Why We Need To Nationalize Oil and Gas
As most experts agree, the production of natural gas and oil is nearing its peak. At the same time, the demand for both commodities is rising — and rising rapidly — as both China and India begin to experience their industrial revolutions.
The first thing that this unprecedented new situation of approaching peak oil and gas has meant is that prices have gone through the roof. What’s more, it’s very likely that these prices are going to stay sky-high for the foreseeable future and beyond.
Some people are now arguing for price regulations. This is an understandable reaction, but it ignores what is actually causing the problem: the law of supply and demand.
But if past experience is any guide, the law of supply and demand will eventually have its way. The situation of higher prices won’t be noticeably changed — even by the attempt to regulate prices.
It has been pointed out that from an ecological point of view there are potentially beneficial effects to higher energy prices: they force consumers to search for alternatives. But it’s a very mixed benefit, particularly for the majority, who depend upon the fossil-fuel-driven infrastructure to get food and clothing into the stores and oil and gas to our homes. Rising consumer goods and household energy bills bite the working and middle classes harder than they do the wealthy.
Moreover, currently understood energy alternatives are not without their own problems. Hydroelectric and coal power take terrible environmental tolls. And, as they currently exist, solar and wind power rely upon industrialized, high-energy-input hardware. For many leaders, too, “alternative energy sources” is simply code language for more nuclear power.
In any event, it’s not true that the law of supply and demand brings about ecological benefits. The truth is that the free play of market forces sends entirely the wrong signal to oil and gas producers. After all, it’s only financial barriers that discourage rapacious exploration and development. When prices fall, so too do speculative ambitions. When they rise together with sales, producers accelerate exploration, production and export. Alberta is a good example. These conditions also push producers into environmentally harmful projects.
What’s the Solution, Then?
To achieve a genuinely workable, long-term solution to the issue of rising oil and gas prices, we need two things:
The first is a massive and immediate shift into transportation systems that save on energy consumption. We need big and multiple injections of funds into public transit systems and railway infrastructure.
The second is big and multiple injections of funds into the development of alternative energy sources. We cannot continue our drug-like dependence on fossil fuels indefinitely.
Of course, all this will involve hundreds of billions of dollars of investment.
To raise this kind of money, there is only one conceivable funding source: the oil and gas producers themselves. We will have to draw upon the huge profits being extracted from consumers every day from the sale of petroleum and natural gas. And the only way we are going to do this — the only way we can take control of the mega-profits needed to fund this energy revolution — is by nationalizing the oil and gas industries. We will have to ensure that their huge surpluses are held in the public sphere.
How will this massive takeover be financed? By exchanging long-term government bonds equivalent in value to the worth of the industry.
Where There’s A Will…
Some might say that the political will to undertake this giant inroad on what is at the moment private property does not exist. However, recent public-opinion polls suggest otherwise.
An August public-opinion poll by Léger Marketing, for example, reveals that almost half of Canadians favour nationalizing oil firms. More precisely, 49 per cent of respondents wanted petroleum resources nationalized, while 43 per cent said they would like to see the gas companies in public hands. This support varied from province to province, of course. But while typically progressive Quebec led the way with 61 per cent, even in oil-rich Alberta, 36 per cent came out in favour of nationalization.
Of course, besides taking these companies and their resources into public hands, Canada will need to cut back its current exports to the U.S. At the moment, over half of Canada’s production is going south, and the proportion is rising. Conserving production for mostly domestic use will provide a longer lead time to bring about wiser alternatives, offering us some breathing room before the energy situation reaches crisis proportions.
Naturally, in order to cut back drastically on U.S.-bound exports, let alone nationalize the industry, it will in turn be necessary to abrogate NAFTA. In our November/December Dimension editorial, we set out some more reasons for giving notice.
All very fine and well, you might say — but just how would a nationalized oil-and-gas industry deal with the current crisis differently?
In the first place, in a nationalized scheme, unexpected price fluctuations can be more easily buffered by the state. The beneficiaries will be those whose livelihoods depend upon the availability of oil and gas, rather than the big energy companies.
A nationalized industry can also be both mandated to conserve energy and ordered to divert money into R&D for sustainable alternatives. It will have no fears about competing with its own new energy-saving products. Moreover, a state-run industry can weigh the benefits and costs of exploration against the interests of citizens, instead of merely return on investment.
Granted, this is a made-in-Canada solution for what is in reality a world-wide energy crisis. But we hasten to add that other countries — Venezuela, for example — are offering their own solutions. Clearly Canada must stand with other nations against the U.S. solution — an endless series of wars in the Middle East and other oil-producing regions to maintain an iron grip on the world’s increasingly scarce supply of oil.
This article appeared in the January/February 2006 issue of Canadian Dimension magazine. SUBSCRIBE NOW to get a refreshing and provocative alternative delivered to your door 6 times a year for up to 50% off the newsstand price.