Will fracking lead to cheap oil for all? Not necessarily

Ceteris paribus. Always with the ceteris paribus.

FT Alphaville's Kate Mackenzie has an excerpt of a very interesting research note from energy consultant Phil Verleger. The bulk of the note is a look back at the apparent vindication of MIT economist Morris Adelman, who rejected the ideas of "peak oil" at the time when they were most fashionable. Adelman, Verleger writes, accurately surmised that technological advances would mean the total reserves are far less predictable than a narrative of rising prices and increasing scarcity would imply.

But Mackenzie picks out the surprising twist in Verleger's note. While he, like so many others, points to the massive change wrought on the global energy market by the invention of fracking and other techniques for extracting unconventional reserves, he doesn't see that as leading to a predictable fall in prices. While a glut of unconventional oil would be good enough to depress prices, it couldn't simply replace the traditional OPEC countries. And the way they would deal with that squeeze could have strong repercussions:

Periods of low oil prices will undermine existing governments in nations such as Russia, Kuwait, Iraq, Algeria, Nigeria, Iran, United Arab Emirates, and Venezuela. These countries have not used oil revenues to diversify economies and build infrastructure for the post-petroleum future. Instead the monies have gone to fund larger and larger transfer (welfare) payments to mushrooming populations.

Adelman’s vindication will mean these nations must curtail such payments when they are forced to cut sales and production sharply or when prices fall. Political instability will increase as such times.

Supply and demand are complicated things. There's a reason economists love the phrase ceteris paribus – "all else being equal" – and thats because most of the time, they aren't. Fracking will introduce a downward pressure on prices, we know that. But the responses of the multifarious other producers and consumers to that pressure are chaotic and barely predictable. A simple prediction of a world of cheap oil might not be as safe a bet as it seems.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Leader: The divisions within Labour

Labour’s divisions have rendered it unfit for government at a moment of profound political change.

Labour is a party torn between its parliamentary and activist wings. Since Jeremy Corbyn, who this week appealed desperately for unity, was re-elected by a landslide last September, Labour has become the first opposition in 35 years to lose a ­by-election to the governing party and has continually trailed the Conservatives by a double-digit margin. Yet polling suggests that, were Mr Corbyn’s leadership challenged again, he would win by a comfortable margin. Meanwhile, many of the party’s most gifted and experienced MPs refuse to serve on the front bench. In 2015 Mr Corbyn made the leadership ballot only with the aid of political opponents such as Margaret Beckett and Frank Field. Of the 36 MPs who nominated him, just 15 went on to vote for him.

Having hugely underestimated the strength of the Labour left once, the Parliamentary Labour Party (PLP) will not do so again. In the contest that will follow Mr Corbyn’s eventual departure, the centrists could lock out potential successors such as the shadow business secretary, Rebecca Long-Bailey. Under Labour’s current rules, candidates require support from at least 15 per cent of the party’s MPs and MEPs.

This conundrum explains the attempt by Mr Corbyn’s supporters to reduce the threshold to 5 per cent. The “McDonnell amendment” (named after the shadow chancellor, who failed to make the ballot in 2007 and 2010) is being championed by the Bennite Campaign for Labour Party Democracy and Jon Lansman of Momentum, who is interviewed by Tanya Gold on page 34. “For 20 years the left was denied a voice,” he tweeted to the party’s deputy leader, Tom Watson, on 19 March. “We will deny a voice to no one. We face big challenges, and we need our mass membership to win again.”

The passage of the amendment at this year’s Labour conference would aid Mr Lansman’s decades-long quest to bring the party under the full control of activists. MPs have already lost the third of the vote they held under the electoral college system. They face losing what little influence they retain.

No Labour leader has received less support from his MPs than Mr Corbyn. However, the amendment would enable the election of an even more unpopular figure. For this reason, it should be resolutely opposed. One should respect the motivation of the members and activists, yet Labour must remain a party capable of appealing to a majority of people, a party that is capable of winning elections.

Since it was founded, Labour has been an explicitly parliamentary party. As Clause One of its constitution states: “[The party’s] purpose is to organise and maintain in Parliament and in the country a political Labour Party.” The absurdity of a leader opposed by as much as 95 per cent of his own MPs is incompatible with this mission. Those who do not enjoy the backing of their parliamentary colleagues will struggle to persuade the voters that they deserve their support.

Labour’s divisions have rendered it unfit for government at a moment of profound political change. Rather than formalising this split, the party needs to overcome it – or prepare for one of the greatest defeats in its history.

This article first appeared in the 23 March 2017 issue of the New Statesman, Trump's permanent revolution