Is Domestic Oil Production Ethical?

In most American cities, the prospect of sub $2 per gallon gas would be welcome, however, those associated with the US oil business see it as a warning. As of late, the global production of oil has skyrocketed as domestic and foreign producers refuse to curb output. As a result, the price of oil has steeply declined and American energy companies are forced to sell below their cost of production. A key characteristic of the energy industry is its substantial capital requirements due primarily to the large startup costs of finding and developing an oil field in addition to the heavy costs of extraction. As a result, many energy companies take on substantial amounts of debt to finance their operations. As oil prices decline, domestic energy producers have become less profitable and are therefore less able to service their debt, resulting in an increased risk of bankruptcy. However, contrary to domestic producers, certain global exporters are able to produce oil at a lower cost, and are therefore less sensitive to the decline in worldwide prices. As a result, dozens of oil and gas companies went into bankruptcy last year and tens of thousands of jobs were lost. The ethical dilemma results from domestic energy companies’ unwillingness to curb production to allow the price of oil to return to equilibrium. If done properly, domestic producers will take a short term loss but will be rewarded by a more sustainable price of oil in the future.

Looking at this situation through a utilitarianism perspective I think it would be in the best interest of domestic oil producers to temporarily curb production. U.S. oil has resulted in an economic boom with the creation of thousands of jobs with exciting opportunities for growth. I think it’s in the best interest of energy companies to remain solvent in order to avoid bankruptcy and continue operations in the interest of preserving American jobs. The temporary cut in production would curb the domestic competitive advantage in the short run and decrease the potential for profits. However, taking this less risky approach would ensure the long run operation of domestic oil producers. I believe that the increased chance of sustainability will provide the greatest benefit to the greatest number of people.

In addition to utilitarianism, we can also view this issue through a deontological lens. In this way, it’s important for the domestic energy industry to consider the effects of continued production and whether they represent the “right” thing to do. I’d argue that Kant would see the decrease in oil prices as a signal that the current methods of oil production are unsustainable. He would also make the argument that fracking is harmful to the environment and the continued production does not justify the marginal maltreatment of the environment. Using this “rights” framework, I think it would be in the best interest of the domestic oil producers to cut production because of the marginal harm continued production would cause.

Lastly, we can look at this situation through a virtue ethics lens. In judging the decision to continue or cut production, we can look at the environment which energy executives compete in. Oil companies have a fiduciary responsibility to their shareholders, their own hubris, and the communities which they operate. Given the recent indictment of “fracking pioneer”, Aubrey Mclendon, it’s apparent that energy executives are under severe pressure to increase their company’s earnings by any means necessary. Under these circumstances, I’d argue that the continuation of oil production is the correct decision by a standard of virtue ethics.


4 thoughts on “Is Domestic Oil Production Ethical?

  1. This seems very odd because my first thought upon reading this post was, “why would one curb production of a company?” This is a weird dynamic in my mind because I figure maximum production would yield maximum profits, but in this case its clearly not true because of the market and industry itself. Its also an ethical dilemma because an industry like seems to have this feeling that the companies involved have a moral and ethical obligation to provide as much oil to the public as possible. Maybe that’s true to some people. Maybe they are acting more ethically by curbing production because prices will go up and encourage a better form of transportation for the Earth. I know I was so much more concerned about spending money on gas when prices were over $3.


  2. Good post! I did not know that oil companies were surging their production. However, it makes sense. As we know, but decreasing the supply, we can increase prices. From an ethical perspective, consequentialism tells us that if the ends justifies the means. The ends of increasing the price of oil is morally good since the direct result is less environmental harm as well as more employment and a stabilization of the industry.


  3. I think this is an interesting post because it definitely talks about something very relevant in our economy today that I’m not sure many people know about, and I know I definitely wouldn’t have if I weren’t taken Corporate Finance and required to read the WSJ this semester. I initially took the view point that more people would be benefiting from the lower gas prices, but the sustainability/stabilization of the oil industry, as you mentioned, would definitely be beneficial to even more people.


  4. I think that a serious issue with curbing oil production in the US is that it is incentivizing foreign oil producers to continue producing at their current levels. A large reason why OPEC is not changing their output levels is that they no they can outlast the United States. Prices began falling because the US and OPEC were battling for market share of oil production. This resulted in a drop of price and profits for these countries. It was a battle won by the larger companies and lost by the smaller companies that didn’t have large enough cash reserves to cover their losses. The problem is that this created a more centralized oil producing market with mostly large producers and few small ones.


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