Sustainability and the oil industry: The ironical pair
in collaboration with Nidhi Ahuja
The oil industry — as we generally call it — is different from others in a lot of ways. To start with, it is the second largest industry after alcohol, one of the highest earning and also requires huge initial investments barring small and medium enterprises to come up. It is either highly regulated or controlled by governments themselves in various parts of the world. In fact it is so huge that countries like Venezuela and Saudi Arabia have based their whole economies off of it. In the world’s largest economy — United States — the oil industry has been playing a key role in lobbying the government in slowing down the adoption of renewable sources of energy. Donald Trump during his presidency has tried to bring back the coal jobs which have slowly being dying and has rescinded out of the Paris Agreement, the potential reasons as discussed by the media could again be lobbying as the fossil fuel industry invested huge sums in his presidential campaign. It is also the industry that has gained popular media attention for investing into the energy sources of future among their CSR initiatives, ironically however increasing their production of crude oil and gas all the while.
On the same note, there have been some companies that have acted in a responsible way and have used their position to actually bring about an impact and foray into sustainable future. It is also the industry which has helped us transform and develop rapidly, from firing up the industrial revolution to providing more than 80% of world’s current energy demands. It has undoubtedly helped increase the pace of development around the world with even poorer countries like India being able to provide electricity to every part. It is also the industry that facilitates the production of plastic, synthetic rubber and fibre, three products which are used in our daily life. Essentially, it is an industry we simply just can’t live without.
All of these factors make analysing the industry all the more complex and interesting. To understand the industry in detail we will discuss about specific organisations like OPEC, newer technologies like fracking and individual governments like Norway and Venezuela, all of which have acted as anomalies in their own way. We will also be discussing about how the oil companies’ CSR initiatives are not always in a sustainable direction and are majorly to attain goodwill among the masses. All these are case studies in themselves and will help us understand why this industry is so complex to deal with.
An organisation of immense importance in this sphere is OPEC. It accounts for more than 40% of world’s oil supply. They also control more than 80% of crude oil reserves, giving them immense power in the oil market. The group was created by host of oil rich countries from Middle East, Africa and Latin America (majorly Venezuela) to monitor the price and supply of oil in the world market. They meet twice a year to decide whether they will raise or reduce the oil output to ensure a stable market. However, the group has faced a lot of criticism as being corrupt and working for the gains of a few. A good example of this would be that barring 3 member nations, all of the others are facing huge internal struggles (Venezuela) or have low levels of HDI. All of these member states: Angola, Congo, Equatorial Guinea, Gabon, Iraq, Libya and Nigeria do not even appear among the first 100 countries if ranked according to HDI, brining to point that the organisation’s activates are not in the interest of a very important stakeholder: its own citizens.
Norway, a Scandinavian nation known for impressive levels in HDI and GDP per capita is also a nation with one of the highest adoption of electric vehicles. It has been a pioneer in adoption the ‘green’ technology and has been reducing its own carbon footprint steadily. Its sovereign national wealth fund is one of the largest in the world, a huge feat considering the size of the country. Its riches have helped in adoption of newer technologies like solar panels and electric vehicles among the country. Around 40% of the vehicles now bought in Norway are electric and this is due to huge subsidies given by the government. However, there is a catch, Norway has been able to grow this wealthy on the account of one resource: its oil reserves. Norway ironically has built this whole green infrastructure on the backbone of oil and gas which are the major pollutants which required the sustainable practices in the first place. To its credit however — and unlike Venezuela — Norway has been able to control the oil boom and use it for the welfare of its people. High taxes collected from the oil profits are now being used to invest in researching and producing sustainable technology for the wider public. The. Norwegian government has now taken responsibility and is taking steps in the right direction but there is still a long way to go.
Venezuela, the country with world’s highest oil reserves is also the country with the world’s highest inflation rate. It doesn’t appear that a country with highest amounts of the resource which is largest in demand throughout the world will ever have to grapple with problems like shortage of food and looting. However, it is the case in Venezuela, with riots, looting and food scavenging a common sight on the streets of its cities. It has been described by John Oliver — a well known late night TV show host — as the case of epic mismanagement on the government’s side. With high levels of corruption in the government, and the whole economy being built only on rocky foundations of oil, the country’s future looks bleak. Hugo Chavez, an ex-president of Venezuela launched unsustainable — both financially and environmentally — social welfare programs which ended up harming the country more. Economist once describes Venezuela as the most corrupt country in Latin America, and when the crude oil prices lowered in the global economy, the country’s finances came tumbling down along with its on-paper sustainable practices. Instead of using the oil wealth to fund sustainable practices and renewable energy, the country spent lavishly with corruption eating the country’s huge revenues. The country now faces huge food shortages, violence, inflation and with the civil society in disruption it seems like almost all of the stakeholders have been greatly impacted.
North Dakota, a Canada bordering state of the US has been relatively unknown in comparison to the bigger states like New York and California. However, this small and unheard of state is now creating much more impact on the global economy than both New York and California combined. The reason is simple: oil. It now produces more than 1 million barrels of oil a day, in comparison to just a few years ago when it was producing none. It has also reduced the oil import bill of United Sates by half, the largest consumer of oil. However, all of this has come at a cost to the society, for example in 2014 according to a New York Times report, the companies drilling oil in North Dakota spilled 18 million gallons of oil and chemicals in the state, a terrifying fact. Thousands of hectares of farm land has been destroyed, rendering farmers incapable of growing and earning because of unsustainable practices being followed. It has also taken a toll on human life, with an average of a death every six weeks in the oil fields, with companies forcing workers to work for almost 70 hours straight. And all of this is happening when these oil fields are only employed when the oil prices are high enough (~$70 a barrel) for fracking to be profitable. Fracking is the technology used to extract oil from the earth’s shell, which is expensive and unsustainable in nature, impacting the ground water, soil content and adds highly to atmospheric pollution.
Finally, the above representation shows that there is no substantial thought given to the future by the petrochemical industry. Activities in the name of sustainable development are not actually creating sustainable value but only giving them the license to operate in the present. Also, reporting of sustainability, especially in this industry, is generally about reporting of volunteer activities for the society or of the operational activities about reducing its harmful impact on the environment. Sustainability on the other hand is about operating in such a manner that does not take away anything from the future and does not harm the present environment in the first place. The industry and the world as a whole needs to pay more attention to the stakeholders involved and how these activities are impacting the world.