This weekend, as I fueled up my ‘97 Honda Accord with gas at an astonishingly low $1.90 a gallon, I could not help but notice all the smiling faces around me at the pump. I’ve also noticed that public transit has gotten a lot less crowded over the past few weeks. I was able to snag my own table on the FrontRunner (quite the coveted commodity) every single day last week. Fewer people seem to be riding public transit because, for those who don’t have a student ID or a pre-paid UTA pass, driving has become cheaper than riding. While I can certainly recognize and appreciate the short-term benefits of low-priced petroleum, such as extra cash in my pocket and more spacious seating on the train, the looming long-term consequences of this recent trend are troublesome.
First, let’s examine why the price of oil has fallen so sharply. While there are many factors that influence oil prices, the current situation boils down to a decreased global demand and a surplus supply. Asian and European economies, which had been boosting the demand, and thus jacking up the price of oil for the past few years, have slowed down. Consumption in Europe has also decreased due to improved energy efficiency standards while the United States and Canada have upped domestic exploitation of shale and tar sands oil, respectively. Consequentially, both countries have been importing less crude oil, contributing to the shrinking global demand. When the demand drops, as it has, production usually dips in response, but Saudi Arabia has actually increased production, at drastically lower profit margins. They have done so because the lower prices hurt U.S., Russian and Middle-Eastern competitors far more than they hurt Saudi producers.
Geopolitics aside, this mad-dog race to the bottom of the proverbial oil barrel will only proliferate our climate change problems. The global “carbon budget” is the amount of carbon that can be burned before global warming exceeds 35.6° Fahrenheit, according to the Intergovernmental Panel on Climate Change, which is composed of the world’s top climate scientists. If we block our carbon budget we will surpass an irreversible natural tipping point that will drastically alter the climate — and thus life on Earth — as we know it.
If the environmental and climatic consequences were taken into consideration, the price of oil would be astronomically high. When petroleum prices were peaking in previous years, everyone seemed to recognize a need for alternative energy sources. However, rather than committing to the commercial development of sustainable energy sources, U.S. companies labored to extract and produce an even dirtier, more environmentally hazardous kind of oil in the form of shale. Rather than realizing the petroleum race is going to lead us straight off the climatic cliff, our nation’s top energy producers injected shale like it was a steroid and kept on running. Unfortunately, Saudi Arabia has a lot more in the tank than we do, and they will undoubtedly win this race if we keep playing by the petroleum-premised set of rules. In that case, we would all lose.
We had an opportunity to break free of this crazy competition when oil prices were sky high, and now that they are dismally or delightfully low, depending on how you look at it, we have another chance at becoming sustainably energy independent. The price of shale can’t compete with the current market price of oil. Sure, U.S. companies can keep fracking as they pray for a global petroleum price hike that will make shale competitive again, but is that really a smart business model?
A frack and a prayer might be enough to make a buck or two eventually, but it won’t provide us with the economic, energy and climatic stability that we so desperately desire. The profitability of renewables is, like shale, dependent on the current market price of oil, and so there is not much incentive for big energy producers to go green in this economy. However, if producers can look beyond this month, this year and even this decade, as I believe they should, then they will recognize that renewable energy is going to be the only viable, and ultimately the only profitable, form of energy in the future. Even if the planet doesn’t burn up before we run out of oil — though I am convinced that it will — the indisputable fact of the matter is that all oil wells will eventually run dry. The sooner that U.S. energy producers are able to make a break from the oppressive, anxiety-inducing volatility of OPEC’s tyrannical reign on oil, the more we will all profit in the long run.