Oil Has Long Been Uncompetitive

Oil WellBrad Plumer wrote a very interesting article over at Vox, Will Falling Oil Prices Kill the US Shale Boom? There has been a boom in shale oil because oil has been running at $100 per barrel. But now that it has dropped to $70 per barrel, at least some of it will stop being profitable. But there is huge disagreement about how much. For example, the International Energy Agency (IEA) estimates that only 4% of the shale production will become unprofitable with oil less than $80 per barrel. But according to Bernstein Research, one-third of the production will be unprofitable.

I don’t find the specifics of this all that interesting. What is interesting, however, is that the profit margins are so slim for these hydrocarbon extractions. That means that if even a small fraction of the externalities associated with fossil fuels were included in the price, the industry would be dead. For decades we’ve been told that solar energy is just not competitive. In fact, conservatives have whined about every subsidy associated with solar. That is what is really behind the conservative obsession with Solyndra. If the government had lost a half billion on a loan to an oil company, there would have been no uproar. But it was a solar panel company, so of course it was a waste of money.

In 2011 and 2012, Congress tried to get rid of the $2.4 billion per year in tax subsidies that go to the big five oil companies. It was defeated, of course. Because somehow in the conservative brain, oil is “natural.” What’s it’s really all about is that big business is what conservatives in both parties care most about. Solar is not yet a behemoth. And so in a kind of twisted logic that only the power elite can understand, we must subsidize established industries. It angers the god of the free market to help out fledgling industries. But as I’ve already noted, the fledgling industries would probably be just fine if only the power elite didn’t stack the deck against them.

Low gas prices are a bad thing regardless. They may make shale unprofitable. And they may put an end to the Keystone XL Pipeline. But they will also allow the world to continue on its merry way pumping more and more carbon into the atmosphere. Because gas is not cheap. There are many hidden costs and many more not so hidden costs. And they are coming due. But the same people who tell us that our minor federal budget deficit is destroying our children’s future, are mostly silent about the unpaid cost of changes to the climate system.

I would think that the leaders of a country would be the ones who made the hard decisions. They would be the ones who explained that there was a steep long-term cost of cheep prices at the pump. But it is just the opposite. The people are surprisingly mature on this issue. Before Fox News started propagandizing the issue, global warming was widely accepted in this country, even when the evidence for it was far less clear than it is now. It’s our leaders who prefer pretty lies and piles of cash to the harsh reality. Fifty years ago, we should have been taxing oil extra for the environmental damage it was causing. But we didn’t. And even today, we are subsidizing it. And “wise” people claim that some day solar might be “competitive.” But the only reason it wasn’t long ago is because of the special privileges that we bestow on the oil industry.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

2 thoughts on “Oil Has Long Been Uncompetitive

  1. I’m torn on the low gas prices. For one thing, we know they won’t last. For another, they do feed the beast of gas addiction (gas producers get really worried about America embracing alternate forms of transportation when prices soar too high.) And as you note gas prices should be much higher. Continental Europe isn’t as “green” as it is (big on investing in fossil fuels, big also on local renewable energy and good public transportation) because Europeans are nice. It was a combination of anti-nuclear movements way back when and how gas is more realistically priced there (about twice as expensive as our highest prices here.)

    On the other hand I have this fantasy where fluctuations in gas prices don’t just temporarily make Bakken shale or tar sands gas less profitable — the price instability gets it through the thick skulls of North Dakotans or Albertans that relying on resource extraction is a losing game for their communities in the long run. But then again price instability has put Texans through the Wringer Of Market Hell for almost 100 years and they still worship at oil’s throne.

    I guess in the recent election the town in Texas that more-or-less invented fracking banned it. Americans can be reached. Too little, too late, probably, but it can be done!

    • If we wanted to, we could properly price gas. As it is, gas taxes don’t even pay for the cost of road upkeep. But we shouldn’t lose sight of the fact that lower gas prices do really help the poor. But there are far better ways to do that. And given the Congress will currently do nothing (and when Democrats are totally in charge: little), that isn’t a small thing.

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