ET 10/98: Oil: to the ends of the earth

Oil: to the ends of the earth

Our addiction to oil is ruining developing economies, not just the environment.

provided by Project Underground

"This is an industry that knows how to react when the going gets rough.

- Sir David Simon, Chairman, British Petroleum

"You don't need a weatherman to know which way the wind blows."

- Bob Dylan

he quest for oil has defined the twentieth century. Many still view oil as black gold, a resource to be exploited as economically and expediently as possible. But those who seek to emulate the reserves of Rockefeller or the size of Shell with the power of petroleum are running out of time. Oil's day is over.

Over 800 billion barrels of oil have been burned since the search for oil began in 1859. What has happened to those 800 billion barrels, what it has cost to get those 800 billion barrels, and why we cannot afford to burn 800 billion more, is the subject of this report.

It's not that we're running out of oil - it's that we cannot afford to burn what we already have. This business cannot continue as usual. The oil industry currently spends $156 billion annually seeking new reserves of oil and gas. Meanwhile, the world's top climate scientists agree burning this new petroleum would ensure devastating climate change. If we burn more than approximately a quarter of existing reserves, we risk suffering the worst impacts of climate change. Why then, is the industry still looking for more?

Climate change is the ecological limit to the oil industry. Although improvements in drilling technology promise at least an additional 100 years of conventional oil and gas, the Earth simply cannot afford to burn all those fossil fuels.

A global problem

As reserves begin to dwindle, Big Oil casts its net wide across the planet. Both the number of countries and companies involved in new exploration activities have tripled in recent years. This global expansion of petroleum exploration not only threatens to irrevocably commit us all to the worst impacts of climate change, it is endangering fragile ecosystems and threatened indigenous peoples worldwide.

Since 1988, the petroleum industry has:

Drilled 113,466 new exploration wells, out of a total of more than half a million.
Been awarded 4,040 contracts for new exploration. These awards have covered an area equaling the United States and Europe together.
Cut 15 million kilometers of new seismic lines: more than twice the length of the entire U.S. road network.

These activities threaten frontier forests in 22 countries, coral reefs in 38 countries, mangroves in 46 countries, indigenous peoples on 6 continents, and global climatic stability worldwide.

The U'wa of Colombia, the Karen of Burma, the Nahua of Peru all of these indigenous peoples and dozens more are threatened by the global expansion of the oil industry. Are a few months of oil worth the irrevocable destruction of a traditional people's ways of life or dwindling intact ecosystems? These choices between short-term profits and the rights of peoples and survival of ecosystems are being made daily by the oil industry.

The price of our global addiction to oil has simply become too high. Once gone indigenous peoples, pristine ecosystems, our climate that makes life possible they're gone forever. Hundreds of billions of dollars each year are being spent on an energy policy that is based on profits and pollution, rather than people and preservation.

This report documents the extent of new exploration activities by the oil and gas industry, and the places and peoples that are threatened by those activities. It is, however, only a first attempt to quantify both the scale of the threat and the people and places that are threatened.

We focus on the activity of the industry in the last ten years, because it was ten years ago that nations of the world first undertook a commitment to combat climate change which must include restrictions on the primary cause of climate change, the petroleum industry. Frighteningly, in the ten years that the world has been committed to global action to combat climate change, the petroleum industry continues to make it worse.

Stopping the train

The only way to stop climate change, preserve critical ecosystems, and defend the rights of the world's indigenous peoples, is to phase out the global use of fossil fuels. The first step towards phase out is to stop looking for more. New exploration for petroleum, a global industry that involves more than 6,000 companies, must end.

While this may seem like a daunting goal, it is achievable. The good news is that current reserves of oil and gas can sustain us through the inevitable transition to renewable energy sources. The global economy will not come to a grinding halt. If we stop new exploration for oil and gas today, we protect indigenous peoples and ecosystems, we minimize the impact on our climate, and we will have at least 47 years to complete the transition to clean energy that all acknowledge must soon take place. Freeing up several hundred billion annually in investment capital could also do wonders for the renewable energy industry.

An immediate ban on new exploration in pristine, frontier ecosystems was called for by over 200 organizations from 52 countries at the Kyoto meeting of the Climate Convention last year. This is a reasonable demand. Currently, the petroleum industry is mostly looking for oil in all its old places, using new technology to get more out of old reserves. Closing off the last threatened places, and respecting the rights of indigenous groups to say no if they so choose, are reasonable first steps to take in halting new exploration.

