Will the new, low petroleum prices cut the legs off tar sands and oil shale?

Almost every American now sees that the price of oil has plummeted. Driving by a gas station makes seeing it easy. Gasoline is below $3 a gallon, often well below. In fact crude oil prices are down by 40% since June.

Crude price peaked in July 2008 at $145 a barrel. Then, the great recession set off a great oil price crash, briefly tanking as low as $35/barrel.  However, by 2011 the price had recovered. It often rose to over $100/barrel. The last time crude oil was over $100 was in July this year, but at the end of November 2014 it had fallen to just $66 a barrel.

Big changes in crude prices affect many economic matters, and also domestic politics, foreign policy, environmental policy, and wildlife. Exploration for crude oil and its production, transport, and refining affects wildlife habitat and habits, usually harmfully, despite commercials that show the local fauna gathered around the drill pad.

All energy production has effects that spill over and hurt wildlife. A coal strip mine often poisons the water. Natural gas development can fragment forests and grasslands with roads, pads, and pipes. Wind turbines kill birds and bats. Biofuel production such as corn ethanol leads to soil erosion, accelerated use of fertilizer, and, ironically, demand for coal or oil to harvest, extract, and refine. Changes in the oil price can promote or retard the use of these other sources of energy.

When the price of oil rises, this usually calls forth increased supply by exploration, development, production, and more refining. Falling prices lead to the opposite, and lower prices gradually increase the quantity used, and so emissions of pollutants. This includes greenhouse gases. It is common to suggest an environmental policy that increases the price of oil (and indeed all sources of energy) to its true cost. This means what the oil would cost if all negative spillovers were stopped and paid for — to “internalize oil’s external costs of production.”

A higher price for crude makes other sources and methods of energy relatively more attractive. Some of these are environmentally much worse. Specially, tar sands and oil shale are particularly obnoxious. High crude oil prices in recent years have made production from these sources economic feasible. The vast tar sand pits of Alberta, the refineries, and the pipelines that carry the substance produced (Syncrude) are often called that single most environmentally harmful project in the world because it destroys big chunks of the boreal forest, pollutes the big arctic-bound MacKenzie River, releases great amounts of greenhouse gas, calls for massive pipelines harming whole regions, and destroys wilderness and wildlife.

Oil shale is getting underway in the arid Western United States for the umpteenth time. It is still economically marginal. Prolonged lower prices could shut it down, and even shutter the tar sands. Their supporters worry. Should crude oil prices stay below $70/barrel, “expensive oil sands will not be sustainable and Canada’s largest oil sands producers will most likely cut spending.”

More afield from the effects of lower prices on other sources of energy, the big break in crude will redistribute national incomes between countries, and within them too. This is already affecting foreign policy and potential of conflict with Russia. Of course, the American economy remains sluggish, and lower energy prices increase wealth and stimulate aggregate demand. At this time restrictions on government spending and perhaps not even a budget coupled with excess saving by the superrich is leading to stagnation of demand, lower crude oil price is becoming one big new, though rare source of spending power for the masses.

 

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About The Author

Ralph Maughan

Dr. Ralph Maughan is professor emeritus of political science at Idaho State University with specialties in natural resource politics, public opinion, interest groups, political parties, voting and elections. Aside from academic publications, he is author or co-author of three hiking/backpacking guides.

15 Responses to Falling oil prices to benefit wildlife?

  1. avatar Joan says:

    Alberta’s dirty oil from the tar sands and the pipeline should be stopped in its tracks. The damage to all ecosystems is inevitable if this pipeline is built. Coming down through British Columbia’s sensitive Pacific Coast with its fauna and wildlife to the sea and then shipping to China via huge tankers with a possible leak is not something I could live with. As a Canadian and Quebecer I have been against this pipeline from the beginning so I laud your efforts in making everyone aware of the catastrophe that is bound to happen if the big oil companies have their way. There must be a better way to have energy, especially one that doesn’t pollute the atmosphere as this does.

    • avatar DLB says:

      You can’t help but to feel like oil patch production is here to stay when you visit Calgary.

      Calgary has turned into a beautiful, upscale city because of the tar sands. When I was up there for meetings a guy joked with me that Calgary is where the white collar people live, and Edmonton is where the contractors reside.

      You study companies like Suncor, Enbridge, Royal Dutch Shell, Cenovus, and Husky, and you realize how much money is buried in the tar sands.

  2. avatar Amre says:

    Its an interesting concept.

  3. avatar mikepost says:

    The drop in crude oil prices is driven by geopolitical issues of a relatively short term nature. OPEC is over producing with the hopes that they can squeeze out the new develpoments in North America and other areas where is is more expensive to operate and vastly more regulated. This will change and prices will go back up.

    As for the comments above…I would rather burn coal and pipe oil in the US where at least it is somewhat regulated and under the watchful eye of many then send it to China and wait for the jet stream to bring the resulting uncontrolled pollution over our heads…

  4. avatar WM says:

    While this current “oil is cheap-for now” scenario plays out, you can bet there are hundreds of economists on Wall St. and other stock/commodity markets, from investment bankers and hedge funds, trying to figure out when the next turn upward (steeply or gradually?) occurs. Oil stocks are bouncing like a rubber ball these last few weeks, as much as 5-10 percent swing in trading sessions.

