Originally published on the Doomstead Diner on February 4, 2015
Discuss this article here in the Diner Forum.
“Never let a good crisis go to waste”
— Winston S. Churchill
For those of us grasshoppers happily filling up our gas tanks with gasoline at $1.83 per gallon, and whistling in the dark about what it all means for the future, we suspect that gas prices in the future will be higher. As rigs are taken down and shuttered, the oil remains locked in the shales, waiting for some future wildcatters. Meanwhile, an estimated 242 rigs (13.6% lower than 2014) have come off line and some 40,000 oilfield (and related industry) workers have been given their walking papers. The bad news from the oilfields drones on: year-over-year oil exploration in the U.S. is down 14.0 percent; Gas exploration is down 10.9 percent; the weekly average of crude oil spot prices is 53.0 percent lower than last year and natural gas spot prices are 45.9 percent lower than last year. If you believe what RE and Steve say about this, we will have to borrow the money into existence just to pay for the privilege of burning it.
Meanwhile, there may be mischief afoot. While there is some discussion about whether it was Churchill or Rahm Emanuel who said it first and/or best, the above cited quote reminds of Naomi Klein's opus on disaster capitalism, "The Shock Doctrine." Klein explained how capitalism has triumphed not so much by virtue as by exercise of power, rank opportunism and crony capitalism. Public disorientation in the wake of massive collective shocks -– wars, terrorist attacks, or natural disasters — creates an opportunity via "crisis management" to wrest control via economic shock therapy, and do things that in ordinary hours would be beyond the pale. In the wake of war in Iraq, a new "law" allowed Shell and BP to claim the country’s vast oil reserves. Post September 11, the Bush Administration quietly outsourced the “War on Terror” to Halliburton and Blackwater, creating new private fortunes in the process. After a tsunami wiped out Southeast Asian coastlines, the beaches were auctioned to resorts. And closer to home, New Orleans residents scattered by Katrina learned that their schools, hospitals, and public housing would never be reopened. That's what "never letting a crisis go to waste" means to the neocon jingoes who create policy in their airless bubbles.
So is there a crisis in the wake of the oil price crash? Prior to the crash, the fastest growing heavy industrial sector in terms of employment was oilfield jobs, which pay relatively well as compared to, say a barista or a Wal-Mart greeter. And one of the great reasons that municipalities permit fracking operations, often over the heads of aggrieved residents, is the tax money that spills into municipal coffers. So where is the brewing crisis? This from Zero Hedge:
…One state that few thought would be impaired as a result of the crude plunge, is California. Yet as the LA Times reports, it is precisely California, and specifically Kern County located in the middle of the state and containing the farmer town of Bakersfield and countless oil rigs, that yesterday declared a state of fiscal emergency during the weekly supervisors' meeting on Tuesday. The reason: predictions of a massive shortfall in property tax revenues because of tanking oil prices.
Oil companies account for about 30% of the county’s property tax revenues, a percentage that has been declining in recent decades but still represents a critical cushion for county departments and school districts.
According to the LA Times, as a result of the plunge in crude prices… Kern, the heart of oil production in California, is facing what could be a $61-million hole in its budget once its fiscal year starts July 1, according to preliminary calculations from the county’s assessor-recorder office.
"It affects all county departments – every department will be asked to make cuts,” said County Assessor Jon Lifquist in an interview this month. “It just doesn’t bode well."
The Service Employees International Union Local 521 urged officials in a statement to “not adopt drastic cuts that could cripple vital community services.”
And now the contract that covers the USW in Kern county (San Joaquin valley) expired January 31st. The USW is currently on strike. Some 3,800 spanning nine U.S. refineries have walked off the job, following the breakdown of contract negotiations between the union and Royal Dutch Shell, which is representing the industry in these negotiations. This job action is the largest strike of refinery workers since 1980. The USW called for the strike after Shell management did not meet union demands regarding wages, safety and health insurance issues.
