Brian Davey explores the decision of Ineos, one of the world’s largest chemical companies, to promote fracking. The Ineos majority shareholder, Jim Ratcliffe, claims fracking could regenerate northern Britain despite evidence that the strategy is “a mirage that would lead to a mountain of debt and a mountain of garbage”.
Base Fortune, now I see, that in thy wheel
There is a point, to which when men aspire,
They tumble headlong down..
– Christopher Marlowe – from his play “Edward the Second”
Let’s start with the BIG STORY. Any PR or advertising agency will tell their clients that they have to have a story. The story can amuse, stimulate or inspire. The aim of this is to emotionally engage with the public or a market segment. They are invited to identify with the story, to become a part of it, to share in the action.
For example, here’s a story in just two letters and two words: “BP” meaning “Beyond Petroleum”. It explained how that company saw its future. OK, the story went, we are a fossil fuel company – but we are trying to move in the right direction – so fill up at a BP station before we’ve got the solar panels in place. OK?
Then, in 2010, disaster struck the Beyond Petroleum story in the Gulf of Mexico. A vast marine eco-system was trashed by a leaking well drilled from a BP Platform called “Deepwater Horizon”. A huge media storm focused on the shoddy reality behind the slogan “Beyond Petroleum”. BP was now perceived as a reckless and aggressive company that played little heed to safety or environment. In this media storm Tony Hayward, the Chief Executive of BP, made it worse for the company and himself. Someone leaked that in a private meeting he had asked his fellow executives: “What the hell did we do to deserve this?”. He was thereafter repeatedly asked how could he ask such a stupid question.
PR, if based on a flawed story, or on a lie, has a way of turning against those who attempt to make use of it.
The Ineos Saga
So what is the inspiring story for Ineos – the company 2/3 owned by the Beverley Grammar School Boy made good, long distant runner, team leader, international business magnate Jim Ratcliffe? Many people will remember Ratcliffe and his company as the one that moved its HQ to Switzerland to avoid paying UK taxes so it has struggled with its PR – however, nowadays Ratcliffe and Ineos want to be associated with another story and this article is about having a critical look at it. This is the narrative in which, by supporting the fracking of shale, Britain will gain a cheap new energy source that will revive manufacturing, leading to the regeneration of large parts of the north of England and of Scotland.
By combining £600 million of Ineos money with the fracking expertise that they have bought in from the USA, and adding these together with the ” understanding of extractive industries” that communities in the North of England possess after coal mining… great things can happen. Jobs. Industry. Who knows, perhaps Ineos might pay some tax too…
But what’s really going to happen? Every good story has high stakes and an uncertain ending. There’s no dramatic tension otherwise. As the Hero embarks on the great journey there are challenges and doubts over whether they will succeed. To add tension the tests and challenges, the rewards and risks get bigger. In the Ineos saga it started as an innovating entrepreneur creating a new company. The name of Ineos is derived from Greek words conveying innovation and newness. Now, many years later, the story is whether the company will go bust – or whether it will become the saviour of Northern Britain’s industrial legacy.
There are different kinds of stories. In one kind the apparent hero is found wanting. Some stories are about hubris – about people who overestimate themselves, discover limits that they did not know existed, find themselves in a spot of difficulty, perhaps gambling to escape their predicament – and it all ends unhappily. To be a really good tragedy the chief protagonist does not just make practical and strategic mistakes. The story ends badly because ethical or moral tests are failed too.
