Monday, December 1, 2014

The Truth is Stranger Than Fiction

What is one to make of the crash in crude oil prices? OPEC has just announced that they won't, or can't, reduce production to support the price of crude oil, that has recently been making multi-year lows.

This sounds like good news. Falling petroleum prices, gasoline prices below $3.00 a gallon, lower heating oil prices, are an unquestioned boon to beleaguered consumers. As the middle class remains under continuous assault by the never content with what they have one-percenters, it's great to get this break on energy prices.

The contraction in oil pricing also has geo-political benefits. Hostile governments that rely on oil exports will be less able to spread their policies of malevolent disruption. Specifically, Russia, Iran, the ostensibly friendly Gulf States like Saudi Arabia, Qatar, Kuwait,, and even the terrorists of ISIS rely on the proceeds of their oil exports to support their economies.

There is nothing mysterious about the cause of this change in the oil exporting landscape. That cause is increased U.S. oil production. Oil output in the U.S. is at the highest level in years, and the source of these new supplies is the fracking of vast shale deposits within the U.S.A.

It is astonishing that the U.S. have been able to reassert it's position as an important swing producer of oil. Why? Well, in the last few years, after years of relying on imported oil, Republicans have had as the center of their energy policy, a slogan. "Drill, Baby, Drill!" was the extent of their energy policy, and it was relentlessly attacked as an impossible notion. It was argued that there was simply no way that the U.S. could ever "drill" enough to change the county's energy profile in any meaningful way.

That doesn't jibe with what we are seeing now. OPEC has been rendered impotent, and price of oil worldwide has crashed as a result of the increase in U.S. production.

Now, given this set of circumstances, why the absence of gloating from the right wing? Hasn't the state of oil now, and the U.S. role played in the world now, proven the Republican case? Why are we not hearing this shouted from the mouths of all the Republicans at the loudest possible volume? Forget about the paranoid fantasies about Benghazi, this looks like a real, honest to goodness victory. The silence is baffling.

What's a liberal to do?

The flip side of all this good news is the reality that nothing is permanent. OPEC does have a strategy. They are willing to lose profits now, sink the price below the level that is profitable for U.S. drillers to make money, and then re-acquire market share as U.S. producers fall away as their operations become unprofitable.

That may or may not work, but there is another unwanted cost of low priced oil. Alternative energy, solar, wind and others, will suffer as oil becomes more affordable. Competitive pricing has always been a major problem for alternative energy, and progress in these areas will surely decline.

Then we have the 800 pound gorilla, climate change. As oil prices decline, more and more carbon will be released into the atmosphere. Given how many areas are succumbing to more and more violent weather as the average temperature of the planet continues to rise from the greenhouse gasses being released, moves to finally address the problem will become more and more difficult to fund and implement.

So, in the short term, the Republican victory of "Drill, Baby, Drill!" appears to be real. In the long term, it looks like it will be much more of a pyrrhic victory. It will be hard to take seriously the warnings of the same people about climate change, when they have been proven wrong about the ability of the U.S. to increase production of fossil fuels to address the county's energy needs. This same lack of credibility may also tar the very industries that we have to concentrate on in order to avoid the calamities that climate change will wreak. 

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