"Did you ever have to make up your mind?
You pick up on one and leave the other behind
It's not often easy and not often kind
Did you ever have to make up your mind?"
John Sebastian, performed by The Lovin' Spoonful, "Did you ever have to make up your mind," 1965
West Texas Intermediate crude oil is priced at about $56/barrel. This is a five year low.
I have mixed feelings.
Cheap oil means lower prices at the pump. The average price nationally for gasoline at the pump is now under $3. It is about $3.50 in Oregon, because the West Coast has a shortage of refineries, and new ones are hard to site, and we are at the far end of oil and gasoline pipelines. Prices are a dollar/gallon higher in California.
 |
| West Texas oil rig |
 |
| Value of the dollar, in Euros. |
I prefer American energy independence, rather than dependence on oil from the Middle East, which was our condition prior to the shale oil revolution. The dependence distorted our foreign policy and caused inflation that could only be stopped only with 15-percent interest rates and a deep recession. In the 1970s I remember planning trips from New Haven to Boston and from Medford to Portland around where I might be able to buy gasoline.
The U.S. is energy-independent today, and the world's largest producer of oil, because oil companies learned how to find oil trapped between layers of shale. At $75/ barrel, it is profitable to pump that oil. At $56/barrel shale oil is only marginally profitable. Existing wells with sunk costs of development can continue to be pumped because the extraction cost is about $25/barrel, but new wells are not drilled. The full-cycle cost of shale oil is more than current prices for all but the most efficient drillers in the very best locations.
The world economy is slowing down. Trade disruptions are having an effect. That means oil demand is down. Jobs have stopped growing and unemployment is rising. OPEC is pumping more oil to reduce the profitability of the U.S. oil shale competition. We are moving into a bust cycle in the oil fields. Oil country is bright red politically. Democrats might not care if drillers go broke. Indeed, they may see an upside to the bust. Fracking is controversial. It uses water; it causes earthquakes; it leaks methane. Landowners who get paid a royalty like fracking, but neighbors who don't get royalties often do not. The oil shale technology breakthrough means that America perpetuates the fossil fuel era, which green-oriented Democrats oppose. Many Democrats say good riddance to fracking.
Is ending fracked oil good for the environment? The answer is complicated.
Cheap oil doesn't mean oil doesn't get used. Cheap oil means more oil is used -- after all, it's cheap! -- just less of it will be sourced in the USA. Cheap oil re-establishes our dependence on places with cheap oil. It also means that alternative energy sources favored by green voters are less competitive, so wind and solar projects get cancelled for price reasons, not because Trump defunded them. American car buyers see lower prices of gasoline. They buy a car with an internal combustion engine instead of an electric vehicle, a decision with long consequences. It will be on the road for 20 years. General Motors and Ford saw the writing on the wall and cut back on electric vehicle production. Ford took a $15 billion write-off, saying it had over-estimated the EV market.
What should a conscientious America cheer for? Do we want cheap oil and lower inflation, or expensive oil because it is good for the environment, if it is, given that it makes fracking profitable? Is the world's environment better off if oil gets drilled by state oil companies in Nigeria, Venezuela, Russia, and the Middle East?
Many Democrats consider oil companies intrinsically bad, and urge college endowments and state treasurers to divest from them. That, too, is complicated. American-based oil companies can lose money and even go broke, but it doesn't mean the world stops using oil, not if oil is cheap, and cheap oil is what would damage their profitability. Someone supplies oil; just not us. There is demand.
Nothing I do personally affects oil prices very much. I heat part of my home with natural gas, but I converted part of the house to electricity when a furnace broke. I drive an electric car. As voters and consumers, we mostly are bystanders.
 |
| Arlington, Oregon wind turbines |
I support alternative energy projects, but realize than one of the great impediments to building them is that neighbors of potential solar and wind projects oppose them. Anything that creates energy creates opposition. I am mostly a "Yes" person. I see NIMBY opposition as a generally negative force, but I am probably in a minority and maybe I am wrong. People want abundant cheap energy, but not the ways to get it. Everything has a pros and cons.
If I had my wishes, oil prices would rise back to $75/barrel, even though it is inflationary. Oil in that range means the U.S. can produce oil now, but the incentives for wind and solar stay in place. I don't want to be dependent on the Middle East for our energy.
[Note: To get daily delivery of this blog to your email go to: https://petersage.substack.com and subscribe. The blog is free and always will be.]
Uh...imagine a World without oil...cheap or otherwise. It's a paradox. If we didn't have abundant, for now, fossil fuel we might have figured something else out, probably efficient solar, centuries ago, Electricity runs the Universe, not oil. It just might be that oil is the planet killer and we're going to have to change our ways if we want to survive, or maybe it's the one thing that actually insures a planet will develop an advanced civilization. We'll find out pretty soon.
ReplyDeleteNot cheap enough! Drill, baby drill! Invade Venezuelan oil, Pete.
ReplyDeleteOil is the lifeblood of capitalism.
I assume you're being facetious, but there are folks who actually believe crap like that, so it isn't clear.
DeleteOil is used to transport people and commerce, it's used for pharmaceuticals, it's used for fertilizers to grow food, and it's used to make clothing. Why would anyone want oil to cost any more than it already does? It affects your entire life, and your lifestyle. Only someone who wants to control and punish you would want higher oil prices.
ReplyDeleteOil may always have its uses, but investing in alternative sources of energy is in everyone's interest. The way to make it cheaper is to reduce demand.
DeleteIt's actually not complicated at all because we have only 2 options available to us.
ReplyDeleteOption 1: keep pumping that oil! Drill baby drill! Let's keep our prices at the pump as low as possible! Also, 99.9% of humans on Earth are dead in approximately 3 generations due to runaway climate change.
Option 2: we switch as fast as possible to renewable energies (wind, solar, geothermal, wave, even nuclear), and everyone gets to continue living on a planet that while still severely changed by the amount of climate change that has already been baked into the pie isn't one on which we can't adapt to and thrive on.
The crazy thing about all this is that proponents of Option 1 exist at all. It would be the equivalent of seeing your house on fire and rushing for the gas can instead of the fire extinguisher. Because that *literally* is exactly what's happening on a global scale.
I continue to be hopeful that enough of us may realize that fire extinguishers are better at putting out fires than gas cans so that the arsonists are finally overwhelmed, but I suppose we'll see.