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Wednesday, January 21, 2015

Cheering for Big Oil and fracking?

Annie Flanagan Horsehead Pump animated GIFBy this time next week, the average price of a gallon of gas in the United States will fall below $2. People are practically celebrating in the streets because America is a nation of personal transportation. That means gassing up the family car is a significant part of our monthly budget, especially in a time of stagnant wages.

Right now, the price of oil is plummeting for the very simple reason that the market is over-saturated. The supply is greater than the demand. It’s Economics 101 and it’s not an accident. Saudi Arabia is waging economic war on America and, win or lose, prices will go back up. Enjoy that cheap gas while you can, it’s not going to last long:

The Saudis are facing an unexpected new challenge to their primacy in the empire of oil. North America, which had once been their best customer, is quickly becoming their most potent competitor. Hydraulic fracturing, the controversial and ecologically dubious extraction process more commonly known as “fracking,” has opened up vast new reserves of oil in Alberta, North Dakota and other areas. The production potential is so great that the United States, rather than being an oil importer reliant on suppliers in the troubled regions of the Middle East, could soon be a major exporter. The energy independence for which a generation of politicians have clamored is at hand.
Except for one thing. Fracking is not cheap and the Saudis know it.
Here’s the deal: We’ve known how to get at shale oil for a very long time but it wasn’t worth the effort. It’s difficult and, as already stated, expensive.

But when oil prices flew over $100 a barrel, it became more than worth it to tap that hard to reach crude. American oil production skyrocketed, not because of any Republican or Democratic policies, but because the oil companies were able to make a profit.

But that only works if the price of oil stays high. From its all-time high of $143.72 per barrel in June of 2008, the price has plummeted to $46.97. Fracking isn’t quite so profitable anymore. In fact, a number of fracking sites are closing down and jobs are disappearing in oil rich states like Texas.

Now, the upside to this is that countries like Iran and Russia are going to suffer greatly, thus curtailing their more anti-social tendencies. It’s hard to be a regional power when your economy is collapsing.

The downside is that solar and wind, which were making huge strides in a world of overpriced gas, is going to stumble and maybe even falter. Momentum will keep the green energy industry going for a while but if the oil wars go on for too long, green tech won’t be as viable as it was. Momentum, once lost, is a bitch to get going again.

The other downside is that the price war will become a serious drag on the economy of American oil states. This is more of a good news/bad news thing since oil is only a small part of our overall economy.

Unless you’re Texas. Texas is pretty much screwed. Remember how Republicans kept bragging about “The Texas Miracle”? Well, that miracle was funded almost exclusively by the oil boom. Texas, like so many Middle Eastern dictatorships, relies mostly on oil and does little investing in other industries. High oil prices go bye-bye and the Texas Miracle becomes a Texas nightmare.

Fortunately, unlike California, a faltering Texas won’t become a serious drag on the overall US economy and there will be much schadenfreude from liberals sick of hearing how cutting taxes for the rich and screwing the poor was magically working in Texas. Is it too much to hope that they’ll learn an important lesson and diversify their economy by investing in education and good jobs? I can dream, right?

It’s tempting to get mad at the Saudis but let’s be honest, they’re literally fighting for their economic lives. And their actual lives, for that matter. Without their oil money to prop up their mercenary army and pay off the local religious fanatics, the Saudi royal family will be ousted pretty damn quickly.

Personally, I hope the American oil companies win. According to the LA Times article, they’re prepared to slug it out for the long haul unlike in the 80s when Saudi Arabia and OPEC kicked our asses.

It’s not that I want high gas prices again but if we can break the Middle East’s stranglehold on us, we won’t have any reason to keep getting involved with their murderous dictators and genocidal thugs and spend trillions on fighting there just because we need their oil.

Between that and the ability for the green energy industry to stay competitive, I’ll put up with fracking here at home until we outgrow the need for fossil fuel completely.

Good lord, I’m actually cheering for Big Oil and fracking. I wouldn’t have thought that was possible. Ah, screw it…Go home team!