The Ineos Gamble
In the Ineos story there is no certainty about the ending either. The desire to frack in the UK is an expensive gamble and it could go wrong in lots of different ways. Here are a few of those ways:
There could be insufficient gas for fracking to be commercially viable. In Poland in 2011 there was an idea that there was about to be a shale gas bonanza. 75 exploratory wells were sunk. 25 were fracked and although gas was found the flow was between 10% and 33% of what would be needed for commercial viability. So the gas exploration companies lost interest. If that were to happen to Ineos in the UK it would be a disaster for them in this country. Instead of Ineos making northern Britain Great Again it could easily go bust like it nearly did shortly after the financial crisis of 2008. Here’s why…
Ineos is a business empire constructed out of the pieces that other petro-chemical companies didn’t want – where the pieces for the construction were paid for by borrowing. That’s why their company propaganda is not only full of stuff about their technological prowess but about their skill at handling their finances . They are proud of their ability to juggle with their debt arrangements. It’s also why they are so desperate to get cheap UK feedstock and cheap energy for their chemical operations at Grangemouth and Runcorn. Cheap gas in the USA extracted by fracking has been useful to them in their operations there. They are trying to survive in a global market and want cheap gas, extracted on the spot, for their UK operations too. They are prepared to gamble money on the hope that this is possible. If they don’t get that cheap gas they not only lose that investment, they are stuck with the problem of how to find cheap energy and ethane as North Sea gas fields decline.
There is massive overcapacity in the chemicals industry as the chart shows. When there is overcapacity in an industry there is fierce competition. Each company tries to ensure that it is their business rivals that suffer from idle production facilities while they succeed in keeping busy. A glut of products pushes down prices – which, in this case, means a glut of plastics. The name of the game is not expansion – it is survival – so that other companies go out of business and not the one that you are running.
While Ineos are telling us about regeneration, expansion and jobs, in their private business discussions they will probably be talking about what how to deal with an ageing population and stagnant markets for generic products, about how to deal with competitors in other countries producing the same products but with lower energy costs, about Chinese competition and about what to do in a recession. They will also be discussing what to do if, as looks increasingly likely, there is another credit crunch like 2007-2008. Ineos are still dependent on debt finance.
To repeat, Ineos want to frack to reduce their costs of production because they are in a corner. Ratcliffe may want to believe himself the regenerator of the North of Britain – that he will win through against the odds, that he will prove wrong any people who doubted him along the way – but some chemical companies are likely to go out of business. The way it’s going one of them could be his.
Where the Ineos fantasy comes from
The international chemicals industry in general and plastics in particular are in a hyper competitive state. In a hyper competitive state Ineos are disadvantaged by energy prices in Europe that are higher than elsewhere in the world. In 2011 Ineos testified to the House of Commons Environmental Audit Committee that there was a problem with a high carbon price in the European Union’s Emissions Trading Scheme. It would make British and European companies that use a lot of energy uncompetitive with places like China. There was a danger, they argued, that their competitors outside Europe would win. The emissions would occur in China rather than Britain and Europe and they might be driven out of business. We have an important role in “the Green Economy” they claimed, pointing at their development of technological processes to develop fuel and electricity from municipal waste. However there had to be a way of squaring the circle on European climate policy – because all that was happening was that European policy was driving high energy (= high carbon) industrial operations like chemicals and plastics to China where the greenhouse gas emissions of production were even higher than in Britain and Europe. The chemicals, plastics and industrial products were being exported back to Europe and companies like Ineos were losing markets.
That was in 2011 and the story moved on. Ineos companies in the USA were finding their costs lowered by using gas from fracking and Ratcliffe and his management team were looking to import that gas into the UK by building ships especially designed to carry liquified gas. But this was only an imperfect interim solution for the Ineos UK operations. While cheap in America the gas is not so cheap for Ineos over here after paying the toll for liquifying it and the costs of transporting it. A far better solution for the needs of Ineos seemed to be for the UK to develop its own fracking industry seemed to be.. The North Sea as the major UK source for natural gas is in decline but the big idea now was that onshore gas from fracking would not only revive the fortunes of Ineos but of all energy intensive economic sectors. That has been the apparent epiphany – under the leadership of Ratcliffe a grandiose vision of industrial regeneration was born. However, to be missionaries for shale and fracking, you have to brush the problems under a carpet.
