For the first time ever, oil is trading at negative prices after plummeting sharply yesterday. In other words, because it costs money to store and transport oil, drillers—and, specifically in this case, those of West Texas Intermediate Crude—are now having to pay pipeline and storage companies to take product off their hands, as space for storing excess oil runs out fast. This might be the greatest crisis to face the oil industry since there’s been an oil industry, and no one in power seems to have a plan for what to do about it.
This didn’t come out of nowhere. American shale drillers had been gorging on debt since just after the last crash, which landed them low interest rates and cheap, free-flowing credit. Most, though, have never turned a profit. Much of the oil extracted in the United States and that allayed fears of Peak Oil more than a decade ago is far more costly than what’s produced in the Middle East, requiring big up-front investments of capital on wells—in the case of shale—that dry up after a few years. Forty-two exploration and production companies went bankrupt in 2019, representing a total debt load double that of firms that went bust the year before. The famously unprofitable sector was already looking at $24 billion worth of bonds maturing by 2024 and had, for the most part, lost access to Wall Street creditors. Energy markets were already faltering back in January as coronavirus shutdowns ate into usually heavy demand in China, and it hasn’t been a secret that the energy sector carries a corporate debt load higher than any other’s.
For all the primary-season talk about the big, ambitious climate policy that’s needed—namely the Green New Deal—discussion of the festering situation in oil markets has been pretty muted. That’s thanks in part to the mountains of fossil fuel and private utility funding that flows through university climate and energy centers, which constrains the kind of conversations happening in think tanks and academia. The types of experts who end up shaping the climate conversation in Washington and advising Democratic presidential candidates aren’t necessarily shills for the fossil fuel industry but do tend to focus far more on building the stuff we want (clean energy) rather than figuring out how to get rid of what we don’t (fossil fuels). We need to do both. So-called supply-side policy—how to keep fossil fuels in the ground—has been mostly off the table, with the loudest and most persistent calls coming from largely indigenous-led movements to stop fossil fuel infrastructure like the Keystone XL pipeline. It’s worth remembering, too, that the Obama administration—the status quo much of the party seems eager to return to—pursued an “all of the above” energy approach, which actively supported shale drilling as an alternative to coal. The Obama administration gave fracking a market-changing boost in 2015 by lifting the crude oil export ban. Many of Joe Biden’s top energy advisers, who were involved in that work, have since either collected checks from or worked directly for the industry. Progressive groups, including the Sunrise Movement, have called for him to change course and pledge not to hire anyone back who’s been a fossil fuel industry employee.
Still, it’d be hard to argue that progressives are well prepared for this moment. Many have spoken out against an oil and gas industry bailout as part of a Covid-19 response, but when discussing recovery packages for the coronavirus-driven recession largely haven’t addressed the just transition already needed for workers in the shale sector and the diffuse array of people and communities bound up in it. Data from the oilfield service company Baker Hughes released last week finds that the number of active rigs in the U.S. has dropped by a third in the last month, and Rystad Energy predicted late last month that one million oil workers could lose their jobs this year.
The implications of that will reverberate well beyond job sites and show just how wide-reaching a just transition from fossil fuels will need to be in a society that’s been built around them. From individuals to trillion-plus-dollar pension funds, many have become investors in fossil fuels and other polluting industries through the massive rise of passive investment funds, housed in products offered by giant asset managers like Blackrock, Vanguard, and State Street. Millions of retirees and union members are now unwitting fossil fuel financiers, exposed to the risk of that industry going bust. In states with high levels of fossil fuel extraction, public budgets for things like education and public services are tied up in a presumed tax base created by the well-paying jobs those industries offer. That’s particularly true in states where Republican legislatures and governors taking mountains of fossil fuel donations have offered generous tax giveaways for drillers, letting them siphon profits out of state instead of capturing them for the long haul. This problem is more pronounced still for low- and middle-income oil producers like Nigeria, Iraq, and Algeria, where revenue from oil exports accounts for huge chunks of national budgets.
There’s plenty of schadenfreude to be had watching some of history’s worst monsters—fossil fuel CEOs, especially—squirm, but there’s also nothing inherently good for people or the planet about negative oil prices, which could easily give way to some shambolic White House bailout that keeps the sector limping along as it continues to hemorrhage cash, and as oil and gas executives sew their golden parachutes and leave workers out to dry. Indeed, Trump hinted at a blank check to the oil and gas industry on Twitter on Tuesday morning, pledging that the administration “will make funds available so that these very important companies and jobs will be secured long into the future!”
There are a few progressive ideas lying around for what to do about all this. The Green Stimulus proposal put out recently by a group of progressive climate and energy experts, building on Bernie Sanders’s Green New Deal platform, lays out several policy options to navigate a world of negative oil prices: five years of wage parity for affected workers, along with housing assistance, job training, and early retirement options; tax revenue replacement; ample funding for economic diversification. Investing in the social and clean energy infrastructure we need at the same time can help destroy demand for fossil fuels while it’s down, all the while creating millions of jobs for extractive sector workers and the millions of others now unemployed. There’s also a case to be made for buying up cheaper-than-ever fossil fuel companies and taking them into public ownership, with a clear plan to wind them down and protect workers—an admittedly tricky political calculation with Republicans controlling the Senate and White House. Ironically, the lowest-tech fix is the same for oil producers eager to regain some modicum of at least short-term stability and for a planet whose stability is incompatible with their business model: keep the oil in the ground. How that happens, though—whether it’s to extend fossil fuels’ life indefinitely or transition away from them—matters a lot.
This period of negative prices probably won’t be the end of oil: Demand will bounce back, albeit maybe not to pre-crash levels. But the end is nigh. Without a plan, it’ll be chaos.