by Barry Ingber, Medford Energy Committee
We all know that crude oil prices have crashed. We are reminded every time we fill up the gas tanks in our cars and the heating oil tanks in our basements at barely over half the price it cost just seven months ago. Crude is now selling on the commodities market for between $40 and $50 a barrel, compared to its June, 2008, peak of $144 (in 2015 $).
Spot price of oil from US Energy Information Administration
Why is this happening? The major factor right now is the Saudi/OPEC effort to protect market share rather than prices by not cutting production (as they typically would have in the past) in response to prices that were already weakening because of:
- a slowdown in the Chinese economy that depressed demand; and
- increased supply as a result of extreme oil being produced in North America when high prices made oil shale fracking, deepwater driling, and tar sands (“extreme oil”) potentially profitable* (and also made renewables competitive). – Oil Change International
Reasons aside, it’s nice, for pretty much all of us here in Medford, to have those extra gas or heating oil dollars to save or spend. But it’s especially nice for those lower income folks who heat with oil and truly cannot afford to keep their homes warm, and who have very limited options for conserving. It is also a potential economic stimulus for most of the country.
Of course, the free market working as it does, low oil prices also discourage conservation by people who do have options, and who may opt to drive more in a larger vehicle or make their homes larger rather than more efficient. If we want to slow down CO2 pollution, that’s a problem.
But, again, the market working as it does, the Saudi strategy of discouraging the production of extreme oil should succeed, since the oil costs almost twice as much to produce as the current market price. Exxon and Chevron can’t make any money that way! For those of us concerned about the environmental impacts of fracking and other extreme means of oil production, and the risks of dumping all that previously unharvestable carbon into the atmosphere, keeping the oil in the ground is another good thing.
But at the same time as extreme oil becomes economically non-viable, financially marginal renewable energy sources like wind and solar may also become less viable. This could further delay the development of clean energy resources that we need now – or, arguably, that we needed decades ago.
So here’s the choice we are faced with: Will we, as a society, let low oil prices discourage conservation and the development of renewables, or will we gratefully accept the savings and lock them in by continuing to use less fuel?
A good thing or a problem? It’s up to us.
* Despite the resulting surge in production over the past 2 years, the US still only produces about half of what it consumes – in 2013, 10 M BPD vs 19 M BPD (BP Statistical Review of World Energy, June 2014). According to the US Census Bureau’s World population clock, the US has about 4.5% of world’s population, yet, per the BP Review, uses 20% of the world’s oil.