What low oil prices mean for the environment
Are low oil prices good or bad for the environment?
From one perspective, they’re bad: lower oil prices mean lower gas prices, which in turn encourage people to drive rather than use more environmentally friendly means of transportation.
But in the case of U.S. shale oil, lower prices are good for Mother Earth, if only temporarily. Oil prices have been falling steadily since June, and given OPEC’s recent decision not to curb production, it seems they’ll remain low for a while. As Myles Udland pointed out in Business Insider last week, a lot of shale projects have break-even prices beneath the $80-per-barrel price level, but producers become less and less incentivized to start new projects as prices fall.
As this Reuters graphic shows, shale drilling permits fell 15 percent across 12 major shale formations in October, a sign that shale producers are willing to slow their rapid expansion until they can get more bang for their buck. It comes down to opportunity cost. As Harold Hamm, an early shale pioneer who has lost $10 billion since August (let that sink in), told Bloomberg, “Nobody’s going to go out there and drill areas, exploration areas and other areas, at a loss. They’ll pull back and won’t drill it until the price recovers. That’s the way it ought to be.”
Many see OPEC’s refusal to curb output as a multi-billion-dollar game of chicken with U.S. shale producers, whose booming production can be credited with the recent fall in world oil prices. Early evidence shows that it may be working—for now; fuelfix.com reported yesterday that Texas shale permits were down 50 percent in November.
Ultimately, the case can be made that low oil prices are bad for the environment, as they encourage more oil use now, which makes investments in alternative energy less urgent. And the shale isn’t going anywhere–it’s just waiting there patiently for prices to become sufficient for new extraction projects.