"To prevent dangerous human interference with the climate system" is the goal of the Climate Convention. While diplomats debate lobbyists over calculations of carbon emissions, the petroleum industry is spending billions circumventing the spirit and intent, if not the letter, of that gathering. Success for that Convention, and for all of us, will ultimately be measured not in calculations of gigatons of carbon, but in wells not drilled, and acres and peoples saved.

Black gold, bleak future

The quest for oil is advancing into more places on the planet than ever before. According to industry observers, the number of countries with active exploration programs has tripled over the last decade. What is driving this trend? In short, the global economic system offers incentives and short-term rewards to those nations that emphasize resource extraction for economic development. While oil development is an excellent method to ensure continuing debt payments and profits for multinational corporations, it is a very poor strategy for local or national development.

The myth of oil prosperity runs wide and deep. Oil - black gold - offers the promise of riches to nations seemingly blessed by geology. However, a quick look at the World Bank's list of debtor nations or a rapid perusal of the United Nation's listings on poverty and inequality hints that this blessing may actually be a curse. Petroleum-led development strategies have delivered nation after nation into a spiral of debt and dependency. And yet, governments, corporations, and international financial institutions continue to reinvest in the growing, global oil economy.

A clear trend

There is little recognition among petroleum development advocates that "not only may resource-rich countries fail to benefit from a favorable endowment, they may actually perform worse than less well-endowed countries."[1] In truth, a clear negative correlation exists between a country's reliance on natural resource extraction for development and its economic growth.

A recent Harvard University study assessed 97 developing countries for their possession of natural resources and their economic growth from 1971 to 1989. Their results clearly show a negative relationship between a country's reliance on natural resource extraction and overall growth.[2] Indeed, countries like Mexico, Nigeria, and the Congo (Zaire) - all rich in natural resources have floundered from crisis to crisis, while their people remain poverty stricken. Even when controlling for variables such as corruption and bureaucratization, the pattern is undeniable.

A couple of forces are to blame for this. One is that natural resources do not come free. Exploiting them requires considerable investment, which diverts capital away from productive investments in traded goods, including manufacturing. This is especially important if, as some economists believe, manufacturing plays a crucial role in generating economic growth.

States wedded to digging or drilling their way to wealth fail to develop their non-resource sectors, such as manufacturing and services. Spectacular profits may be made by companies involved, but only a small percentage of the population of any country is ever engaged in resource extraction. For example, in Nigeria the oil sector employs less than 2 percent of Nigeria's population, although oil provides 80 percent of the gross domestic product and 90 percent of government revenues .

Debt trap

Reliance on the oil industry for development creates a cycle of debt and dependency as the capital needed for the industry requires an increase in loans. Country after country has become enslaved to foreign bank payments, forcing them to cut back domestic and social development programs while running on the oil development treadmill.

Ecuador provides an illuminating case study. The country covers about 80 percent of its debt payments with oil revenues, and justifies its increasing incursions into new frontiers and indigenous lands based on the need to keep international creditors happy.

Fiscal crises follow close on the tail of the oil industry because governments take loans, increasingly from private sources, to support the capital needed for oil development. This leads to a new debt trap that ensures, through a variety of conditions, that more oil will be produced, enforcing the spiral of negative focus on other sectors.

Examples of this debt-increasing resource extraction exist around the globe. For instance, in 1994, the Papua New Guinea government was unable to pay its bills until it borrowed from the World Bank, International Monetary Fund and Asian Development Bank. Amongst the stipulations of the loans were conditions to allow further access to the country's natural resources, and recommendations to sell the government-owned Mineral Resources Development Corporation. Similar loan conditions have been attached, implicitly or explicitly, in places as diverse as the former Soviet Union and Mexico.

In Mexico, this process was accompanied by "petrolization," the condition that occurs when an economy becomes overly dependent on the oil sector to the neglect and detriment of others. It defeats itself as the government starts to import more staples such as agricultural products which it could have produced at home. The result, as documented by Global Exchange's International Delegation in 1996, was that: "Twenty years of petroleum extraction that has lacked planning, environmental codes, and attention to social well-being have caused abnormal population growth, badly-skewed income distribution, tremendous escalation of the cost of living, forced relocations and most alarming of all environmental destruction and extremely hazardous living conditions for people living in petroleum-producing areas."[3]

Global profit, local impact

Another myth promoted by the oil industry is that oil and gas positively contribute towards capitalization and development on a local level. The truth lies far from this corporate spin. Ecological economists point to the de-capitalizing nature of extractive industries for local peoples and the environment, particularly when the commodity is sold at an undervalued price. Oil and gas operations are an excellent example of this debilitating phenomenon. The full social and environmental costs of oil and gas operations are not passed on to the consumer, but rather displaced to the local communities and ecosystems in the form of polluted waters, deforestation, and increased social conflicts.[4]

In addition, oil and gas projects come with a high economic opportunity costs. Prospects for other current or future economic opportunities for local communities are undermined with the advent of a new petroleum project. Fishing waters are polluted and pipelines and production stations. Scattered wells imperil the viability of emerging economic alternatives for communities, such as sustainable forest management, ecotourism, and diversified agricultural production.

