Three big oil and gas-related stories this week were all interrelated with one another, though few really understand that to be the case. Those stories were:
- California Governor Gavin Newsom’s orders to ban fracking in his state and to establish a goal to eliminate gas-and-diesel-powered vehicles by 2035;
- The study by British oil giant BP implying that the world may have reached “peak oil” demand in late 2019; and
- The forecast released on Friday by U.S. giant ConocoPhillips COP +0.3% projecting that global crude demand will in fact recover to pre-COVID demand levels relatively quickly and continue to grow from there for the foreseeable future.
For Governor Newsom, banning hydraulic fracturing – or “fracking” as it has come to be called – in his state is a relatively simple matter in what has become, for all intents and purposes, a one-party state. All he has to do is convince his overwhelming majorities in both houses of California’s state assembly to pass a bill mandating that all fracking operations cease within the state’s borders by a date certain.
Such a move would of course eliminate thousands of oil and gas-related jobs in the state, but most of those are concentrated in Republican Kern County and the surrounding parts of the Central Valley, over which the assembly’s Democrats would have little concern. Besides, they can all just respond to Republican and industry complaints with the Obama-era pretense that all those lost jobs and more will be made up by the heavily-subsidized wind and solar industries. It will be akin to former President Obama telling West Virginia coal miners and Ohio steel workers that their jobs are never coming back and they should all go learn to code.
Replacing the state’s millions of gas and diesel autos with electric vehicles will be far more complicated. Newsom’s order gets that ball rolling by requiring the California Air Resources Board to implement the phaseout of new gas-powered cars and light trucks in the coming years, and also require medium and heavy-duty trucks to be zero-emission by 2045 where possible. Sounds simple, right?
But here’s the thing about all of that: The generation and provision of energy is basically a zero-sum game. When you ban one energy source, you must figure out a way to generate the same amount of energy by another source. You either do that or you accept the reality that energy will become scarce, and thus far more expensive so that consumers demand less of it, and write off the negative economic consequences that will inevitably result.
That is all.
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