Filling the Tank

Those of you who know me, or those of you who read me (it’s difficult to know which is the smaller group) know that I think the petroleum industry, globally and nationally, has called, played, and paid for the tune that runs perpetually in capitalism’s ongoing game of musical-electric chairs.

The song isn’t always the same, but the theme has been.  The theme has been the need of the petroleum and gas sector to aggrandize larger increments of the total available profit generated in the mode of production in the attempt to offset the repeated declines in profitably.

How is this done? Through the tool(s) capitalism always use(s)—force and price.  Arbitrage is capital’s response to its own limitations . Arbitrage with an air force is capital’s way of doubling down 

The oscillations appear as simply cyclical in and for any single sector. The actions taken to restore profitability to technically dense sectors –those where masses of value accumulated in the means of production are animated by disproportionally small quantities of living labor power—so that those sectors might achieve the average profitability, transform the cyclical decline into a systematic trend; a sector problematic into a chronic condition of the entire mode.

Dipstick  for a baton, our Vaseline-coated conductor coaxes an arrhythmic orchestra to achieve a new standard in disharmony with its version of “First I Look at the Purse.”

You might recall that 2022 was a pretty good year for the petroleum and natural gas sectors.  Maybe you don’t but you can read about it here.

The first quarter 2023 wasn’t so bad either, despite a 16 percent drop in the price per barrel of crude, and the 40 precent decline in average natural gas prices at Henry Hub.

The 129 companies that do file reports with the US Energy Information Agency made distribution to shareholders through dividends and share repurchase programs that amounted to a record 73 billion dollars. Cumulative returns for the 12 months starting April 2022 total 252 billion dollars. Cash from operations increased 4 percent year-over-over, while capital spending for the first quarter was at a level ($77 billion) that was 24 percent above the year earlier mark.

Returns on equity (ROE) reached a new high for the period 2018-2023, at 27 percent.  Relatively flat and below the US manufacturing average returns for 2018 and 2019, ROE in the energy sector collapsed, crossing into negative territory in 2020 and remained in negative territory until the second quarter 2021, when recovery begins.  And what a recovery it is; the ROE for the energy companies equals and surpasses that of the US manufacturing ROE in 2022.

While leftists of many persuasions are announcing the decline of US imperial capitalism with the loss in Afghanistan; with the rising competition from China; with the emergence of wishing-to-be trading blocs, the numbers on energy production and merchandise trade values of energy exchanges tell a different story.  There the US is number one with a bullet, with lots of new bullets. 

From 2011 to 2015, the deficit balance in petroleum trade for the US shrank from $330 million to $91 million.  Total energy trade balances (petroleum, coal, natural gas, and electricity) swung to surplus in 2020 and have maintained surpluses in 2021, 2022, and so far in 2023.

Daily US petroleum production doubled between 2011 and 2019, exceeding the 2019 record in 2022, with production increasing again in the first half of 2023.

Natural gas production (dry) grew 50 percent between 2011 and 2019 and resumed setting annual records after 2020’s modest decline, with exports exceeding imports  since 2017.

Most importantly, petroleum and gas production have increased coincident with strong improvements in the efficiency of extraction. Total rigs employed and wells drilled in crude oil and natural gas extraction declined by 50 percent in the 2011-2019 period, while the increased production since 2019 has been accomplished with a further 20 percent decline in total rigs.

Data from the International Energy Association shows that investment in fuel supply production peaked in 2014, declining by 30 percent in the shadow recession of 2016. Levels remained flat, declining once again in 2020, and have risen each year since then, but still remain below the 2017 level.  However, planned liquified natural gas (LNG) capacity expansions are concentrated in the US.

What’s it all mean?

1. Overproduction, overaccumulation remain the constant, chronic, condition of capital.
2. Periodic declines in profitability (indicated by lower ROEs) compel sectors of capital to grasp at an average rate of return and that grasping introduces greater volatility and instability into trade patterns, market exchanges.  War and inflation are both hands grasping.
3. The instability and volatility, the disruption of the prior conditions, is not the “death agony” of this or that capitalism, does not amount to the end of capitalism as a mode of production.  Reports of the demise of US capitalism have been filed every year since 1970.  They have been and will continue to be premature. US capitalism remains the bully, and the bully has a blow torch.

S.Artesian

September 1, 2023