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Page added on December 15, 2014
New era of cheap oil ‘will destroy green revolution’
Oil tumbled below $60 a barrel for the first time in more than five years yesterday – a fall of 44 per cent since June. It is forecast to fall further.
A new “era of cheap oil” would be good news for consumers and motorists – but analysts say the consequences for politics, industry and the climate could be even more radical.
The ripple effects could help the Conservatives to remain in power at next year’s general election by making voters feel richer as bills fall – while hurting Scotland’s oil-reliant economy and setting back its campaign for independence.
The falling prices could damage the North Sea and fledgling fracking industries and make it harder for the UK to hit its legally binding targets to cut carbon emissions. But the biggest threat posed by falling oil and gas prices – in the UK and globally – is to the renewable energy industry dominated by wind-, solar- and hydro-power, experts say.
“Renewable energy subsidies have been mostly sold to the public on the basis of the economic benefits,” said Peter Atherton, an energy analyst with Liberum Capital. “But the economic arguments hinged on the idea that fossil fuel prices would get more expensive, while expensive renewable subsidies would be able to come down over time. That’s looking doubtful now.”
Anne Robinson, director of consumer policy at the uSwitch price comparison website, said: “More subsidies are likely to be needed [for green power] as the gap between the cost of fossil fuel power and renewable power gets bigger.” The extra subsidies would be borne by households in the form of higher energy bills.
Anne Robinson, director of consumer policy at the uSwitch price comparison website, said: “More subsidies are likely to be needed [for green power] as the gap between the cost of fossil-fuel power and renewable power gets bigger.” The extra subsidies would be borne by households in the form of higher energy bills.
Green energy technologies such as solar and wind had been banking on sharp increases in fossil fuel prices to make them increasingly competitive and help to attract the huge amount of investment required to build renewable power plants. But that “economic case” is now in danger of being lost, with the environmental argument seen by many as being insufficient to drive through high levels of green energy investment.
The oil price has tumbled in recent months as soaring US production greatly increases supply at the same time as the global economic slowdown reduces demand.
Saudi Arabia is also playing a part by preventing the Opec group of key oil producers from propping up prices by reducing production – a move that reportedly aims to deprive Russia of much-needed income and to make it uncommercial to extract US oil reserves, which are largely contained in shale and expensive to release.
A consensus is growing that oil prices will remain low for at least the next couple of years. It is looking likely that the substantial jumps that had been forecast in the 2020s and 2030s will not materialise.
Petrol prices have fallen more than 8p to 123.1p, but as oil is priced in dollars UK drivers are yet to feel the full benefit The UK economy will benefit from cheap oil because the country is a significant net importer of oil and gas. Petrol prices are coming down, with Tesco reducing the price of petrol by a further 2p a litre yesterday, and a lid is being kept on household electricity bills. Meanwhile, a huge range of products and services are becoming cheaper as transport and energy costs fall.
“The oil price could give the economy a substantial boost, making the country materially better off. This could help the Tories get in at the next election because people will feel less concerned about the cost of living,” Mr Atherton said.
But in Scotland, the consequences of the falling oil price are far more profound. “If, as we expect, oil prices remain low for some time, it would be a blow to the economic arguments for independence and call into question the optimistic fiscal forecasts upon which the case for an independent Scotland was made,” said Maeve Johnston, a UK economist at Capital Economics.
The low oil and gas prices are hurting Scotland now because the North Sea is a key part of its economy and they will hit it in the future because, at these prices, it won’t be commercially viable to extract many of the remaining reserves as what is left is difficult to access, making it expensive to extract.
Former SNP leader Alex Salmond famously promised to make Scotland the “Saudi Arabia of renewables” and much of its economic future is based on developing a world-leading green power industry.
“An independent Scotland would suffer quite badly if the low oil price was sustained. There would be lower growth, lower tax revenues and a much worse structural deficit. It would bring the economics of independence into question,” said Professor Brian Ashcroft, of the University of Strathclyde business school. Scotland also hosts many of the renewable energy facilities threatened by the collapse in oil prices.
The falling price of fossil fuel may also damage the prospects for Britain’s fledgling shale industry as fracking is a relatively expensive way to extract hydrocarbons and it may not be economic to do so, warned Dr Rob Gross, director of the Centre of Energy and Technology at Imperial College, London.
Energy boost: Potential effects of falling prices
Petrol prices
The most obvious way that falling oil prices will affect households is through cheaper petrol costs. Tesco yesterday lopped 2p off a litre of petrol and 1p off diesel. This was the latest in a series of price cuts among petrol providers in recent weeks, which have collectively knocked about 10 per cent off the price, leaving the average price for a litre at a five-year low of 119.0p.
Flights
Falling fuel prices should push down the cost of air travel because it’s the airlines’ biggest expense. It’s also good for the airlines themselves, which have been struggling, with some going bust, because of high fuel prices. A good barometer is airline share prices – easyJet’s is up more than a fifth since the beginning of September. On the downside, any boom in air travel is bad for the environment because aircraft produce colossal volumes of greenhouse gases.