According to Ratcliffe, quoted in the Guardian, “a lot of the opposition to fracking is based on hearsay and rumour”. In fact there are now nearly 700 academic articles published between 2009 and the end of 2015 about fracking, public health and the environment. The overwhelming majority of the studies that contain field data show potential or actual contamination of water or air. 31 of the studies assess the dangers to public health – 26 of them indicate public health hazards, elevated risks or adverse health outcomes. http://www.psehealthyenergy.org/site/view/1233
Decision making under conditions of uncertainty – making up your mind and then sticking to it
It is difficult to be sure without knowing him a lot better how Ratcliffe came to say and apparently believe that opposition to fracking is based on hearsay. It brings to mind the comment of BP’s Tony Hayward mentioned earlier. It raises interesting questions about how aware and self aware are many “captains of industry”. One of the most interesting sides of economic theory which overlaps with human psychology is decision making under conditions of uncertainty. That’s decision making where you know some things, where you think you know some things and where there are a lot of things that you don’t know. Daniel Kahneman, who won what is called the Nobel Prize for Economics, has particularly focused on this. For Kahneman a crucial feature of good decision making is not to overestimate the importance and significance of what you think that you know – while at the same time underestimating what you don’t know. This is very difficult because people construct their interpretation of the world from what they know. Indeed they may feel particularly proud of their specialist and professional knowledge. They may feel that it gives them unique and special insights, have an expertise that other people lack that makes them THE industry experts on a particular matter. In the anti fracking struggle one sees this all the time from some rather arrogant engineers and geologists who feel that they are uniquely qualified to opine on fracking (or indeed other topics too )– not acknowledging that environmental scientists, public health professionals, economists, climate scientists and many others each have professional and scientific angles on the matter that is also worthy of consideration and respect. In Germany there is even a special name for this kind of person – a Fachidiot – where Fach means a specialist subject discipline and idiot means idiot – a greek word for someone who focused exclusively on their private interests and did not take an interest in wider politics and public affairs.
Of course everyone tends to underestimate what they don’t know in favour of what they do know (or think they know). It is not just a problem among frackademics. In his book, Thinking Fast and Slow, Kahneman labels the common fallacy that underpins most of how we interpret and decide about things – he calls it the WYSIATI fallacy – What You See Is All There Is. It is related to “optimism bias” and “planning fallacy” – assuming things will work as we plan them, on time and on budget, because of not realising that there will always be unknown unknowns to drive us off track. This “optimism bias” is a feature too of expectations for health and safety and environmental consequences. Other people call this Murphy’s Law. If things can go wrong then eventually they will. And they sure as hell will for Ineos too.
Of course what we see is not all there is – the German philosopher Heidegger describes our experience of being in the world with the metaphor of being in a clearing in a forest – what we see are what’s in the clearing but beyond that things remain unknown to us. (“Die Lichtung des Seins” in German – where Lichtung means clearing and Sein means ‘being’. It is helpful perhaps to notice that in German the word Lichtung contains the word Licht – light, that which illuminates). Others speak of a “cloud of unknowing”. In different circumstances politicians and military types speak of the “fog of war”. To get a proper sense of where we are really, it helps to realise that we are lost. Yet there are some kinds of people who have to give the appearance of knowing just where they are, and exactly what they are doing all the time, otherwise these wizards would freak the markets and scare away the people who follow their leadership and lend them money. Then there is a certain kind of stupid economist who claims that, while each individual only has a partial view, all market actors together have the complete view and thus hypothesize the existence of perfect markets. And in perfect markets clever entrepreneurs like Jim Ratcliffe collectively make the right decisions. Everything is for the best in the best of all possible worlds in this world view – earlier mocked by Voltaire’s in the philosophy of his character Dr Pangloss. The problem with this view is that when you give people the idea that they could be infallible then, after a run of luck, they start overesstimating themselves, ignore their critics and set themselves and other people up for some disastrous mistakes. This is the hubris story by the way – the ones that the leaders of BP set themselves up for.
