Imperiled Riches—Threatened Rainforests

OIL EXTRACTION: The Impact Oil Production in the Rainforest

The extraction of oil is responsible for the deforestation, degradation, and environmental devastation of lands across the globe. The oil extraction process results in the release of toxic drilling by-products into local rivers, while broken pipelines and leakage result in persistent oil spillage. In addition, the construction of roads for accessing remote oil sites opens remote lands to colonists and land developers.

Some of the world's most promising oil and gas deposits lie deep in tropical rainforests, especially in the Western Amazon. With oil at historically high prices, the incentive to develop oil resources has never been greater.

While hydrocarbons can be extracted at a relatively low direct cost to tropical rainforests, governments and oil companies have traditionally opted for expediency over consideration for the environment or the interests of local people most affected by production. One of the most egregious examples of this comes from eastern Ecuador, where U.S. oil giant Texaco (owned by Chevron since 2001) laid waste to an area of rainforest renowned for its wildlife. The firm's operations also affected the lives of thousands of Indigenous people and settlers.

The Ecuadorean Oriente, located on the western edge of the Amazon rainforest, is considered the most biodiverse place on Earth. Before Texaco entered in 1967, the region was home to several Indigenous groups including the Huaroni people. Some of these Huaroni were among the few remaining Indigenous peoples on Earth living fully in their traditional ways.

Between the late 1960s and the early 1990s the Oriente suffered serious degradation and deforestation from oil spills and clearing for access roads, exploration, and production activities. Green groups allege that Texaco dumped more than 20 billion gallons of toxic drilling by-products into local waterways and spilled some 17 million gallons of crude. A 1992 spill was so large that it caused the Rio Napo to run black for days and forced downstream Peru and Brazil to declare states of emergency for the affected regions.

Texaco sold its operations to Ecuador's state oil company Petroecuador in 1992. It left considerable damage, including hundreds of toxic waste pits. Protests by environmentalists and Indigenous groups led Texaco to offer $5-10 million for clean up. In response, a class-action lawsuit was filed against Texaco in the United States on behalf of 30,000 people affected by the oil company's operations. The lawsuit continues today but has morphed into a complex and controversial case.

The development of oil in the Ecuadorean Amazon is a particularly poignant example, but it is no means unusual for oil projects in rainforests. Typically, an oil company cuts access roads through the forest. These roads are followed by transient settlers who colonize and damage the surrounding forest through slash-and-burn agriculture, the introduction of domestic animals, hunting, and the collection of fuelwood. Oil companies sometimes "flare" or burn natural gas that is a by-product of drilling. The flames, which burn in the open air, contribute both to local air pollution and increase the risk of forest fires.

The oil extraction process can be messy and destructive. Spills result from burst pipelines and toxic drilling by-products may be dumped directly into local creeks and rivers. Some of the more toxic chemicals are stored in open waste pits and may pollute the surrounding lands and waterways. Oil spills can wreak havoc on rivers and aquatic ecosystems, while clean-up efforts are complicated by the complexity of tropical river systems, which may include floating meadows, swamp forest, oxbow lakes, flooded forest, and sand bars.

Indigenous and local people have historically failed to see many benefits from oil extraction, but have borne many of the costs in the form of pollution and displacement. Conflict may be exacerbated by the presence of security forces, either private or linked to the military. Lacking what they consider fair compensation, local people may resort to sabotage of oil installations to collect oil-spill compensation. In fact the current chaos in the Niger river delta in Nigeria has roots in opposition to Shell's drilling operations.

But it's inaccurate to assert oil companies are solely responsible for fleecing locals out of oil revenues. At times, oil companies pay their agreed-upon fees and royalties, which end up in the hands of corrupt government bureaucrats before they can be distributed to the communities. Corruption and the oil business often go hand in hand.

Despite booming demand for oil and gas, the benefits of oil production accrue to few people in most tropical countries. In fact, some countries with large oil reserves have struggled with some of the highest debts in the world.

During the 1970s when oil prices were extraordinarily high and real interest rates low, many oil-exporting countries looked much wealthier than they actually were and took out large loans from foreign banks. The loans were used to sponsor costly development projects. In the 1980s the creditworthiness of these developing countries collapsed with oil prices, and the debt of many oil exporters skyrocketed. For example, the national debt of Ecuador rapidly accelerated since the beginning of the oil boom in the early 1970s. In 1970, the national debt stood at US$256.2 million, but by 2005 the debt had swollen to $16.8 billion.

The sudden inflow of oil can further affect a developing economy by producing a sharp appreciation in the domestic currency which can make non-oil sectors like agriculture and manufacturing less competitive on world markets, thus leaving oil to dominate the economy. The country then becomes vulnerable to wild price swings in the commodity market.

Over-reliance on oil can also impact the government's responsiveness to its citizens. Michael Ross, an associate professor of political science at the University of California at Los Angeles, has argued that oil-rich countries do less to help their poor than do countries without oil and are plagued with lower literacy rates, score lower on measures like the UN's "Human Development Index," and have higher child mortality and malnutrition. How is this possible? An article in The Economist explains, "Unlike agriculture, the oil sector employs few unskilled people. The inherent volatility of commodity prices hurts the poor the most, as they are least able to hedge their risks. And because the resource is concentrated, the resulting wealth passes through only a few hands—and so is more susceptible to misdirection." Since oil revenues are sometimes funneled directly to rulers, governments have little need to raise revenues through taxes and be accountable to their citizens.

Political and economic considerations aside, oil conglomerates are easy targets for environmentalists. Their operations are highly conspicuous and create a dramatic impact on the local economy and the local social conditions. Since local communities reap few benefits from oil development, while shouldering the bulk of the social and environmental costs, it is easy to see why the contribution of oil development to environmental devastation is often overstated.

Review questions:

• How do oil operations impact the rainforest?
• How can oil development actually hurt an economy?

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