Thoughts on Low Oil Prices

We’ve seen a precipitous decline in the price of oil over the past several months. Market analysts and economists have been chiming in with their opinions on the effects. Here is ours based on our socially & environmentally responsible strategies…

First and foremost we see low oil prices as a tremendous threat to the environmentally unfriendly practice of fracking and even worse, tar sands. These forms of extraction are already on economic thin ice and low prices may push these companies into financial trouble. Several use low quality (and high interest) debt to fund their operations. An extended period of low oil prices may put them under.

In addition, it makes the Keystone XL pipeline basically moot. If it is economically unfeasible to produce tar sands oil, then the pipeline isn’t needed.

From our environmental perspective, this is all very good. The disaster we see in Alberta tar sands needs to be limited to what they have done so far – no more! Fracking may continue because of the natural gas uses, but again, an extended period of low oil prices will test the market. It may also give scientists more time to gain the evidence needed to limit it’s use.

Because global markets still, for the most part, run on fossil fuels, low oil prices are good for the economy. This may continue to be a driver for growth as transportation and raw material costs should go down. This may drive stock markets to even higher highs. Beware if prices rise, however, causing unexpected higher expenses for businesses.

A negative from our environmentally responsible perspective is that low oil prices may inhibit the growth of alternative fuel vehicles and energy production. Low gas prices makes the premium paid for electric and hybrid vehicles less palatable. Nevertheless, there is continued momentum in these markets, and we don’t see much of a slow-down.

We are especially happy to see that the price of alternative energy generation is basically at par with dirty fossil fuel generation as reported in the New York Times,

Overall, we are happy to see low oil prices, despite the potential negative effects on clean energy development. We view the low prices as the effect of global inter-industry competition (OPEC vs North America) resulting in the potential for an industry implosion. Only time will tell.