Profit in oil, gas sector explains climate crisis: Analysis

By Al Mayadeen English
Source: The Guardian
22 Jul 2022 09:53
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The staggering amount of profit made by the oil and gas sector explains why government and energy companies have not properly invested and implemented measures to make a shift toward renewables and limit global heat to 1.5 °C.

The oil and gas industry delivered $2.8bn, a day, in pure profit over the past 50 years.

According to a report by The Guardian, a study, yet to be published in an academic journal but has been dubbed as accurate by three experts at University College London, the London School of Economics, and the thinktank Carbon Tracker, revealed that the pure profit of the petrostates and fossil fuel companies is enough to “buy every politician, every system” and delay action on the climate crisis.

The study, authored by Prof. Aviel Verbruggen, assesses the “rent” secured by global oil and gas sales, with "rent" being the economic term for the unearned profit produced after the total cost of production has been deducted. Verbruggen’s analysis revealed, based on World Bank data, that the oil and gas industry delivered $2.8bn, a day, in pure profit over the past 50 years.

This information compiled over the years brings the vast total captured by petrostates and fossil fuel companies since 1970 to a staggering $52tn. These profits were further inflated by cartels of countries that have artificially restricted local supplies. This analysis, which appears to be the first long-term assessment of the oil and gas sector’s total profits, discloses that oil rents make up 86% of the total.

Fossil fuel emissions are to blame for the present heatwaves that are affecting the UK and many other nations in the Northern Hemisphere, as well as for the intensification of extreme weather. For many years, the oil industry has been aware that carbon emissions are severely warming the world.

Verbruggen, energy and environmental economist at the University of Antwerp, Belgium, and a former lead author of an Intergovernmental Panel on Climate Change report stated that “I was really surprised by such high numbers – they are enormous,” adding, “It’s a huge amount of money…You can buy every politician, every system with all this money, and I think this happened. It protects [producers] from political interference that may limit their activities.”

The analysis shows that the annual profit, given that the rents captured by exploiting the natural resources are unearned, between 1970 and 2022, was $1tn with an expectation that this number doubles in 2022.

“It’s real, pure profit. They captured 1% of all the wealth in the world without doing anything for it,” adding that “it’s really stripping money from the alternatives. In every country, people have so much difficulty just to pay the gas and electricity bills and oil [petrol] bill, that we don’t have money left over to invest in renewables.”

Prof Paul Ekins, at University College London, said that some of the rents go to governments in the form of royalties noting that “the fact remains that, over the last 50 years, companies have made a huge amount of money by producing fossil fuels, the burning of which is the major cause of climate change. This is already causing untold misery around the world and is a major threat to future human civilization.”

“At the very least these companies should be investing a far greater share of their profits in moving to low-carbon energy than is currently the case. Until they do so their claims of being part of the low-carbon energy transition are among the most egregious examples of greenwashing.”

In accordance with his colleagues, Mark Campanale, at Carbon Tracker, said that “Not only is the scale of these rents eye-watering, but it is salient to note that, in the midst of a cost of the living crisis caused by record oil and gas prices, this flow of money to a relatively small number of petrostates and energy companies is set to double this year. Shifting to a carbon-neutral energy system based on renewables is the only way to end this madness.”

Verbruggen said oil-rich nations, such as Saudi Arabia, kept rents high by restricting supply. In other words, “they change the fundamentals of the markets.”

Additionally, he added that political and military actions, such as the ban on Iranian oil exports and the US-led invasion of Iraq in 2003, have raised rents. According to Verbruggen, the price of conventional oil would be between $20 and $30 per barrel, down from the current price of over $100, if all accessible oil and gas could be freely provided to the market.

Campanale argued that “to keep to 1.5 °C, this means [international oil companies alone] forgoing around $100 trillion of potential revenues. You can see why oil oligarchs and nations controlled by political elites want to keep their fossil fuel rents, the source of their power.”

By way of explanation, what Campanale argued meant that the amount of oil and gas in reserves in currently existing reserves is much higher than what would be burned and profited from if the world decided to implement measures agreed to by nations in the Paris climate agreement in 2015 limiting global heating target of 1.5 °C.