    In addition, manufacturers throughout the US and the world are trying to figure what this means for their production cycles and long range planning. Car manufacturers are thinking do we have a window to make more big, high-profit gas guzzlers, or will we get stuck with inventory that won’t sell when the price goes back up? Airlines, whose largest operations costs consist of fuel are thinking, do we keep prices where they are? Airplane manufacturers are waiting for the shoe to drop on orders placed years ago, that might get cancelled or a delay delivery date. The State Department and the heavy breathers at the Pentagon are doing their own planning for political implications and Defense budget modifications (the military uses a huge amount of fuel). Will lower oil prices make their way into other consumer product pricing, where polar fleece, nylon cloth or shoe soles (made from petroleum) could drop in price by 10-15 percent, due lower materials, and the cost of transporting it to market, or will corporations pocket the cash for shareholders?

    I think the last thing on the minds of these folks trying to see around corners, and who actually make the decisions, is any effects on wildlife. Tar sands and oil shale development, with all their evils, may be delayed, but doubtful they won’t happen, unless there is a cost-effective alternative to the internal combustion engine, and other heavy use allocations. The Chinese and the Japanese will still be looking for oil rich partners in Russia or South America, which makes politics even more complicated.

    I would like to see long-haul trucking in the US put to a halt and rails in greater use for freight transport and hauling people. Obama had a plan for that, but whatever happened? Guess it won’t be revived any time soon….unless “cheap for now” isn’t anymore.

    • avatar WM says:

      And for those who think lower petroleum pricing is a tide that lifts all boats, the regular gas price here in Seattle (other than COSTCO or an ARCO station) at the majors is still at about $3.50/gallon.

    • avatar DLB says:

      WM,

      The gas is still is expensive at the high-brow Seattle pumps. Closer to $3.15 in most o the burbs.

      There won’t be much of a short term effect on oil patch/shale production because of cheaper oil. Huge investments in infrastructure have been made over the last handful of years and an extended reduction in price would be necessary, probably sub-$75/barrel, to curb production.

      In the short/medium term, I would expect to see production level off, or maybe decline slowly, and investment in new infrastructure to drop.

      If oil dropped below $60/barrel for a while, then all bets are off.

      • avatar Elk375 says:

        DLB

        There has been a huge investments in oil and gas leases in certain areas of the USA. Some North Dakota acreage was nearing $10,000 an acre. It is either drill and hold the lease “Held by Production” or lose the lease. Companies are going to drill, produce and hold valuable leases. Things are going to slow down but production will continue or the lease will cease to be held by production.

    • avatar Ralph Maughan says:

      WM,

      The price of crude will always rise again. As you indicate, low prices contain the seed of their future elimination because they serve to increase the quantity of crude demanded. This is classic supply and demand.

      My point is the falling oil prices might have environmental benefits, whereas it has always been argued so far as I know, that the opposite is true because low prices mean more oil consumption.

  5. avatar JB says:

    Heard a report on NPR tonight where the President was actually criticized for not raising the gas tax (to pay for a nearly-broke interstate highway system). The gas tax, of course, has little chance of going up, despite the fact that there would be some notable benefits (e.g., reducing pressure on exurban development, increasing incentives to live near work, buy more fuel efficient vehicles, etc.). The problem is, Republicans hate the gas tax because, for them, tax is a four letter word; and Democrats hate the tax because its regressive (has a greater impact on low-income people).

    • avatar Ralph Maughan says:

      JB,

      I am always amazed when people suggest the President do something that he has no authority to do — raise the federal gas tax.

      Than, of course, he is criticized, said to be a tyrant, for doing something that he has the authority to do on immigration.

  6. avatar don says:

    “Oil market analysts are debating if oil will fall to $50. In North Dakota, prices are already there.”

    http://www.bloomberg.com/news/2014-12-03/sub-50-oil-surfaces-in-north-dakota-as-regional-discounts-swell.html

    • avatar Ralph Maughan says:

      don,

      And so we see a major economic problem of reliance on a one industry economy — boom and bust, although this is something everyone probably knows.

      I imagine northwestern ND is very pockmarked by now. It certainly appears that way by perusing Google Earth.

  7. avatar don says:

    Ralph,

    Washington’s Ecology Dept. is drafting rules/regs for rail tankers passing through the state – with nearly a hundred going through Spokane from North Dakota everyday. These shipments were non-existent as recently as 2012. Should shale continue to slide, railroads and tankers will also take a hit.

    • avatar Louise Kane says:

      Don I hope they do draft tighter regs for shipping oil. The environmental cost of more development and transportation of crude oil is hard to assess because the potential for spills is great. If anyone thinks the livestock, gun trophy hunting, and farm industries are powerful the oil industries are giants. Unfortunately regulation is generally reactive, event driven and done posthumously.

      I was involved in drafting regs for the northeast after the North Cape Spill and for structuring hearings around the event. It was fascinating and frustrating. if anyone cares to read a paper I coauthored on the subject of spills and reform.

      http://mainelaw.maine.edu/academics/oclj/pdf/vol04_2/vol4_oclj_209.pdf

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‎"At some point we must draw a line across the ground of our home and our being, drive a spear into the land and say to the bulldozers, earthmovers, government and corporations, “thus far and no further.” If we do not, we shall later feel, instead of pride, the regret of Thoreau, that good but overly-bookish man, who wrote, near the end of his life, “If I repent of anything it is likely to be my good behaviour."

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