Yesterday, the price of crude oil dipped to below $20 a barrel. Good news for motorists — if, that is, they’ve got anywhere to go.
The Great Immobilisation of the global economy is one reason why oil prices have crashed. The other is the Saudi-Russian price war.
The consequences could be long-lasting — not least for America’s shale industry. US production of conventional oil peaked fifty years ago. But decades later came the shale revolution: novel techniques like directional drilling and hydraulic fractioning (fracking) which unlocked previously inaccessible deposits of oil and gas.
America became an energy exporter again. OPEC was weakened. Domestic industries thrived on cheap supplies and the US economy staged a strong recovery from the financial crisis. It wasn’t Trump that made America great again, it was shale.
But it’s all on a cliff-edge now. Super-low prices aren’t good for anyone’s oil industry, but the US shale sector is especially vulnerable. In the Financial Times, Derek Brower explains why:
Just to hold US shale production steady year after year, let alone increase it, requires ever more wells to be drilled.
To keep oil and gas flowing out, capital has to keep flowing in. With oil at $20 a barrel, and the money markets are scared witless, investment is bound to dry up.
Brower makes the point that the shale extractors have got through tough times before. The current crisis, however, is without precedent. If this heavily-indebted, capital-hungry industry topples over then so does America’s energy dependence — and a major driver of growth.
There’s a lesson to be learnt here about the resilience of renewable energy. While the wind and solar industries also need capital to get their stuff built, once it’s in place it keeps on producing year after year — because the wind and the sun, unlike oil and gas, is never exhausted. The capacity you build when capital is free-flowing is still there and producing energy in times of economic turmoil.
Though the wind doesn’t always blow and the sun doesn’t always shine, these are temporary and manageable variations. What’s more, in a world waking up to the fact that economic stability can’t be taken for granted, renewable energy offers the short supply chains, low operating costs and environmental sustainability on which true security depends.