Further, petroleum operations are based on a disempowering development strategy. Oil and gas project are controlled by outsiders. As such, industry operations consistently work against the local populations' control over their own development. The most basic of project decisions including the project approval which affect the indigenous peoples and other communities are made within company and government offices and not by local peoples. The industry structure fails to build on traditional knowledge and cultural norms which most indigenous groups identify as key components of any worthy development strategy.

Southern countries have a very real need and right to develop their economies. As long as resource extraction is the major path to this development, these societies will find themselves increasingly trapped in a downward economic cycle. The only way to break this cycle is for Northern governments to recognize what many have recognized for years: that the environmental and social externalities of oil development that have been placed on the South have a value too, and that this value should be weighed against the foreign debts of developing countries. The South has already paid its debt in the form of polluted waters, deforestation, and rights violations, all to keep oil cheap for consumption in the industrial world. This concept of the ecological debt that is owed by the North to the South is critical if we are ever to find our way out of this current dilemma. We have every incentive to do so.

References

1. Auty, R., Sustaining Development in Mineral Economies: The Resource Curse Thesis, London, Routledge, 1993.

2. Sachs, Jeffrey D, and Warner, Andrew M., Natural Resource Abundance and Economic Growth, Harvard Institute for International Development, October 1995.

3. "Human Rights and the Environment in Tabasco," Global Exchange, 1996, p.3.

4. Joan Martinez Alier, Ecological Debt External Debt, Briefing Paper, July 1997.

Project Underground is an environmental and human rights organization that supports communities facing mining, oil and gas activities. They may be reached at 1847 Berkeley Way, Berkeley CA 94703; www.ran .org/ran/oilreport/intro.html