Groupthink – why corporate leaders and politicans ignore evidence once they have made up their minds
Managers spend their time trying to work out how to develop their business, and how to survive in a competitive market, are of course aware that they must devote some of their attention to health and safety and environmental issues. What a shame then that devoting attention to such matters competes for their time with many other things to be resolved and strategies that need to be worked on. Of course business strategies must embrace as much information as possible – but once you are embarked on a strategy, and above all, once you have made the public declarations and started to raise and commit millions in investment, then you cannot easily change your mind. You cannot keep chopping and changing. This is even more the case if you have borrowed a lot of money to advance your strategy. For your own psychological peace of mind too it will not do to start doubting decisions that involve a lot of money, a lot of creditors. These decisions also underpin your relationships with your management team who are pursuing the same plan, not to mention your relationships with the rest of the workforce.
Academics, activists can chop and change and try to get to the bottom of things – but for the captains of industry there are powerful pressures to retain their focus even if real life reveals a host of issues that they did not know at first – indeed that could not know at first. That’s why, as they plough ahead with their business strategies, the temptation must sometimes be to pull down blinkers. The more that you have at stake and already committed the greater the psychological pressure to refuse to acknowledge inconvenient new information that is telling you a mistake has been made.
In this regard one of the psychological insights of Kahneman is that decision makers who are trapped start gambling. When all options seembad the attempt to escape seems to justify taking great risks that would otherwise not be taken. In current circumstances Ineos operations in Europe are trapped by high energy and feedstock costs and the shale gas “solution” to their problems is a big commitment of resources that is a gamble to try to break themselves free and restore their ability to compete internationally. The relevant insight from this is that they are likely to want to play this all the way through, despite the low chances of success because there are no other options. In this situation, their willingness of accepting any new information about health and environment risks to anyone else might be reduced.
The ability to sustain gambles like this will be buttressed when supported by a wider network of interests. A vested interest coalition is involved too. The larger group has also refused to review its earlier decisions and to admit that they were wrong too or to take in new information. The prospect of losing credibility and making a humiliating U turn is very offputting. Politicians, many engineering and geologist academics, as well as specialist officials often have long standing collegiate relationships. It is not surprising that this wider circle are still trotting out the message from the Royal Society and Royal Academy of Engineering. Ineos PR use the Royal Academy and RAE’s report as well as a very partial report by Public Health England on the limited topic of “fracking emissions”. However these were written very early and before most of the peer reviewed academic articles about public health, environmental and climate concerns started flooding out of other departments of the universities. The later studies have not matched up with the earlier group think that geologists and engineers had said about safety. However these earlier reports by specialist academics writing partly out of their subject areas have given the cover thatis still cited as evidence for the faith that holds the frackers together. These reports still “prove” safety and they are clearly too complacent. They are still too focused on what geologists assume might be the problems – deep underground, underplaying a host of problems on the surface, issues of scale and wider gas field development, in addition to a long standing problem of well integrity. This has made it necessary for anti fracking campaigners to fight an arrogant group think that is now very dangerous.
It is thus interesting to compare what is happening with what happened earlier in the organisation that embraced the empty rhetoric of “Beyond Petroleum” under the leadership of CEO John Browne and then of Tony Hayward. According to Johan Sachs
“As John Browne rose to the zenith of his global esteem, groupthink descended upon BP’s core leadership team like a thick fog. Red flags about safety concerns flew everywhere in the form of external and internal investigations and even massive government fines. Browne and his men, including Hawyard, optimistically responded with superficial fixes, believing their measures could address deeper safety issues while keeping oil flowing at maximum rates. Whistleblowers tried desperately to get executives to maintain safety equipment and top talent resigned in protest when they did. When Hayward took over, the leadership team spent countless hours discussing plans to reorient its approach to safety even as they increased the riskiness of the projects that they undertook. From the inside, it all looked perfectly normal.” (Johan Sachs “Winning the Story Wars” Harvard Business Review Press, 2012 p221 )
Cohesive groups with a strong leader will often ignore or punish dissenting opinions. They can do it too because they have the backing of government and are given cover by frackademics and are able to play fast and loose with reality. In fact in the media and in their PR they create a fantasy world for everyone else that suits them. There are psychological mechanisms available to keep the deeper and threatening reality out of the centre of their consciousness. Freud called it “Verdraengung” which means pushing an idea or truth away, not bringing it into the centre of conscioussness to get an appropriate amount of attention. (Verdraengung is usually wrongly translated as “repressing” in psychoanalytical literature). Yet when Ratcliffe tells a major national newspaper that the opposition to fracking is based on hearsay there is probably some dim level at which he is uneasily aware that what he is saying can be challenged. Is he unaware that the US company with which he has a 15 year contract for the supply shale gas, Range Resource, has been accused of causing a number of environmental incidents? It seems implausible that he does not know that Range Resource have paid nearly $15 million in pollution fines in recent years. This included an $8.9 million fine which was the biggest ever for a shale gas drilling related environmental violation in Pennsylvania as well as a $4.15 million fine for violations at 6 waste water impoundments.
