Today’s Labor Updates:

Daniel Yergin: Why OPEC No Longer Calls the Shots

Grangemouth owners shut oil refinery until next week amid dispute

China: CPC official urges greater role for labor unions(Xinhua)   

 

October 14, 2013, 7:26 p.m. ET

Daniel Yergin: Why OPEC No Longer Calls the Shots

The oil embargo 40 years ago spurred an energy revolution. World production is 50% higher today than in 1973.

By DANIEL YERGIN

Forty years ago, on Oct. 17, 1973, the world experienced its first “oil shock” as Arab exporters declared an embargo on shipments to Western countries. The OPEC embargo was prompted by America’s military support for Israel, which was repelling a coordinated surprise attack by Arab countries that had begun on Oct. 6, the sacred Jewish holiday of Yom Kippur.

With prices quadrupling in the next few months, the oil crisis set off an upheaval in global politics and the world economy. It also challenged America’s position in the world, polarized its politics at home and shook the country’s confidence.

Yet the crisis meant even more because it was the birth of the modern era of energy. Although the OPEC embargo seemed to provide proof that the world was running short of oil resources, the move by Arab exporters did the opposite: It provided massive incentive to develop new oil fields outside of the Middle East—what became known as “non-OPEC,” led by drilling in the North Sea and Alaska.

The Prudhoe Bay oil field was discovered in Alaska five years before the crisis. Yet opposition by environmentalists had prevented approval for a pipeline to bring the oil down from the North Slope—very much a “prequel” to the current battle over the Keystone XL pipeline. Only in the immediate aftermath of the embargo did a shaken Congress approve a pipeline that eventually added at its peak as much as two million barrels a day to the domestic supply.

The push to find alternatives to oil boosted nuclear power and coal as secure domestic sources of electric power. The 1973 crisis spawned the modern wind and solar industries, too. By 1975, 5,000 people were flooding into Washington, D.C., for a conference on solar energy, which had been until then only “a subject for eco-freaks,” as one writer noted at the time.

That same year, Congress passed the first Corporate Average Fuel Economy standards, which required auto makers to double fuel efficiency—from 13.5 miles per gallon to 27 miles per gallon—ultimately saving about two millions barrels of oil per day. (The standards were raised in 2012 to 54.5 miles per gallon by 2025). France launched a “war on energy waste,” and Japan, short of resources and fearing that its economic miracle was at risk, began a drive for energy efficiency. Despite enormous growth in the U.S. economy since 1973, oil consumption today is up less than 7%.

The crisis also set the stage for the emergence of new importers that have growing weight in the global oil market. In 1973, most oil was consumed in the developed economies of North America, Western Europe and Japan—two thirds as late as 2000. But now oil consumption is flat or falling in those economies, and virtually all growth in demand is in developing economies, now better known as “emerging markets.” They represent half of world oil consumption today, and their share will continue to increase. Exporting countries will increasingly reorient themselves to those markets. Last month, China overtook the U.S. as the world’s largest net importer of oil.

A lasting lesson of the crisis years is the power of markets and their ability to adjust to disruptions, if government allows them to. The iconic images of the 1970s—gas lines and angry motorists—are trotted out whenever some new disruption happens. Yet those gas lines weren’t the result of markets. They were the largely self-inflicted result of government interference in markets with price controls and supply allocation. Today, the oil market is much more transparent owing to the development of futures markets.

The 1970s were also years of natural-gas shortages, which turned into a bitter political issue, particularly within the Democratic Party. Many at the time attributed these shortages to geology, but they too were the result of regulation and price controls. What solved the shortages wasn’t more controls but their elimination, which resulted in an oversupply that became known as the “gas bubble.” Today, abundant natural gas is the default fuel for new electricity generation. The lesson is that markets and price signals can work very efficiently, and surprisingly swiftly, even in crises, if they are allowed to.

