Will We See New Oil Ghost Towns Soon?
Hey Jessieconomists
In years gone by precious metal, deposits were a defining part of the economy that created many of the cities we have today. Some cities have a history of being gold towns, like Johannesburg and areas in California to name a few.
They used those resources to pivot into other economic activities and diversified to become successful cities. While those that failed to do so became ghost towns as the resources dried up and people left in search of new opportunities.
As the industrial revolution continued we required more energy and oil and gas became the new rush and built some powerful economies, we can look at places like Norway and OPEC countries used this to build their economies.
Image source: - slackdavis.com
Oil in decline
As the coronavirus rages on and countries shut down and movement and production grinds to a halt the need for energy decreases and puts pressure on oil prices. Couple that with Russia and Saudi Arabia pushing one another in a price war we're seeing oil prices tumble to prices we haven't seen in years and putting huge pressure on the leveraged businesses in the region and cities built around this commodity.
Price drops like these are not always factored into all parts of the supply chain and while futures contracts and insurance and mitigate some of the reduction in income there will be a knock-on effect and we will see the most expensive/inefficient producers go out of business.
Ghost towns
If we look at some oil production costs by country we can see nations like the UK, Canada, Brazil and Australia have some of the highest costs in the world when it comes to oil production and this puts them at a distinct disadvantage. While these nations do have other exports and ways of producing value there are certain parts of the nation that is not as diversified.
We can look at examples like Alberta in Canada or Perth in Australia that rely on oil more than many other cities. These large cities may see an exodus as jobs in oil and ancillary services dry up and smaller towns in the region completely become ghost towns as there simply isn't enough income to warrant a town being there.
The knock-on effect
This won't be the first time in history resource-based towns dry up and it surely won't be the last. As humans, we don't know how to form an equilibrium and build sustainable behaviours in the places we live and are all about exploiting resources for as long and as profitable as possible.
This mass migration could put a serious strain on cities and job markets and drag down wages as an influx of workers move to areas where they can find opportunities.
Sources
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What do you good people of HIVE think?
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Yes very likely we will have more gist towns from the oil war's and Corona virus slow down.
If those countries/towns didn't diversify enough and use their resources to create wealth funds then yes it's going to be mass migration. As this slow down keeps going it's only going to make the fallout worse
I'm not sure but I read that Trump bought up all the oil while those counties were fighting over it. This is good for America because we will have some in reserve.
That is if we ever get to go anywhere ever again.
It might be okay if he purchased reserves or futures to secure supply at a certain price but the US shale industry cannot sustain these loses in the price for very long so it could be an issue long term as the US doesn't want to only rely on foreign energy production and wants to produce their own.
We could be a big lay off or mass consolidation which would also mean layoffs in the US industry.
It is the boom and bust cycles of capitalism instead of planned economies, in my opinion, not human nature.
Yes, the profit motive does drive unsustainable behaviour as its a short term view but we can't only blame a system for every one falling in line and attributing to it. Its an entire supply chain, if the consumer didn't want it, it wouldn't be the way it is, if the individuals didn't take a back seat and vote for people and support governments that don't have the publics real interest in mind it would also limit the so-called capitalism, its a number of factors that attribute to this behaviour which to me is now human behaviour
As we enter Q2, I feel the damages from Q1 will be visible now -- for the next 3 months.
These are going to be SOME new times!
Perhaps even tough! :)
Definitely opportunity out there.
I agree, there will be a big need for innovation and pivoting to renewable energy and better energy distribution. The world we once knew is gone and there will be sweeping changes to ensure damages don't result in total break down and social unrest