So what is going on in the mind of Ratcliffe when he claims that opposition to fracking is based on hearsay? Is he not aware that one reason that more information and evidence against fracking does not exist are the gagging orders imposed on victims after financial settlements? In August 2013 this included a gagging order on 2 children by his partner Range Resource – the children were banned from talking about fracking for the rest of their lives.
Is Ratcliffe really unaware of these things? He ought to be sensitised to issues of children’s health because in Ohio in 2009 his company was obliged to share a $1.3 million fine for multiple violations at the Ineos chemical facility at Addyston. It was a case associated with hazardous air pollutants like acrylontrile, butadiene and styrene and an elementary school had to be relocated because of the air pollution risk to school children.
Instrumentalising children’s health to pursue a corporate agenda that will damage children’s health
At the time of writing Ratcliffe is sponsoring long distance running by schoolchildren in a Go Run for Fun initiative. Ratcliffe is a keen long distance runner but if he and his company were keen on public health they would not be accusing opponents of fracking of basing themselves on hearsay. The dangers are well documented. It is not rumour or hearsay that 40 of 46 peer reviewed scientific studies between 2009 and 2015 show actual or potential negative effects to air quality. It is unlikely to help children’s health to run through an Ineos gasfield.
The effect of fracking derived air pollution on the health of pregnant women and their babies should give him cause for concern too. In June of 2015 a peer reviewed University of Pittsburgh study linked fracking to low birthweight in three heavily drilled Pennsylvania counties. The more wells, and the closer the wells to where the pregnant mother lived, the greater the risk. The study did not investigate mechanisms but is authors thought air pollution was the likely route of exposure – as evidenced by another West Pennsylvania study.
So what kind of person and company is it that appears to champion the health of children while simultaneously making partnerships with companies that gag children and while promoting an industry that is a threat to their health? What kind of corporate ethics are we dealing with that denies the evidence, claims opposition is based on hearsay and spends a vast amount on corporate propaganda?
Plastic Pollution – ethical bankrupcy is worse than financial bankrupcy
It is not only that if Ineos goes ahead it will impose a host of public health and environmental risks on local communities and on the climate system. It is also that the products that they intend to make with the ethane and methane that they want to extract would be disastrous too. For example they want to make plastic with it. As they are in the plastic business they must know that plastic is not the innocent stuff that most people unwittingly think of it as being.
Far worse than bankruptcy would be to go down in history as having produced a stream of toxins that play a significant role in destroying the global ecological system. It is one of the boasts of Ineos that it is the third largest player among the global chemicals companies. This being does it not have the third largest responsibility for what is currently an unfolding ecological catastrophe whose source is oil and gas and the many chemicals and plastics made from them? True, the Ineos Bio subsidiary is developing ways of recycling municipal waste into fuel and electricity. That can be testified in their defence. However alone the stream of plastics produced by Ineos is an ecological catastrophe.
