Peakéd Oil

by wjw on October 7, 2015

I’m currently paying $2.09 per gallon of gasoline, which is the lowest I’ve paid in a very, very long time— and which may, if you adjust for inflation, be the lowest gasoline price ever.

Ten years ago, people were saying that we’d met, or even passed, Peak Oil, wherein the supply was just going to go down and down, and the price up and up.  But now new technologies, including fracking, have resulted in a gusher of new oil spraying onto the market.  The result is energy prices falling off a cliff.

So . . . yay?

Well, there’s no cheering if you’re an oil producer.  If you happen to own a piece of the oil business— a piece of land with an oil lease somewhere, or a supply company, or some other energy-related business, you probably started getting mail over the summer from some branch of the energy industry urging you to tell your senator to vote against the Iran nuclear treaty.

Not because they were afraid of nuclear war in the Mideast, or the ayatollahs gaining more influence, but because they were afraid of an extra million barrels of Iranian crude getting dumped on the market every day, causing the price to decline even further.


Well no, it’s not the end of America.  Just maybe the lush life led by some oil company execs.   And of course jobs held by a lot of ordinary oil company employees.

The rest of the economy will benefit just fine from cheaper energy prices.  And if it does, then those laid-off oil workers will find jobs elsewhere.

And meanwhile the oil industry will have to just make do with the twenty-odd billion dollars in subsidies and tax breaks given to them by grateful American taxpayers.

(And the Iran treaty?  The Senate Republican leadership arranged a vote on it, and then arranged that they’d lose.  Which tells me they think the treaty is okay, they just can’t admit to agreeing with Obama on anything lest their base melt down.)

Maybe the oil companies are right to panic.  After all, they have before them the collapse of Big Coal.  Due to a coal glut and diminishing demand from China and elsewhere, the Big Three American coal companies have seen their capitalization drop from $35 billion (in 2011) to $350 million.  99% gone!  And all in just the last few years.

(They blame Obama’s “War on Coal,” by the way, not declining demand or their own spendthrift ways.  While the administration’s tightening of admission standards has had some effect, the big losses were due to colossal price drops in metallurgical coal, which isn’t used in the power plants that Obama is trying to regulate.)

And the next crash?  Watch for natural gas prices to drop off a cliff.

In the meantime, the cost of wind-generated electricity has dropped by 30%, and there are now more Americans employed by solar power companies than are digging for coal.  Through advances in technology, new economies of scale, and innovative ownership structures (like leasing), renewable energy is stealthily positioning itself to grab a bigger slice of the market.  ($3500 for a Tesla Powerwall.  Which would pay for itself in less than two years.  And though the solar panels themselves would go for $10-20,000 on top of that, there’s a 30% rebate from America’s grateful taxpayers.)

So what’s a world like with Big Energy diminished?  A less influential Saudi Arabia, a less solvent Iran, a worsening Venezuela, a declining Nigeria?  Fewer dollars to buy political influence?  (Not that it costs much to buy a politician, but there are a lot of them.  And the buying in the States is concentrated on one party— over 90% of Big Coal’s political donations go to Republicans.)

Less money for climate-change deniers!  Less incentive to go to war over oil!

And it’ll be much cheaper to run Hummers and big SUVs!  ( . . . yay?)

So what other elements will we find in this Brave New World?  Who wins?  Who loses?  And what populations turn into refugees?

Brian October 7, 2015 at 8:59 am

Typo- “tightening of admission standards” should be “emission standards.”

Brian October 7, 2015 at 9:03 am

With oil prices this low, the industry has stopped exploration activities and may even stop production in some fields where it’s just too expensive to pump the oil out of the ground. Saudi Arabia has the cheapest cost of production (no need for enhanced recovery techniques) so production will shift away from the US and ocean sites to Saudi Arabia as long as prices stay down.

Geoff October 7, 2015 at 9:09 am

Can you give me a citation for that solar energy/coal miner statistic? I’d like to use it in my class.

TRX October 7, 2015 at 11:03 am

In the short term, staying warm this winter might not hurt as much as last winter.

In the longer term, the price of almost everything depends on coal, oil, or natural gas, either for production energy for for feedstock.

PhilRM October 7, 2015 at 11:39 am

And what populations turn into refugees?

wjw October 7, 2015 at 11:58 pm

Geoff, here’s a cite for you:

The price of energy will, of course, go up eventually: coal and petroleum are a finite resource. So a lot depends on what we do during the period when energy becomes more affordable.

Last time the price dropped, the world spent more on big SUVs and Hummers. Maybe this time, we can make some more rational choices about what to do with the savings.

Geoff October 10, 2015 at 11:06 am

Thanks! In the good indicator department, here’s an essay looking at the similarities between big tobacco circa 1965 and big oil today:

Beginning to hear a mumbling of a “climate change tipping point” in terms of public opinion, not ecological disaster.

DensityDuck October 12, 2015 at 12:05 am

So American oil producers are going out of business, while the ones in Saudi Arabia–which are exactly the kind of human toilet paper you imagine everyone who has money to be–are doing just fine.

And you’re happy about this. You like this, you want this, you cheer for this to happen and smile when it does. Because you, apparently, *want* a world where the richest people are the ones who believe that women should not be allowed to show their faces in public lest they tempt a man to rape them.

DensityDuck October 12, 2015 at 12:07 am

I mean, this is like a communist being happy that Wal-Mart put the local hardware and grocery stores out of business because, hey, that’s two fewer capitalist money-sucking slimepits in the world right?

wjw October 12, 2015 at 11:52 pm

DD, apparently you didn’t read to the point where I pointed out that this means Saudi, Iran, Venezuela, and Russia lose as well. The glut isn’t just in the States, it’s worldwide.

And the effects will be worse in countries where the chief export is petroleum, places like Russia and Saudi. The U.S. doesn’t depend on oil exports for survival, but they do.

Russia’s in particularly bad shape. Putin’s just confiscated his citizens’ pension contributions for the third year in a row, all to support his foreign adventures. Which has to be trying the people’s patience.

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