A tragedy worthy of Shakespeare: the looming financial crisis as a result of oil's collapse.

Author:Verleger, Philip K., Jr.

Developments in the world oil industry have taken on all the characteristics of a Shakespearean tragedy. We are now entering Act IV. Hamlet provides the road map. The play begins with the villain gaining power and then keeping it until the climax in Act III. From there on. it is all downhill.

Oil's tragedy began in January 2001 with the inauguration of U.S. President George W. Bush. The occasion likely brought enormous relief to executives of major oil companies, electric utilities, natural gas producers, and coal firms, for no industries had more at stake in the election's outcome than these did. The contest between Bush and his Democrat opponent Al Gore matched a committed environmentalist against a failed oil man and former Texas governor. Whether the Supreme Court knew it or not, it voted for big energy, a boost in emissions of global warming gases, and a pedal-to-the-metal energy policy when it sided with the Republicans in Bush v. Gore, and the energy industry thought it had won big.

President Bush ordered his vice president, Dick Cheney, to conduct an immediate review of the nation's energy situation. When Cheney's task force, the National Energy Policy Development Group, issued its report, the document fulfilled all the dreams of oil industry executives who had been frustrated during the prior eight years by the Clinton administration. A primary characteristic that permeated the report seemed to be a fear that the world would exhaust available oil supplies, sending prices to extraordinarily high levels. In the concluding chapter, the authors offer this warning:

Although U.S. energy security can be reinforced by domestic efforts to enhance supply and use energy more efficiently, growth in international oil demand will exert increasing pressure on global oil availability. Worldwide oil consumption is projected to grow by 2.1 percent a year over the next two decades. However, oil demand is projected to grow three times as fast in non-OECD countries as in OECD countries, which will increase worldwide competition for global oil supplies and put increased pressure on our shared environment. The study gave the green light to those seeking to dig and drill in the nation. It also seemingly licensed U.S. companies to exploit all the world's resources, regardless of the consequences.

Seven years later, the industry's confidence reached its peak with the release of a National Petroleum Council study titled Facing the Hard Truths about Energy: A Comprehensive View to 2030 of Global Oil and Natural Gas. It might as well have been called "Drill, Baby, Drill," the line made famous in 2008 by John McCain's vice presidential running mate Sarah Palin. Hard Truths reiterated the recommendations made by the Bush energy task force in much greater detail and apparent certainty. The authors asserted several key "findings." They believed, for example, that coal, oil, and natural gas would remain "indispensable' to meeting projected demand growth. And, while the world was not "running out of energy resources," there were increasing risks to finding and developing sources from conventional reserves. The NPC report conclusions echoed those issued by other organizations, including companies such as ExxonMobil, government agencies such as the U.S. Energy Information Administration, and international entities such as the International Energy Agency. (This author was a member of the National Petroleum Council at the time Hard Truths was prepared. He did not endorse the report and has since resigned.)

Within a year of the Hard Truths release, oil prices surged to over $130 per barrel...

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