There are plenty of people who will remember a world where plastics had far fewer uses. In the living memory of millions of people it was not routinely used for wrapping food; for containers; for beverage and mineral water bottles; for shopping and other bags; for lids; for disposable cups, plates, knives forks and spoons; for straws, stirrers, balloons, party inflatables. Somehow humanity managed to survive day to day with old fashioned glass bottles, ceramics and objects that were designed to be used over and again, rather than to be thrown away. Somehow people did not notice what they were missing before technology progressed, plastic was mass produced and business empires like Ineos were developed in order produce a stream of trash. As if climate change were not bad enough we now have in plastic pollution another slowly evolving disaster. That’s because plastic may break up in the environment into smaller and smaller bits, but it mostly does not break down, it does not bio-degrade. Without major logistical efforts backed by tight environmental standards it has accumulated in the environment in larger quantities and in smaller and smaller pieces. According to one recent estimate there are more than 5 trillion plastic pieces weighing over 250,000 tons afloat at sea.
The amount of plastic waste entering the oceans from land each year exceeds 4.8 million tons (Mt), and the figure may be as high as 12.7 Mt . This is nearly one to three orders of magnitude greater than the reported mass of plastic in high-concentration ocean gyres which are slowly turning marine collection points for garbage the size of western europe. The amount is growing rapidly – with the potential to be 250 Mt by 2025.
Impacts by plastic debris on more than 660 species have been documented, including from entanglement and ingestion. Species impacted range from the smallest of zooplankton to the largest whales, including fish destined to the seafood market. Plastics can concentrate toxic chemicals from seawater up to 1 million fold. Ingestion of these contaminated plastic particles may deliver these chemicals to the ocean animals which eat them, potentially resulting in negative effects on their health and survival.
The problem is not just in the oceans – but also the atmosphere. It was recently reported in a House of Commons Committee how, when plastics go through sewerage treatment works, much of the smaller pieces end in sludge that goes onto fields. When it dries out it is swept up by the windinto the atmosphere. At that point we breathe it in – in addition to eating it in foodstuffs like fish.
This prompts the question: how do Ineos and Ratcliffe see progress? How is this ecological disaster compatible with it? He wants economic growth and more of this. When he offers the regeneration of the north of Britain if only he can get another fix of cheap energy and more ethane feedstock what he is effectively wanting is to hang onto a share of the plastic market. He wants to be a boss of a corporation that wants to remain a global player in the production of this torrent of production. But is it not also a torrent of poisonous garbage?
Of course, we cannot know what is in the mind of a man like this, or the minds of his managers and partners. We can only speculate that he will be thinking mainly in market and money terms. “The market for plastic” is economics-think, in which a product and a value stream is what is being thought about. The focus is on how to make a product that people want and thus to be fully entitled to make money as a reward for entreprenerial zeal and risking money. In the perception of the corporate bosses all this stuff is packaging and containers and the plastic is created to be embedded in products that people are prepared to pay for – or to package these products. This is what usually gets their attention. This is what happens between their ears. This is the thing that they know about. The products have monetary value, people are prepared to pay, and this is their business.
But how much do such captains of industry think about what happens when the stuff that they produce is thrown away? Yes, there is clearly thought given to the topic of what money can be made out of processing garbage. We know this because of the Ineos development of waste to energy and electricity technologies. However, what about the rest of the stream of garbage? Is this not also their problem? It is certainly a problem for everyone else, and it is a problem that will not now go away for hundreds of years. In these hundreds of years those who live long enough to learn about what happened to their world will know may become aware of the name of Mr Ratcliffe as one of the people who organised the huge stream of plastic. One of the business moguls whose products led to the eco-cide of the oceans.
Championing the ‘Green Economy’ – to head off the real solutions that would make your company lose
A lot of people don’t notice – but when corporations respond to environmental problems with which they are associated they often fund or support “solutions” which direct the action for dealing with it away from themselves. Someone else become the people or institutions that are responsible and these others have to deal with it. “Beyond Petroleum”, BP, gives another example of this. When it was clear that something was going to have to be done about climate change and carbon emissions then companies like BP under Lord Browne moved to co-opt the policy design process. For a long time, the major fossil fuel suppliers had resisted any restraint on emissions but, at the end of the 1990s, some of them changed tack.
