A short lesson in energy economics

Refinery strike 'risks supplies'

Gee, why would a strike do that?

"Planned strike action at the Grangemouth oil refinery which unions say could disrupt fuel supplies poses a threat to safety, it has been warned."

Recently there has been massive turmoil in the northwestern quadrant of this continent over a single refinery -- the Grangemouth refinery in central Scotland.

Ineos decided to axe pensions in an effort to "remain a competitive long-term business".

Being an unabashedly blood-red socialist, I have no qualms whatsoever over the working man organising to protect his own from class assault. I wish I was a refinery worker, actually.

Let's put this in proper historical context, however. Many have mentioned the great coal miners' strike of the 80's, which was a watershed in modern British history. On one hand, it proved that the people have officially less say than their elected government: it ended with military force on civilian resistance strongholds --the army actually assaulted the mines the miners were blockading and arrested mass amounts of people. On the other hand, it showed just what unions can do if they really wanted to: the coal mining industry was nationalised at the time, the vast majority of power in the UK was from coal, and the resulting monopoly meant that the coal workers in effect held the country's energy supply hostage over closure disputes. To put a long story short, the government decided that the country could not be shut down, but they would not give in to the demands of effective "economic terrorists". That it was Thatcher's administration who did so was no coincidence.

(Former) union workers are bitter towards non-union workers; non-union workers are bitter towards (former) union workers. In finality, what was the gradual closure of a slowing industry was catalysed a thousandfold by the very industrial action to protect the industry. The miners ultimately speeded their own doom.

Why this is brought up now is because (a) energy prices are already stupidly-high around the world and especially the UK, causing everyone other than refinery workers and their closest relations to hate anything and anyone who makes them higher and b) "it is Scotland's only oil refinery, one of eight in the UK".

For a country which at least used to be one of the world's top oil producers, this is ridiculous. In Russia, refineries seem to pop up more often than homeless people.

In fact, with the oil-production capacity of the UK, they have had to ship oil thousands of miles from their own North Sea to have it refined, only to have it shipped back for usage. Apparently the most expensive fuel in the UK is in the Shetland Islands--ironically or not the place closest to the North Sea reserves themselves. This country is already a repeat offender of globalisation glutton, probably highlighted by the "food miles" controversy: the fact that even "environmentalists" like the idea of organic foods shipped from New Zealand makes as much sense as building a giant air-conditioner to combat global warming.

The point is that the logistics of energy, especially in this country, are fucked. With the threat of a single refinery going off-line for 48 hours, prices for everything -- not just filling up your tank at Shell -- will go up... and even if the workers end up benefiting in the short-term, it actually lines the pockets of the energy companies more. If you were a real conspiracy-lover, you might say that Ineos removed the pay package knowing that the workers would threaten with a strike, causing oil prices to go nuts and then allowing them to retain the pension scheme and make even more profit at the same time. or they'll probably ultimately remove the pensions anyway.

To keep everything running smoothly, supplies have been re-routed all the way from Rotterdam to Gothenburg... but haven't we forgotten that the UK gov't now stockpiles energy resources for this very occasion?

No matter what economic/political environment exists, non-renewable resources are, by their very essense, a dying industry. Eventually, no matter how well worked-out the balance of everyone's rights combined with production and demand is, coal will run out. oil will run out. It has long been understood by realists that the North Sea is drying up. BP, StatoilHyrdo and the like have their tentacles all over the world, so that's not a problem for them. The problem is for workers-- like those who are striking just now. They cannot move to Saudi Arabia to retain their livelihoods: there are Saudis already there with the jobs and already being paid 1/20 of what British/Norwegian/whoever workers do. A few expert engineers and project managers have the worth to be that mobile, but most don't.

The actual environmental impacts aside, this is a general lesson in modern economics: the modern world must be able to adapt to changing and dying industries. Strangely enough, as redundancy is ultimately inevitable, redundancy must be handled well. The dole isn't enough by itself-- even though it at least keeps people from starving.

Not only must individuals be able to handle the changes of the tides, but nations and the world in themselves must be able to. Nigeria, a country overlooked by so many in the light of Sudan, Iraq, North Korea, etc, has an unbelievable amount of money flowing through it in the form of oil and gas. However, it is terribly poor, rife with corruption, organised crime and outright civil strife. This country used military force to massacre its own people to allow corporate workers access to their lands, but it seems a world "lost cause": "The country's fucked, but the economy is still growing and companies still operate and make shitloads of petrodollars, so that's the best we can do"... even though McCain will happily work on Iraq for 100 years.

My point with this is that once Nigeria's oil and gas runs out, the companies will all move on and Nigeria will be a broken, rotting shell of a country: the government now is most certainly not concerned with the long-term survival of its countrymen, so why on Earth would we expect them to have a plan for when unemployment reaches 99% and mass starvation breaks out? There will probably be another civil war after Nigeria reaches the apex of its energy output.

Back to Britain, the 1970's were a boon like no other with the discovery of oil in the North Sea. However, no long-term benefits came from it. There is a chip on the collective Scottish shoulder that "it's our oil" that caused Britain/England (London) to be so successful: all the revenues didn't go to the workers, wasn't put into infrastructure or expansion; it went to corporate offices in London. Scotland as a nation has the highest unemployment and has the worst regions for unemployment in the UK. What is not said is what sorts of jobs people have in Scotland: in the UK, industry in general is gone. What largely remains is service-based jobs and management. Even those are far and few between in Scotland compared to England. The Scottish oil industry despite its moribund status is still the country's most impressive economic asset.