As I've noted before in these pages, the prospects for a new young generation of American worker are markedly tougher than they were a generation ago. When I was young, if you didn't go to college, you probably went to work in the building trades or in a factory. If you screwed up there, you went to another factory. In the fullness of time hundreds of thousands of people did that, and over years raised families, bought houses, cars, boats and took modest if not annual vacations. They even sent their progeny to college. Now, unemployed and without comparable options, thousands of recently laid off workers may prove desperate enough to cross picket lines…
A lot of rigs were service stopped before Christmas, when the oil price was winding down and eyes were starting to gaze at the 2015Q1 results. They pulled the data gathering equipment out of those rigs, and it’s very likely the techs who would put them back in are among the layoffs recently announced.
Many oil and gas workers for the drillers and refiners work on contract, or work for smaller businesses who are subcontracted, when the contract does not renew, it's one less job, but not counted as a layoff, at least from those companies whose actions are spotlighted and can make or break markets. Those who still have a job are finding the empty positions around them not getting filled, from entry level designers at desks to experienced engineers out in the fields, and the rumors of hiring freezes abound.
So now, with the unions perceived to be the ones firing the first shot, the combination of downward pressure on the price of oil and mass layoffs of thousands throughout the oilfield and related industries, presents an irresistible "crisis" not to be wasted by the barons of the extractive industries. Look for new hires in the oil and gas sector to be offered around $15 an hour less than a year ago – with communities torn asunder as picket lines are crossed and the working class is once again pitted against itself.
I asked fellow Peak Oil blogger Harry Lerwill about his experiences growing up in an energy industry in decline.
The miners and the families that I grew up in fought hard – and lost. They lost along the way, as villages, communities, even families were torn apart by one question: will you cross the line? A lot of people remembered the winter of discontent, the rolling blackouts, the cold nights in candlelight, the sound of sirens in the distance. It evoked memories of the war in most people of voting age, and when faced with the possibility of a new round of blackouts, there were many, even within mining communities, who were conflicted in who to support.
Initially the majority supported the strikers, but as the dispute grew long, the charity available dwindled, families got hungry, taboos were spoken: The Iron Lady would not blink. The miners might not win. Support at secondary strike locations, and support from other unions, wavered as more and more crossed the picket lines and went back to work.
With support divided in the community it became a propaganda war played out in the media and on the streets, in workingmen's clubs and village schools. More than a few eyes were bruised at closing time, but I saw far more pain and suffering inflicted by a loud, "your dad's a Scab!" shouted across the playground.
I'm not going into the politics of the time or who was right or wrong. I did not support the union at the time because my grandmother and tripped and fell during the Winter of Discontent, breaking her hip and precipitating a steep decline in health, for which I blamed the strikers, and those memories were still fresh. So I stood silently when the kids argued and fought after school, taking neither side; I was too busy working a couple of jobs since black lung, the dreaded miners' disease, had ironically taken my father a few years previously, another bone of contention I had with the entire coal industry. I left that mining town soon after for University, the first and last to be able to afford it from my family, because they came for the free university education next, with grants replaced by loans for the first time, but that's a topic for another time.
Today you have a population thankful for the lull in energy prices and fearful of a rise at the pump. I'm expecting to see stories of the strike causing gas prices to rise, further souring the population against the unions. The population would have a choice – pay more at the pump or be a silent witness as the unions that work in the O/G sector get crushed. If oil prices are staying below $ 60 a barrel long term, saving 15% – 25% of your payroll by bringing in non-union workers has to look good to the bean counters who are a thousand miles away from any rig and haven't laid any pipe for years. Break one union and it will be domino effect through all the unions who support the industry, under the banner of "fear not having enough energy." The story is there, the actors and scenery a little different, but we often mistake a change of scenery and a new suit of clothes for "it's different this time!"
A number of significant union contracts between Big Oil and its unions expire during the first half of 2015. For its part, Chevron has this to say about Labor Relations:
Partnership is integral to The Chevron Way. We have an unwavering commitment to being a good partner focused on building productive, collaborative, trusting and beneficial relationships with all our stakeholders – investors, customers, local communities, host governments and employees.
We will look forward with interest to see just what the Oil and Gas sector’s "unwavering commitment" to employees looks like as the weeks and months unfold. We're betting that divide et impera works as well in the 21st century as it did in the first.