BP first experimented with an internal emissions trading scheme which was started in 1999. In 2002, the BP model was scaled up with the support of the UK government’s Department of the Environment and 34 other voluntarily participating companies. This UK scheme, in turn, became a model for the European Union’s Emissions Trading Scheme. So far so predictable. But what was the defining characteristic of the BP scheme? If it had been a serious attempt to throttle back the supply and burning of fossil fuels it would have attempted to keep the carbon in the ground. It would have been directed at the suppliers themselves. Instead the scheme was designed around the demand. It was focused on uses and users of fossil fuels and those who bought them. It very successfully batted the solutions away from the fossil companies who were originating the problem. When the European Emissions Trading Scheme was introduced it was large companies that bought and used fossil fuels and emitted CO2 during their operations, that were expected to buy permits. It was not the companies producing the coal, oil and gas who were expected to buy permits to sell fossil fuels in the first place. If it had been the latter it could have covered all fossil fuel based emissions. But that was something that neither BP nor the other suppliers wanted to see. They designed the scheme and wrecked it.
Now Ineos Bio is seeking to find a market by reusing plastics and waste. But the Ineos group is not seeking to restrain its production in the first place. From a profit making point of view an ideal solution is to produce a stream of trash and then make money by the need to deal with part of that same trash stream. Of course, if Ineos were promoting a system where no new plastics were allowed to be produced but only existing plastics could be re-used to make them then it would be commendable. But that’s not what they are proposing and recycling alone, without further measures to throttle the flow, at source will not adequately cope with the pollution stream. Like all corporate juggernauts Ineos wants to “grow” its markets and its production. That’s why the solution to plastic pollution may indeed involve some recyling and re-use but it has to be set in the context of reducing production. As one policy group have argued:
“The reality is that the only sound strategies to stop plastic pollution are ones that prevent it in the first place. To use the bathtub analogy, in order to stop the tub from over-flowing, we can either try to make the tub drain faster, or we can just shut off the tap.”
That means a raft of policies – and a good place to start is to fight the further development of shale gas in the UK in order to stop it being used as feedstock for plastics and as a fuel source.
In conclusion – the myth of cheap energy and revived industrialism
Let’s return to the story that Jim Ratcliffe would like to believe and wants us to believe. This is that cheap energy will return northern Britain to its industrial heritage. It will resurrect former mining communities and other industries too. It will help us develop the new industries of the future based on science – like plastics.
To many people this will seem a curiously antiquated view of the scientific and industrial future – it only rings true if you stubbornly refuse to look at a lot of evidence that the world has long ago evolved in another direction. Is Ratcliffe still thinking like an ambitious 1960s Grammar School boy who has just completed his science A levels? Does he still believe in “the white heat of the technological revolution”, which is how Harold Wilson, the Labour Prime Minister of the 1960s and early 1970s hyped the times he lived in?
Unfortunately there is now a mountain of evidence that fracking is deeply destructive to health and the environment. Ratcliffe wants to see that as “hearsay”.
There is also a mountain of evidence that says that the products of his company and of the petro-chemical industry in general, products like plastics, are a profound threat and must be dramatically reduced at source. Ratcliffe sees this situation when there’s a business opportunity in it for him – by selling the ability to recycling some of the tide of trash as a recycled energy source. But is he aware that much more is needed to cope with it?
There is now too a mountain of evidence that the trend to rising extraction costs for fossil fuels is inevitable. Fracking is a more expensive way of extracting oil and gas than from conventional wells because you have to do a lot more engineering activity to release it from an impervious geological strata. It is true that there is currently a very low oil and gas price because a debt laden economy, an economy still dominated by ageing baby boomers, cannot afford to pay for expensive oil and gas or for the products made from this expensively produced oil and gas. This contradiction is creating yawning holes in the profit and loss accounts and balance sheets of the oil and gas companies, as well as in the accounts of the financiers that have lent to them. Yet Ratcliffe, like the political elite schooled at Eton and Oxford, appears to be unable to see the writing on the wall.
