6: The Fuel Crisis is a Crisis of the New Economy Itself 

The seamy side of the New Economy is brought into high profile in the crazy tales coming out of the gas fields of Texas (‘Stuck in the Mud’ by Chip Cummins and Alexei Barrionuevo, WSJ1 1/10).

"In an unexpected turnaround, natural gas prices have soared to historic highs less than two years after energy prices fell through the floor. Companies are struggling to meet rising demand because they’re scrambling for equipment and workers.

"Prices doubled since the start of this year to more than $5 per million British thermal units, the futures market’s standard measure. The Department of Energy (is] estimating that an average family in the midwest is likely to spend 44% more for natural gas this winter than last.

"Meanwhile more consumers and companies are using their cleaner-buming fossil fuel. Imports don’t help much since gas is too expensive to transport great distances, and older, picked-over fields across the country and the gas-rich Gulf of Mexico are in decline. All of which means a lot of attention is now on just how the country is getting the gas out of the ground. [The emergency] has caught the natural gas industry unprepared. Worried about staying solvent in the downturn of recent years, most oil and gas producers mothballed equipment and pared back spending on new rigs and trucks, and let workers go. And so, across Texas—still the most prodigious natural-gas state—producers are now waiting months for gear. Pipeline companies and producers are scrambling to add new facilities from Appalachia to New Mexico. Everyone is complaining about a dearth of experienced workers, from college-trained geologists to the roughnecks who work on rigs.

"The situarion has called into question how the US which produces more than 80% of its own gas, will meet ballooning demand. About 16% of the nation’s gas comes from Canada by pipeline.

"Natural gas consumption for the first eight months of 2000 is up about 2.6% over last year, according to the Department of Energy, driven largely by new gas-burning electric power plants. That figure is expected to grow by about 1.8% a year for the next two decades, boosted by close to a trebling of power generation demand."

"Big new discoveries are harder and harder to come by and without new reserves, ‘it is, a lot of times, fairly heroic to keep these production numbers flat,’ and not in decline, says Timothy H. Ling, of Unocal Corp.

What surfaces is a shocking lack of capability of the "New Economy" preparing for what was so clearly in the cards. After all it was this overall compulsion to subordinate just about everything to "maximising the shareholders’ value" that led to such finesse of organisation as deliveries "when needed" to cut down inventory costs, or in the US to "sweep bank accounts" that shifts each night money out of transaction accounts that require reserves with the Fed that earn no interest, to the money market that requires no reserves, and back again into transaction accounts the next morning. When such nuances of profit are at stake the New Economy is a wizard. You would think then that with so foreseeable an emergency, as the fuel crisis, it might have come up with arrangements that would not leave society shivering next winter.

"Demand is so strong that some long time junkyard rig dealers are finally cashing in. Because most oil drilling in the US has moved offshore and natural gas drilling has been flat, the industry has scarcely built a new land rig in nearly 21 years. The rigs in operation peaked our in the early 1 980s at more than 4,000 rigs, and after prices crashed a few years later, some dealers bought many of them cheap—as low as three cents on the dollar. In recent months [some collectors of junk rigs] have been trading their inventory for stock in oil-field service companies.

Now companies with drilling to do are assembling rigs out of spare parts. Trucks to move the rigs and equipment are also running scarce. And yet the shift from oil to gas was mandated not only by dwindling gas supply but by environmental considerations. What the world stands in need of is old-fashioned companies that feel a loyalty and responsibility to a given industry even when it is not leading the NASDAQ parade. But that of course, requires the financing that will enable executives to keep at least one eye on social needs. That would assure them a good market after a few years of slump and they would be ready to meet it when it came.

In one form of another, the story of the gas drillers improvising rigs out of spare parts appears in a variety of forms. It is more suitable to the Third World than the haughty money-mad United States. However, it is the inevitable end result of "maximising shareholder value" instantaneously as the ultimate purpose of the economy.


—from Economic Reform, November 2000