Saturday, February 9, 2013

The Value of Oil

I was listening to an article (wow the future is so rad) the other day about how there is an enormous oil reserve in Ecuador that is underneath a national rain forest preserve.We have seen this movie and heard this plot many times, but what is interesting about reality is that the Ecuadorian government is doing something different.

The Ecuadorian government is requesting money from the world in exchange for not opening up the reserve for drilling; they are basically holding their rain forest hostage:

http://www.npr.org/blogs/money/2013/02/05/171172196/episode-433-holding-a-rainforest-hostage

but I'm not sure who from.

I started thinking about this. Nobody is holding a gun to the heads of the Ecuadorian government and forcing them to tap this oil reserve, oil companies that want to come in and extract the oil would need to pay the government for the ability to do so. Worst case scenario, the oil will stay in the ground until their sovereignty becomes threatened.

Ecuador could decide to drill. Obviously that money would be used to benefit the Ecuadorian people, but it has been shown in resource rich countries that very little of that money actually benefits the population at large. Instead the money is lost to corrupt leadership and governments, and revenues benefit the oil companies.

This trade off is very unique in my view. On one hand you have a natural resource that is valuable, useful and pretty much essential to the world as we know it. Oil is used to transport things, create things, and gives the world freedom. The other hand is that oil fuels the chaos of our world, enables us to be lazy and ends up polluting the world at each stage in it's life from extraction to consumption to decomposition.

I remember listening to another article about how the Native Americans were negotiated with during the civil war, when pioneers ventured west. One of the strategies was offering credit to the Indians for food, guns, and other things that white people had in abundance. When the Native Americans later could not pay their debts, the white settlers took their land instead.

The Ecuador situation sounds remarkably like the Native American one. They are faced with the situation of trading money which can be used to buy the things they need (better medicine, better infrastructure, better education) in exchange for something that has undefined value and has significant external benefits to the world.

The oil is not going to disappear anytime soon. It can stay in the ground as long as it needs to, and if Ecuador chooses they can choose to extract it. As the article points out, leaving the oil in the ground and leaving the preserve intact has a compounding effect on global climate change; the oil is never burned or consumed, and the rainforest itself absorbs CO2 gasses and produces oxygen for the world.

If this boils down to money, I say leave the oil in the ground. It has more value under the ground than in the world's gas tanks.