At the core of the Ratcliffe message is the idea of fracking giving us cheap energy. But fracking does not give cheap energy. It is not cheap to the people whose health it damages. It is not financially cheap either. That’s why Ratcliffe is selling what appears to be a fantasy. Sure, unconventional gas extracted in the UK would not carry the same size of burden of having to pay for the military and security expenses, as well as the lavish corruption, of a variety of oil despotisms – the places where some conventional sources of oil and gas are extracted. But the extraction costs of fracked unconventional wells are higher than extraction costs for conventional wells. That’s why, to break even, unconventionally sourced gas has to be sold at a higher price too. For the Ineos gamble to pay off it is necessary that shale in the UK would be as cheap as in the very best Pennsylvania sweet spots. There is no guarantee for this and it is likely to be wishful thinking.
There is, in fact, a Catch 22 in the heart of the Ineos regeneration fairy tale. The economic system has been built on cheap energy but it is now faced with ever rising costs of energy extraction which require higher prices for the energy companies to break even. In order to pay their rising energy bills people and companies have to economise somewhere else. They struggle to service their debts too. Rising energy prices crash the economy. They destabilise the finance sector. This puts a ceiling on how high energy prices can be and the break even point for the oil and gas companies is above that ceiling.
Fracking has not solved this dilemma and neither will Ratcliffe or Ineos. There is virtually nowhere in the world where fracking has ever made a profit over the longer term. If it comes off at all the cheap energy that Ratcliffe champions would lead, in a just a few years, to an indebted and then bankrupt exploration and production sector. The fracking road show has kept going in the USA for as long as it has only because central banks have kept interest rates down to virtually zero. There have been few other opportunities to invest in the production economy and, as the financial papers describe it, those who “hunt for yield” have gambled their money by investing in shale. Now that mountain of debt accumulated by the fracking industry can no longer be serviced and repaid, Ponzi-style, with more borrowing. It’s the end of the road.
This is a Catch 22 Ratcliffe and the other petrochemical companies will not be able to solve. The cheap energy and re-industrialisation idea that Ratcliffe is promoting is a mirage, a fantasy, that would lead to a mountain of debt and a mountain of garbage. It will inevitably collapse. We can already see the signs of a global deflationary crisis as a result of crippling debts and sagging markets. The direction of the future is solving the problem of how to make do with less. Instead of growing the economy will have to mature – or it will collapse. You do people a favour not by producing more of anything, and certainly not more plastic wastes to poison the environment – but by setting up institutions to help them save energy, materials and money. Such institutions will help people to share more, make do, mend and get their satisfactions and pleasures without the aid of ecocidal empires built on trash.
1. See a long list: http://stateimpact.npr.org/pennsylvania/tag/range-resources/
2. Shaina, L. S., Brink, L. L, Larkin, J.D., Sadovsky, Y, Goldstein, B.C., Pitt, B.R., & Talbott, E.O. (2015).
Perinatal outcomes and unconventional natural gas operations in southwest Pennsylvania. PLoS One,10,
e0126425. doi:10.1371/journal.pone.0126425278 and
Preidt, R. (2015, June 3). ‘Fracking’ linked to low birth weight babies, WebMD. Retrieved from http://www.webmd.com/parenting/baby/news/20150603/fracking
Featured image: Commencing industrialisation – a 19th century town in Lancashire. Source: by http://wellcomeimages.org/indexplus/obf_images/2e/f5/ce0aeb14bd40dbcdf901639607d7.jpgGallery: http://wellcomeimages.org/indexplus/image/M0003212.html, CC BY 4.0, https://commons.wikimedia.org/w/index.php?curid=36315731
Edit, June 18 2016: it has been brought to our attention that Jim Ratcliffe went to Beverley Grammar School rather than Manchester Grammar School, as the original text stated. The text has been edited accordingly.