There will be future energy disruptions because there is still much political risk around oil. In 2013, the Middle East is still in turmoil, but the alignments are different. In 1973, Iran was one of America’s strongest allies in the Middle East. Tehran didn’t participate in the embargo and pushed oil into the market. But since the 1979 Islamic revolution, Washington and Tehran have been adversaries. Meanwhile, Saudi Arabia, which was at the center of the 1973 embargo, is now America’s strongest Arab ally.

The real lesson of the shock of 1973 and the second oil shock set off by the overthrow of Iran’s shah in 1979 is that they provided incentives—and imperatives—to develop new resources. Today, total world oil production is 50% greater than in 1973. Exploration in the North Sea and Alaska was only the beginning. In the early 1990s, offshore production expanded farther out into the Gulf of Mexico, opening up deep water as a new oil frontier. In the late 1990s, Canadian oil sands embarked on an era of growth that today makes them a larger source of oil than Libya before its 2011 civil war.

Most recent is the development of “tight oil,” the spinoff from shale gas, which has increased U.S. oil output by more than 50% since 2008. This boom in domestic output increases energy supply, and combined with shale gas has a much wider economic impact in jobs, investment and household income. As these tight-oil supplies increase, and as the U.S. auto fleet becomes more efficient, oil imports have declined. Imports reached 60% of domestic consumption in 2005, but they are now down to 35%—the same level as in 1973.

As the U.S. imports less oil it also produces more to the benefit of energy security. There are several million barrels of oil now missing from the world oil market, owing to sanctions on Iranian oil, disappointments in Iraqi production, and disruptions to varying degrees in Libya, South Sudan, Nigeria and Yemen. The shortfall is being partly made up by Saudi Arabia, which is producing at its highest level.

But the growth in U.S. oil output has been crucial in compensating for the missing barrels. Without it, the world would be looking at higher oil prices, there would be talk of a possible new oil crisis, and no doubt Americans would once again start seeing images of those gas lines and angry motorists from 1973.

Mr. Yergin, vice chairman of IHS, is the author of “The Quest: Energy, Security, and the Remaking of the Modern World” (Penguin Press, 2012).

 

Grangemouth owners shut oil refinery until next week amid dispute

16 October 2013

Grangemouth oil refinery’s owners have confirmed the facility will remain shut until next week amid an ongoing industrial dispute.

Ineos said the plant would close despite a planned 48-hour strike being averted after talks with the Unite union. Unite responding by accusing Ineos of “holding Scotland to ransom” and of committing “economic vandalism”.

Union members were due to walk out for 48 hours from Sunday over the treatment of Unite convenor Stephen Deans, but stated they wanted to protect a national asset and called off the action.

On Wednesday, Ineos accused Unite of inflicting “significant further damage” on the site near Falkirk as it is already “financially distressed”.

An Ineos spokesman said: “Grangemouth is shut down and will remain shut down. Grangemouth is financially distressed. The industrial action called by Unite the union has inflicted significant further damage on the company.

“Ineos will put a proposal to the workforce tomorrow and expects a response on Monday, after the weekend. The company will review its position with its shareholders on Tuesday.”

Lengthy talks between the parties were held at the Advisory, Conciliation and Arbitration Service (Acas) in Glasgow, but they ended at 5am on Wednesday without agreement.

Unite convenor Mr Deans was involved in the row over the selection of a Labour candidate in Falkirk, where he is chairman of the constituency party. He was suspended by Ineos and later reinstated, but is facing an internal investigation by the company over issues linked to the Falkirk affair.

Ineos has warned that Grangemouth is losing £10m a month and will close in 2017 without investment and cost-cutting.

Unite regional secretary Pat Rafferty said: “Ineos’s decision to keep Grangemouth shut is an act of economic vandalism. There is absolutely no reason for the site to remain shut – the company is holding Scotland to ransom. The Scottish and Westminster governments must now act without further delay.

“Unite acted in the national interest by calling off the strike because Ineos had no right to initiate a cold shutdown – a shutdown against the wishes of the Health and Safety Executive, and against the economic interests of the country. Unite is calling for the Health and Safety Executive to visit the site urgently as we believe this is reckless behaviour.”

