Oil & Energy
‘Extreme Temperatures Could Melt US Economy’
Extreme heat is costing the United States economy billions of dollars each year. As weather patterns change around the world, heat waves are getting more frequent, more intense, and longer in duration.
But many of the buildings and factories that the U.S. workforce spends its days in were not built with extreme heat in mind, and many lack air conditioning entirely, especially in the industrial sector.
The result is a massive dip in productivity that is costing the United States billions of dollars on a yearly basis, and that price tage is only going to keep growing.
According to the Environmental Protection Agency (EPA), the frequency of heat waves in U.S. cities has increased steadily over the last 70 years, from two per year in the 1960s, to six per year this decade, while the duration of those heat waves has also increased by about one day on average.
The season of heat waves has also increased significantly, with a window now 49 days longer than the heatwave season of the ‘60s.
“Timing can matter, as heat waves that occur earlier in the spring or later in the fall can catch people off-guard and increase exposure to the health risks associated with heat waves”, says the EPA.
And, while the heat waves of the dust bowl era of the 1930s remain the most intense in U.S. history, the average intensity is nonetheless statistically significantly higher now than ever before in 46 out of the 50 U.S. cities studied.
The result of extreme heat does not just pose serious health and environmental risks, it also causes considerable economic hardship for indoor as well as outdoor industries as workers are less productive, make more mistakes, and are more prone to injury.
As temperatures reach 90 degrees Fahrenheit, overall productivity decreases by about a quarter, and when temperatures top 100 degrees, productivity drops off a cliff, plummeting by an incredible 70 percent according to a 2021 study published in the International Journal of Biometeorology.
Scientists have only recently begun to track and quantify exactly how the negative correlation between heat and productivity are impacting the economy writ large, but initial results show that the impacts are severe, sweeping, and going to get worse as the climate change continues its warming trajectory.
“We’ve known for a very long time that human beings are very sensitive to temperature, and that their performance declines dramatically when exposed to heat, but what we haven’t known until very recently is whether and how those lab responses meaningfully extrapolate to the real-world economy”, R. Jisung Park, environmental and labor economist at the University of Pennsylvania, recently told the New York Times.
“And what we are learning is that hotter temperatures appear to muck up the gears of the economy in many more ways than we would have expected”, stated further.
While worker productivity may seem like a relatively small piece of the cost of climate change when compared to, say, flood damage, wildfires, and rising sea levels, it turns out that overheated laborers have a major impact on the economy as a whole.
Data compiled by The Lancet shows that more than 2.5 billion work hours were lost in the United States in 2021 alone over the agriculture, construction, manufacturing, and service sectors as a direct result of heat exposure.
Altogether, this lost productivity is costing the U.S. economy about $100 billion per year. While that may sound like a lot, it’s chump change compared to projected figures over the next decades as climate change worsens.
By 2050, productivity losses due to heat exposure are expected to reach $500 billion annually.
The impact of these economic losses will have a more adverse impact on poor parts of the United States than on more affluent ones.
A 2021 study found that poor workers lose up to 5% of their pay on each hot day, while workers in wealthier areas lose less than one percent.
“Temperature projections for 2040–50 suggest that earnings impacts may be 95% smaller for US counties in the richest decile relative to the poorest.
“Considering the within-country distribution of vulnerability, in addition to exposure, to climate change could substantially change estimated within-country differences between the rich and poor in income losses from climate change”, the paper said.
This unequal impact of climate change on the rich and the poor holds true on an international scale as well. While the U.S. economy stands to lose a lot as a result of climate change, the risk for poor nations is much, much higher.
It’s a cruel irony, as the most developed countries have contributed the most greenhouse gasses leading to climate change, but the poorest countries with the fewest historical emissions will suffer most.
By: Haley Zaremba
Zaremba writes for Oilprice.com
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.