Iain from Southwest Scotland is just finishing his dissertation for a Bachelor of Engineering at Napier University. His father is an engineer, working long-term seasonally in Azerbaijan: "No one wants to work in the North Sea: it's fucking cold and you're paid shit like-- but in five years you won't even be able to get a post there anyway".

Once the North Sea dries up, Scotland's benefits-army will increase tenfold: refineries will shut down, petrochemical industries, transport and shipping, surveying companies... and there seems to be no one willing to invest in new business in Scotland. BP is thriving, but what does that mean even to the UK as a whole? BP pays corporate taxes, but most of its profits and operations are overseas now anyway. You might say BP took the UK's wealth and ran. They outsourced jobs and pay relatively few taxes anyway. The people who do work for BP in the UK contribute a small percentage of the entire economy... just because a lot of them are stupidly rich doesn't mean that that money really helps. Ask anyone about trickle-down economics for a heated debate possibly followed by a fistfight or stabbing.

Let's take a look at the other side of the North Sea, at a different history. Norway has also benefited from the oil boom, and with the surge of prices the country's wealth continues to explode. In the 1960's the country was poorer than most every other state in western Europe, and when compared to its close neighbour Sweden looked like a third-world country at the time.

Now Norway enjoys Swedish migrant workers to fill menial jobs. The country consistently ranks as having the highest (or one of the highest) standard(s) of living in the world, with one of the highest home-ownership rates, excellent figures for public health, extensive and high-quality public servics, and also has no national debt, some of the greatest personal purchasing power, and the lowest unemployment in Europe, at 2.5% in 2006.

Why is this? Lefties and righties will both find the same piece of information: The government owns the majority of the shares of StatoilHydro. Put into technical terms, everyone owns stock in it. The profits have been used to invest in everything from hospitals and health-maintenance programmes to education, infrastructure and even research and development.

But what happens when the oil and gas runs out? Profits from the company itself are never actually used: they're put into the Government Pension Fund, the second-largest state-owned wealth fund in the world (the largest being the one in Abu Dhabi, and we probably can deduce how many people that benefits). Even now, the fund is used to invest in new industries-- including new energy technologies (perhaps to mitigate the guilt of enabling world destruction through supplying carbon fuels?). In fact, the country has already long been virtually independent of oil itself-- almost all of its own needs are met by locally-produced hydroelectric power.

While the majority of the country's economy still piggy-backs off of the oil and gas ones, technological and knowledge/laboratory-based exports are benefiting as well.

You can call it all a pinko commie way of redistributing the wealth, but Alaska uses a similar idea. Why is Alaska not the most prosperous part of the USA-- despite being the most lucrative in terms of resource production and even having its own public investment fund?

Well, how are dividends from the Alaska Permanent Fund spent? Every Alaskan resident gets, once a year... a cheque. Where does that cheque go? I know what I'd spend it on-- and it wouldn't be a pension or a CD. I'd pay off some of my loans and probably buy a new computer or pair of skis. This is an All-American variant of the same idea: prosperity through consumption. They expect the cheques to stimulate the Alaskan economy by encouraging people to buy more shit. Just like our tax-rebate gift from Fearless Leader.

Considering what Alaska is like these days, I can really see the benefit. I don't care about a 40% tax rate if my most-likely salary is $70k/annum in a country that in all reality isn't much more expensive than the UK-- where it would be more like 40% and $40. I'm not sure where all the taxes go because it's certainly not to public services. Most likely to the military.

Of course, Norways' success story has its failings. Apparently people there are pissed off about why, with all their stored wealth, they can't be even more affluent. Apparently a big topic is that the conservative party/-ies want(s) to start spending shitloads of money and reduce taxes at the same time, while the Labour party still stick to their guns of "prepare for hard times today".

If my ex-flatmate who also is daughter of a regional MP is accurate, apparently the "old folk" want to keep doing it the old way. The younguns are divided: some think that things shouldn't change, risking losing what they have--while the upstart, confident, the-future-is-ours want to liberalise, thinking it will give greater (personal) freedoms and thus greater prosperity-- "I shouldn't be forced to invest through taxes" etc. However, if she's telling the truth, the main supporters of the FRPseem to be the baby boomer generation.

I wonder where we've seen this trend before?

On a final note, the wealth of the Russian government is mind-boggling, and it can all be thanked to two words-- Lukoil and Gazprom. They've got an oil fund too, but with how fucked up the country is, it's neither spent on national investment nor personal welfare. I don't know what they're using it for, but having lived in St Petersburg myself, I think I can guess.

What can this teach us about economics? There are ways of mitigating the ebb and flow of the economy through smart collective investment, one which can only be controlled by the (educated) people to benefit the people. It would even be possible for the USA to, say, create a state fund from general personal/corporate taxation. That could please even some right-wingers: using income taxes to effectively purchase shares for the benefit of the person. (Of course, it would probably for them be "individual accounts" where those who pay more taxes also invest more and so reap more long-term benefits).

Finally, such investment must also be in the sense of investment in people: when people lose their livelihood, they've become obsolete, they should not have to fear it. Extensive opportunities for re-training and education would allow people to resume their lives: refinery work is not so unique that such workers are completely helpless and inexperienced at everything else. A proper system of unemployment benefits and lifelong education combined with regular, intelligent investment in (local) industry will make industrial actions history-- and no one will bemoan it. In fact, apparently Denmark has done something like that, and has blown the protectionist European dinosaurs out of the water.

As the USA really doesn't have any material resources of abundance in relation to its size, and people have a very strong individualistic streak, Denmark's model may be the more comparable. I see a huge resistance for either a corporate public fund or unemployment-retraining programmes, but the latter would definitely meld better with traditional pro-labour Democrats and maybe a few progressive capital owners.