Speaking in Downing Street following the joint ministerial council, Scotland’s First Minister Alex Salmond said the immediate threat in terms of disruption of fuel supplies in Scotland was less than before but “there’s still now huge uncertainty about the long-term future of what is a major chemical and industrial complex”.

He added: “Both governments would prevail on both Ineos and Unite to find a solution that gives Grangemouth a future. The dispute has moved from being an immediate threat to fuel supplies continuity in Scotland to one that is about the survival of Grangemouth as a chemical (plant) and refinery in Scotland.

“Therefore it’s important that both sides have a commitment to that long-term future.”

He said both governments were likely to support financial backing for the plant “but that’s on the basis that the plant continues – clearly neither the Scottish Government nor the UK Government are going to provide financial backing for a plant that ain’t there”.

Scottish Secretary Alistair Carmichael said keeping the site closed was “a bit of a setback”, adding: “I will not rush to judgment on it but it is a disappointment. I am concerned and will want to know why the management has chosen to attach pre-conditions in the way that they have done.

“At first sight it doesn’t look helpful, it doesn’t look constructive because this is a dispute which has enormous danger of damaging Scotland’s economy and confidence. For that reason, I think there is a legitimate interest for government both in Edinburgh and London to hold both parties to account here.”

He said: “There is a great deal at stake here. I’m not going to start a run which is going to lead to a loss of confidence, but there is no underestimating the importance of this to Scotland’s economy. In fact, it has the potential to stretch right through the country.

“Be in no doubt that the stakes are exceptionally high here. This could be seriously bad news for Scotland’s economy.”

Energy Secretary Edward Davey said: “Grangemouth is an important part of the Scottish economy, with industry, jobs and people’s livelihoods at stake. I have worked hard with both sides to urge them to continue talking and find a way that secures a long-term future for Grangemouth.

“Motorists should be assured that the Grangemouth shutdown will not affect Scotland’s petrol and diesel supplies. We have been working closely with the fuel industry and Scottish Government to ensure robust contingency measures are in place.”

 

China: CPC official urges greater role for labor unions(Xinhua)   

19:38, October 18, 2013

A senior official of the Communist Party of China (CPC) has called on the country’s labor unions to play a greater role in safeguarding the legitimate rights and interests of the working class.

Liu Yunshan, a member of the Standing Committee of the Political Bureau of the CPC Central Committee, made the remarks in a congratulatory speech delivered at the opening session of the 16th national congress of the All-China Federation of Trade Unions (ACFTU).

Liu urged the labor unions to “take a clear-cut stance and gain the initiative” to safeguard workers’ rights of employment, insurance, health and vacation, as well as to guarantee their rights to know, participate, express and supervise.

Founded on May 1, 1925, the ACFTU is China’s only umbrella union and has 31 provincial trade union federations, 10 national industrial unions and more than 1.3 million grassroots trade union organizations affiliated to it.

The ACFTU is now the world’s largest labor union. It has 280 million members, 109 million of whom are migrant workers who come from rural areas and seek jobs in cities.

Like Western labor unions, the ACFTU’s role includes coordinating labor relations and seeking better working conditions for its members.

Led by the CPC, the ACFTU serves as a “bridge” between the CPC and the masses and assists the government in ensuring the continuing operation of the labor market.

However, its function now faces challenges posed by a new generation of Chinese workers who are more educated and increasingly aware of their rights.

Over the past few years, strikes have broke out in both joint ventures and local enterprises in China. Workers demand better pay, improved working conditions and are more determined in protecting their interests.

In his speech, Liu called on the working class to safeguard the country’s social stability and unity, maximize positive elements, dissolve negative elements and form a positive momentum of union and hard work.

“The working class should become the role model of unity and progress, and vigorously promote the glorious tradition of unity, cooperation, mutual assistance and friendship, and strengthen unity with other working people and all strata of society,” he said.

Friday’s session was also attended by CPC and state leaders including Xi Jinping, Li Keqiang, Zhang Dejiang, Yu Zhengsheng, Wang Qishan and Zhang Gaoli.