Saturday 5th June 2021
Oil projects in Alaska
“We’re talking about a dying industry”
US President Joe Biden has recovered the drilling rights granted by Donald Trump for a nature reserve in Alaska. “The days of Big Oil are definitely over,” says Jacob Kirkegaard from the German Marshall Fund. Even a return of Trump will not change that.
Capital: Joe Biden has withdrawn the rights granted by his predecessor Donald Trump to search for oil in an arctic nature reserve in Alaska. Was this step predictable?
Jacob Kirkegaard: Yeah, that really wasn’t a surprise. The concessions to look for oil in the US were only offered and sold by his predecessor Donald Trump two weeks before Biden took office. So by then Trump had already lost the election and everyone knew that Biden would soon be in office. Everyone knew that Biden would not allow the new concessions to actually be awarded.
Then it wasn’t really a big step, was it?
Yes and no. Because it means that oil production in the USA has reached a maximum.
What do you mean?
In the past few years we have seen an oil boom in America. The keywords here are fracking and oil sands. The fact that Biden has now banned the search for new oil fields in the Arctic means that the oil industry will not continue to grow. On the contrary: it will even shrink. And of course that is a big step.
In which direction?
Jacob Kirkegaard is a Senior Fellow at both the Peterson Institute for International Economics in Washington and the German Marshall Fund of the United States. He spent more than 20 years in Washington DC observing US politics since Bill Clinton. Kirkegaard recently moved to Brussels.
(Photo: German Marshall Fund of the United States)
Joe Biden has announced that the United States will reduce its CO2 emissions by 50 percent by 2030 compared to 2005. This is comparable to the goals that the EU has set itself. The fact that Biden is preventing the search for new oil wells is completely rational policy, if only against the background. And: If he had allowed the oil companies to start working in the Arctic, he would have made himself and his politics implausible.
Does that mean that the ban is a further step towards achieving these climate policy goals?
Absolutely. In addition to the fight against the corona pandemic, climate protection is the president’s most important political agenda. Now he’s shown he’s really serious about it. The move makes it clear that the US will say goodbye to the ranks of the largest oil producers in the long term. The Arctic was the last region in which the oil companies could have looked for new oil fields. So this is the beginning of the end. That will not be reversed either.
Not even if – shall we say – Trump should be re-elected in 2024?
No! The demand for oil will decline. Two thirds of the oil is used to power cars and trucks. The Americans still drive their gigantic cars. But this will change. And quickly. Starting in 2035, California will only have EVs, and we’re seeing the same trend in other states. It is certain that the demand for oil will decrease in the years to come.
And the production costs for a barrel of oil are also increasing.
Yes. And at the same time, discovering and developing oil fields in the Arctic is very, very expensive – even if the climate in these regions is heating up due to global warming. Not to mention the social costs of corporations.
What do you mean?
The oil companies that have considered looking for oil in the Arctic feared themselves that this would cause an image problem for them. Worse than the image they already have. Any company that would have got involved would be an instant target for activists. We can see that the corporations didn’t have a particularly good time. The judgment against Shell is just one example.
They say that the transportation sector is the largest consumer of petroleum products. But he’s not the only one – couldn’t the corporations sell the oil on the world market?
It is one thing that the era of the big fuel spinners is over. The other is that American oil has long since ceased to be competitive on the world market. It is infinitely cheaper to extract oil in Saudi Arabia. The country has an interest in being able to sell as much oil as possible for as long as possible, otherwise the sources there would be worthless. This is why Saudi Arabia is extracting so much oil so that it can keep the price down. The price may rise again after the pandemic. But not in the long run. And then Saudi Arabia is the only country that can still make money with oil with its easily accessible sources.
So oil will continue to play a role in the Middle East?
There, too, the following applies: In the long term, it makes no sense to pump billions of dollars into the oil industry while America is decarbonising.
So the days when the big oil companies made the big bucks are over?
What is more, these companies will have to decide what to do in the future. But the ruling against Shell means the company will have to withdraw investment from its oil business. If they choose to continue in the energy sector, many will likely choose to invest in renewable energy. But the days of big oil are definitely over. We’re talking about a dying industry here.
Bastian Hosan spoke to Jacob Kirkegaard. The interview first appeared at Capital.
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