DECEMBER 2015 IN
RICK ASTER’S WORLD
Just eight years ago, it was starting to look like oil production had reached its peak. Spot oil prices over $120 a barrel got Americans to drive less for the only time in history and triggered a global recession. Prices were high because the oil that remained in the ground was getting harder and harder to reach, so that the cost of extraction for many new wells exceeded $60 a barrel.
Now for two years we’ve seen the reverse. Many of the more expensive oil projects are mothballed and the average cost of extraction is said to have fallen to about $21 a barrel, mainly reflecting technological advances of the past four years. Oil prices this month dipped below $40 a barrel, and though few believe prices can stay this low for long, there are also few predictions of prices rising above $60 any time soon. Newly wary of oil, the largest users have spent the past decade looking for ways to use less, and that’s a trend that will continue even as oil producers race to deliver more oil as fast as they can. It’s a combination that will keep oil prices low for at least another year.
If the high prices for oil were partly to blame in 2007 for worsening an economic slump that dated back to 2004, now it is low oil prices that are leading to predictions of a worldwide recession. Low oil prices have created ghost towns from the oil towns in the center of North American and have led to the cancellation of what was to be the continent’s largest pipeline project. Countries such as Venezuela and Saudi Arabia that depend on oil revenue have had to cut their spending. Meanwhile, businesses that could benefit from burning tons of cheap oil are rightly wary about making long-term plans that depend on the price of oil, so the low prices aren’t leading to such large increases in oil consumption.
Low oil prices may give the world time to adjust to a future in which energy is mostly not dug out of the ground, but it collected from the energy found in the world around us. High prices made that transition look problematic, but with solar cells reaching grid parity in half of the world and other advances cutting the costs of collecting and deploying energy, the idea of an energy transition on a global scale no longer looks out of reach.
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