDonald’s, the corporation could be on the hook for infractions committed by its (seldom deep-pocketed) franchisees.”

Why tell the reader franchisees are “seldom deep-pocketed”? That’s in line with IFA talking points implying franchisees are struggling small businesses. I’m sure if I asked the IFA to speak to a franchisee, it could quickly trot out a scrappy immigrant family who’s saved every tarnished penny to buy a struggling franchise they devote every waking hour to for their slice of the American Dream, but that’s arguably not the norm.

It’s true that 64 percent of franchise owners are single-outlet operators, but they do not make up the bulk of the business: Of some 60,000 fast-food franchise outlets, 75 percent are owned by “the big players,” as the the Wall Street Journal puts it. The Journal adds that the average McDonald’s franchise “owns more than six locations.” In the fast-food industry, the biggest franchisees are holding companies with hundreds of outlets and half-a-billion dollars a year in revenue—and it’s these mega franchisers who stand to gain the most if the NLRB eventually decides against the workers. As the Journal further explains, corporate parents tend to pass over unknown entrepreneurs—even those that can pony up the $750,000 “minimum” generally required for a McDonald’s franchise. The parent prefers mammoth franchisees because,  “They often have readier access to capital and can prop up underperforming restaurants with stronger sales elsewhere in the chain. They’re also seen as less risky by franchisers, because they have a track record with a brand.”

Thus, for many fast food franchises, owners’ pockets are plenty deep. It’s spin for the IFA to portray itself as the defender of workers and small business owners. It’s a questionable assertion for Morning Shift to make, and one that indicates a certain slant.

Politico also editorializes by describing the NLRB’s ruling as “controversial,” writing, “NLRB general counsel Richard F. Griffin issued a controversial finding in July naming McDonald’s a joint employer in 43 cases before the NLRB.” But legal cases are, by definition, controversial—one side disagrees with the other. For whom was the NLRB ruling controversial? Certainly for parties with a stake, such as McDonald’s, the IFA, the franchisees, and their allies in Congress. But it would be a stretch to say it was a topic of significant national debate.

In addition to slant, a major question here is disclosure. Typically sponsorship disclosures are necessary when a sponsor is mentioned in a story. In this case, since the IFA’s sponsorship is already prominently highlighted, the question is reversed: Is the sponsor’s role in the story significant enough that it deserves a mention?

The IFA has emerged as a major player in the NLRB fight over franchising. An Associated Press report from July 30 published on Politico singled out the IFA as an opponent of the NLRB ruling: “The International Franchise Association, which represents franchisees, has opposed the identification of McDonald’s as a joint employer.” On September 16, The Hill reported the IFA was spearheading the “strategy to overturn a preliminary NLRB decision that corporations like McDonald’s share joint employer status with their franchisees.” The industry group’s plan included dispatching hundreds of franchisees and franchisors “to flood lawmakers’ offices, pressing them to oppose the NLRB’s finding.” In mid-September, IFA held its annual conference in Washington, D.C., attended by some 360 franchise industry representatives, “to make sure the model stays intact,” according to Entrepreneur magazine. One conference attendee said, “This joint employee-employer thing, if that goes through, that’s a hand grenade in the middle of the [franchising] business model.”

There is no inkling of this organized campaign in the October 9 report. What makes the omission even more puzzling is that the same Morning Shift mentions the IFA in relation to its lawsuit trying to overturn Seattle’s $15-an-hour minimum wage law that was approved by the City Council in June.

It’s important to point out there is no evidence the news was intentionally slanted. Politico’s labor desk is best able to say if there was any coercion or signals from higher ups at Politico to favor the IFA. At the very least, it raises a number of questions about Politico’s sponsorship and disclosure policies.

Politico is not alone in facing these questions. Journalists have long been wary of being pressured into writing “advertiser-friendly” copy; to protect the integrity and independence of their reporting, many outlets, such as the New York Times, have an ethics policy that keeps the advertising and news departments “strictly separate.” But the decline of print-media business models combined with the explosion of data-rich digital media is erasing those lines. Last year, The Atlantic was lambasted for sticking “sponsor content” from the Church of Scientology in its center news column. More recently, former Vice Media editor Charles Davis went public with evidence that the wildly successful website has killed stories out of fear it may potentially affect a “business deal” with a powerful brand, the NFL.

Having run several media outlets with different funding models, I know well the pressure and conflicts involved with taking advertising money. That’s why even the appearance of favoritism needs to be guarded against. Ultimately, the most valuable asset any reputable media outlet ultimately has is not its market value, but the trust with its readership. As a reader of In These Times, I know it receives sponsorship for its labor coverage from unions, including the International Association of Machinists and the United Auto Workers However, In These Times has published numerous critical reports by Elk on the UAW’s failed attempt to unionize a Volkswagen plant in Tennessee earlier this year, as well as a recent piece by David Moberg critical of the union’s claims to have eliminated two-tier contracts at an Indiana auto plant.

In this second Gilded Age, when corporate influence is everywhere, including journalism, much rides on providing proper context and analysis, and nowhere more than the fight over who controls the economy.

The CWA, UAW and IAM are sponsors of In These Times. Sponsors have no role in editorial content.

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