In the recent round of third-quarter earnings reports, several oil and natural gas companies posted profits exceeding analyst predictions, including BP posting net profits of $5.2 billion and ConocoPhillips $1.8 billion.
Such results reconfirm oil and natural gas as bright spots in an otherwise dull economy. In a free market, profits signal that a firm has transformed inputs into more valuable outputs. In the aggregate, more profits than losses equals economic growth. Compare this to the losses (resource misallocation) being registered by government-subsidized energy sectors such as wind, solar, battery makers, and electric vehicles.
Yet anti-oil activists were quick to condemn the above third-quarter earnings as evidence of excess in the American oil and gas industry. This is hardly the case. The economic success of the industry boosts not only jobs but the investment of working Americans. In fact, a recent Sonecon study found that through both periods of expansion and recession, the average rate of return on investments in oil and natural gas stocks was seven times greater than the returns from other assets.
No, industry profits aren’t going toward padding the pockets of greedy “big oil” executives. Less than 3 percent of shares are actually held by industry insiders, with the remainder in the hands of everyday Americans in pension funds, mutual funds and IRAs.
Fact is that oil and natural gas supports about 9.2 million American jobs. According to the Brookings Institution, oil and gas extraction alone added 28,000 direct jobs and 45,000 in drilling-support jobs between 2007 and 2011.
Amid the good news, a new environmentalist campaign aims to convince institutional investors to cash out of fossil-fuel equities. Leading the effort is Bill McKibben, who routinely blames bad weather fossil-fuel usage and disparages industry leaders as threats to civilization. The latest from his organization, 350.org: “Sandy is what happens when the temperature goes up a degree.”
So McKibben is traveling the country, hoping to convince individuals, pension funds, universities and churches to divest from fossil fuels. This move is supposed to somehow help the environment, although fossil fuels are what make the environment livable. What this crusade would do is to make many average Americans less financially secure. [McKibben will be speaking at the University of Colorado in Boulder on Sunday.]
Left environmentalists often tout a variety of oil alternatives, like ethanol, methanol, and even algae-based fuels. But they seldom ask when these fuels will actually be capable of meeting the world’s energy needs. Meanwhile, more than a billion people globally languish in energy poverty without modern transportation or appliances.
The simple fact is that right now there is no large-scale transportation alternative to petroleum. More than 90 percent of the energy used in transportation comes from oil. As nations such as China and India develop economically, their energy needs are swelling and the demand for oil will only increase.
As Manhattan Institute scholar Robert Bryce has noted, “Nothing else comes close to oil when it comes to energy density, ease of handling, flexibility, convenience, cost, or scale.” To stop oil exploration would be to condemn the world to high energy prices and stunted economic growth.
Divestment would represent an enormous hit to pension plans. It would make the retirement accounts of millions of average Americans less secure. Rather than improving the environment, divestment would actually slow the development of alternative energy technologies.
Economist Milton Friedman once said: “One of the great mistakes is to judge policies and programs by their intentions rather than by their results.” Organizations like McKibben’s need to revisit their premises and abandon policies that threaten the income and investments of America’s middle class.