Oil: to the ends of the earth
Our addiction to oil is ruining developing economies, not just the environment.
provided by Project Underground
*"This is an industry that knows how to react when the going gets rough.* *- Sir David Simon, Chairman, British Petroleum* *"You don't need a weatherman to know which way the wind blows."* *- Bob Dylan*
	he quest for oil has defined the twentieth century. Many still view oil as black gold, a resource to be exploited as economically and expediently as possible. But those who seek to emulate the reserves of Rockefeller or the size of Shell with the power of petroleum are running out of time. Oil's day is over. Over 800 billion barrels of oil have been burned since the search for oil began in 1859. What has happened to those 800 billion barrels, what it has cost to get those 800 billion barrels, and why we cannot afford to burn 800 billion more, is the subject of this report. It's not that we're running out of oil - it's that we cannot afford to burn what we already have. This business cannot continue as usual. The oil industry currently spends $156 billion annually seeking new reserves of oil and gas. Meanwhile, the world's top climate scientists agree burning this new petroleum would ensure devastating climate change. If we burn more than approximately a quarter of existing reserves, we risk suffering the worst impacts of climate change. Why then, is the industry still looking for more? Climate change is the ecological limit to the oil industry. Although improvements in drilling technology promise at least an additional 100 years of conventional oil and gas, the Earth simply cannot afford to burn all those fossil fuels.
A global problem
	As reserves begin to dwindle, Big Oil casts its net wide across the planet. Both the number of countries and companies involved in new exploration activities have tripled in recent years. This global expansion of petroleum exploration not only threatens to irrevocably commit us all to the worst impacts of climate change, it is endangering fragile ecosystems and threatened indigenous peoples worldwide. Since 1988, the petroleum industry has:
	Drilled 113,466 new exploration wells, out of a total of more than half a million. Been awarded 4,040 contracts for new exploration. These awards have covered an area equaling the United States and Europe together. Cut 15 million kilometers of new seismic lines: more than twice the length of the entire U.S. road network.
	These activities threaten frontier forests in 22 countries, coral reefs in 38 countries, mangroves in 46 countries, indigenous peoples on 6 continents, and global climatic stability worldwide. The U'wa of Colombia, the Karen of Burma, the Nahua of Peru all of these indigenous peoples and dozens more are threatened by the global expansion of the oil industry. Are a few months of oil worth the irrevocable destruction of a traditional people's ways of life or dwindling intact ecosystems? These choices between short-term profits and the rights of peoples and survival of ecosystems are being made daily by the oil industry. The price of our global addiction to oil has simply become too high. Once gone indigenous peoples, pristine ecosystems, our climate that makes life possible they're gone forever. Hundreds of billions of dollars each year are being spent on an energy policy that is based on profits and pollution, rather than people and preservation. This report documents the extent of new exploration activities by the oil and gas industry, and the places and peoples that are threatened by those activities. It is, however, only a first attempt to quantify both the scale of the threat and the people and places that are threatened. We focus on the activity of the industry in the last ten years, because it was ten years ago that nations of the world first undertook a commitment to combat climate change which must include restrictions on the primary cause of climate change, the petroleum industry. Frighteningly, in the ten years that the world has been committed to global action to combat climate change, the petroleum industry continues to make it worse.
Stopping the train
	The only way to stop climate change, preserve critical ecosystems, and defend the rights of the world's indigenous peoples, is to phase out the global use of fossil fuels. The first step towards phase out is to stop looking for more. New exploration for petroleum, a global industry that involves more than 6,000 companies, must end. While this may seem like a daunting goal, it is achievable. The good news is that current reserves of oil and gas can sustain us through the inevitable transition to renewable energy sources. The global economy will not come to a grinding halt. If we stop new exploration for oil and gas today, we protect indigenous peoples and ecosystems, we minimize the impact on our climate, and we will have at least 47 years to complete the transition to clean energy that all acknowledge must soon take place. Freeing up several hundred billion annually in investment capital could also do wonders for the renewable energy industry. An immediate ban on new exploration in pristine, frontier ecosystems was called for by over 200 organizations from 52 countries at the Kyoto meeting of the Climate Convention last year. This is a reasonable demand. Currently, the petroleum industry is mostly looking for oil in all its old places, using new technology to get more out of old reserves. Closing off the last threatened places, and respecting the rights of indigenous groups to say no if they so choose, are reasonable first steps to take in halting new exploration. "To prevent dangerous human interference with the climate system" is the goal of the Climate Convention. While diplomats debate lobbyists over calculations of carbon emissions, the petroleum industry is spending billions circumventing the spirit and intent, if not the letter, of that gathering. Success for that Convention, and for all of us, will ultimately be measured not in calculations of gigatons of carbon, but in wells not drilled, and acres and peoples saved.
Black gold, bleak future
	The quest for oil is advancing into more places on the planet than ever before. According to industry observers, the number of countries with active exploration programs has tripled over the last decade. What is driving this trend? In short, the global economic system offers incentives and short-term rewards to those nations that emphasize resource extraction for economic development. While oil development is an excellent method to ensure continuing debt payments and profits for multinational corporations, it is a very poor strategy for local or national development. The myth of oil prosperity runs wide and deep. Oil - black gold - offers the promise of riches to nations seemingly blessed by geology. However, a quick look at the World Bank's list of debtor nations or a rapid perusal of the United Nation's listings on poverty and inequality hints that this blessing may actually be a curse. Petroleum-led development strategies have delivered nation after nation into a spiral of debt and dependency. And yet, governments, corporations, and international financial institutions continue to reinvest in the growing, global oil economy.
A clear trend
	There is little recognition among petroleum development advocates that "not only may resource-rich countries fail to benefit from a favorable endowment, they may actually perform worse than less well-endowed countries."[1] In truth, a clear negative correlation exists between a country's reliance on natural resource extraction for development and its economic growth. A recent Harvard University study assessed 97 developing countries for their possession of natural resources and their economic growth from 1971 to 1989. Their results clearly show a negative relationship between a country's reliance on natural resource extraction and overall growth.[2] Indeed, countries like Mexico, Nigeria, and the Congo (Zaire) - all rich in natural resources have floundered from crisis to crisis, while their people remain poverty stricken. Even when controlling for variables such as corruption and bureaucratization, the pattern is undeniable. A couple of forces are to blame for this. One is that natural resources do not come free. Exploiting them requires considerable investment, which diverts capital away from productive investments in traded goods, including manufacturing. This is especially important if, as some economists believe, manufacturing plays a crucial role in generating economic growth. States wedded to digging or drilling their way to wealth fail to develop their non-resource sectors, such as manufacturing and services. Spectacular profits may be made by companies involved, but only a small percentage of the population of any country is ever engaged in resource extraction. For example, in Nigeria the oil sector employs less than 2 percent of Nigeria's population, although oil provides 80 percent of the gross domestic product and 90 percent of government revenues .
Debt trap
	Reliance on the oil industry for development creates a cycle of debt and dependency as the capital needed for the industry requires an increase in loans. Country after country has become enslaved to foreign bank payments, forcing them to cut back domestic and social development programs while running on the oil development treadmill. Ecuador provides an illuminating case study. The country covers about 80 percent of its debt payments with oil revenues, and justifies its increasing incursions into new frontiers and indigenous lands based on the need to keep international creditors happy. Fiscal crises follow close on the tail of the oil industry because governments take loans, increasingly from private sources, to support the capital needed for oil development. This leads to a new debt trap that ensures, through a variety of conditions, that more oil will be produced, enforcing the spiral of negative focus on other sectors. Examples of this debt-increasing resource extraction exist around the globe. For instance, in 1994, the Papua New Guinea government was unable to pay its bills until it borrowed from the World Bank, International Monetary Fund and Asian Development Bank. Amongst the stipulations of the loans were conditions to allow further access to the country's natural resources, and recommendations to sell the government-owned Mineral Resources Development Corporation. Similar loan conditions have been attached, implicitly or explicitly, in places as diverse as the former Soviet Union and Mexico. In Mexico, this process was accompanied by "petrolization," the condition that occurs when an economy becomes overly dependent on the oil sector to the neglect and detriment of others. It defeats itself as the government starts to import more staples such as agricultural products which it could have produced at home. The result, as documented by Global Exchange's International Delegation in 1996, was that: "Twenty years of petroleum extraction that has lacked planning, environmental codes, and attention to social well-being have caused abnormal population growth, badly-skewed income distribution, tremendous escalation of the cost of living, forced relocations and most alarming of all environmental destruction and extremely hazardous living conditions for people living in petroleum-producing areas."[3]
Global profit, local impact
	Another myth promoted by the oil industry is that oil and gas positively contribute towards capitalization and development on a local level. The truth lies far from this corporate spin. Ecological economists point to the de-capitalizing nature of extractive industries for local peoples and the environment, particularly when the commodity is sold at an undervalued price. Oil and gas operations are an excellent example of this debilitating phenomenon. The full social and environmental costs of oil and gas operations are not passed on to the consumer, but rather displaced to the local communities and ecosystems in the form of polluted waters, deforestation, and increased social conflicts.[4] In addition, oil and gas projects come with a high economic opportunity costs. Prospects for other current or future economic opportunities for local communities are undermined with the advent of a new petroleum project. Fishing waters are polluted and pipelines and production stations. Scattered wells imperil the viability of emerging economic alternatives for communities, such as sustainable forest management, ecotourism, and diversified agricultural production. Further, petroleum operations are based on a disempowering development strategy. Oil and gas project are controlled by outsiders. As such, industry operations consistently work against the local populations' control over their own development. The most basic of project decisions including the project approval which affect the indigenous peoples and other communities are made within company and government offices and not by local peoples. The industry structure fails to build on traditional knowledge and cultural norms which most indigenous groups identify as key components of any worthy development strategy. Southern countries have a very real need and right to develop their economies. As long as resource extraction is the major path to this development, these societies will find themselves increasingly trapped in a downward economic cycle. The only way to break this cycle is for Northern governments to recognize what many have recognized for years: that the environmental and social externalities of oil development that have been placed on the South have a value too, and that this value should be weighed against the foreign debts of developing countries. The South has already paid its debt in the form of polluted waters, deforestation, and rights violations, all to keep oil cheap for consumption in the industrial world. This concept of the ecological debt that is owed by the North to the South is critical if we are ever to find our way out of this current dilemma. We have every incentive to do so.
	References 1. Auty, R., Sustaining Development in Mineral Economies: The Resource Curse Thesis, London, Routledge, 1993. 2. Sachs, Jeffrey D, and Warner, Andrew M., Natural Resource Abundance and Economic Growth, Harvard Institute for International Development, October 1995. 3. "Human Rights and the Environment in Tabasco," Global Exchange, 1996, p.3. 4. Joan Martinez Alier, Ecological Debt External Debt, Briefing Paper, July 1997.
Project Underground is an environmental and human rights organization that supports communities facing mining, oil and gas activities. They may be reached at 1847 Berkeley Way, Berkeley CA 94703; www.ran .org/ran/oilreport/intro.html