Household energy bills
In theory, utility bills should be coming down as the wholesale gas price tumbles. However, the Big Six are renowned for rapidly increasing prices when wholesale prices rise and bringing them down much more slowly when they fall. This case is no exception. The drops in fossil fuel prices have yet to result in any utility bill cuts – a development the providers blame on Labour for pledging to freeze bills if it gets elected, thereby reducing scope for the Big Six to increase prices again if wholesale costs rise. But at least the falling fossil fuel prices mean utility bills haven’t gone up.
Consumer prices
Falling fossil fuel prices will make a wide range of products and services cheaper as transport and energy costs reduce the cost of manufacturing and distributing them. This should feed through into higher consumer spending, which is good for the economy, not least because it will boost VAT receipts.
20 Comments on "New era of cheap oil ‘will destroy green revolution’"
Bandits on Mon, 15th Dec 2014 12:07 pm
“The Green Revolution” was always about extending the burn. It was never a means to an end. It was/is one of the greatest frauds ever to be inflicted on modern civilization.
No so called renewables including ethanol but excluding hydro were ever viable in an era of cheap and high EROI fossil fuels. They were/are vultures that came to scavenge on the body of the diminishing returns of BAU and fossil fuel addiction and dependence.
Without the support of high EROI fossil fuels they will fade into the sunset. They will be the monuments, viaducts and pyramids of human psychopathy.
Feemer on Mon, 15th Dec 2014 12:37 pm
Oil prices have less of an effect on renewable electricity. I’m sure ethanol and other biofuels are in trouble atm, but people are now realizing that investments in fossil fuels like shale are now in trouble and severely vulnerable to price declines, whereas things like wind energy are much less vulnerable to a drop in oil prices.
Bandits on Mon, 15th Dec 2014 12:55 pm
“Oil prices have less of an effect on renewable electricity” Nuclear, coal and gas are the competitors there. But wind goes the way of the dodo as soon as the FF supported grid capitulates.
Speculawyer on Mon, 15th Dec 2014 1:12 pm
Ridiculous. Almost no oil is used to generate electricity (except a small percentage in situations like islands). And almost no renewable energy is used for transportation (except a small number of people with EVs powered by renewables.) The two markets are very separate and only the ignorant don’t realize this.
Bandits on Mon, 15th Dec 2014 1:20 pm
Speculawyer I’m pretty sure you are the ignorant one, always have been. You need to read it for the first time and show where it claims oil is used to generate electricity.
Apneaman on Mon, 15th Dec 2014 1:31 pm
“The Green Revolution” and “The Shale Revolution” are two sides of the same coin and are not revolutions at all; just a few drunken steps, in the last dance, at the retirement party for industrial civilization.
MSN Fanboy on Mon, 15th Dec 2014 1:43 pm
So long as the music plays we continue to dance.
When that music stops playing…
1, Corny: The music never stops, the beat just gets louder and louder.
2, Doomer: WE ALL DIE… FROM EBOLA.
3, Realist: This music is shit, this dance is pointless. The music stops when the battery depletes its electrons so how can you say that you corny piece of shit. Fuck you. I’m going to sit down now and not fall down later, keep playing the game but take all of your gold when you die from the collapse as you break your neck.
Speculawyer on Mon, 15th Dec 2014 2:09 pm
Bandits, did you see the headline “New era of cheap oil ‘will destroy green revolution’”. As I pointed out, the two are in separate markets. Do you have a logical argument response to this? Or just petty insults?
Bandits on Mon, 15th Dec 2014 2:30 pm
Read the article not the headline.
Speculawyer on Mon, 15th Dec 2014 2:43 pm
Really? You can’t understand the thesis of the article? What do you think they are trying to say.
Here’s a loopy sentence from the article: “Petrol prices are coming down, with Tesco reducing the price of petrol by a further 2p a litre yesterday, and a lid is being kept on household electricity bills.” What does the price of petrol have to do with household electricity bills? NOTHING. Electricity is made from coal, natural gas, wind, hydro, and nuclear. Perhaps the UK has some oil-based electricity but if they do, that is a local UK issue. The USA gets less than 1% of electricity from oil.
Bandits on Mon, 15th Dec 2014 2:56 pm
I could explain it to you but I couldn’t understand it for you so you’ll have to remain in ignorant bliss. Maybe someone else will try.
tahoe1780 on Mon, 15th Dec 2014 3:10 pm
Isn’t diesel (oil) used to extract and process the ores, fabricate, install and maintain ALL electrical generating and transmission equipment – including hydro? Electricity is made from spinning metal rotors or collected from silicon – both entirely dependent on oil.
Davy on Mon, 15th Dec 2014 6:25 pm
Tahoe, that is very correct but the immediate direct causial relationship of oil and electricity is distant. Systematically the two are codependant but economically in the short term there is little relationship.
Makati1 on Mon, 15th Dec 2014 7:06 pm
Obviously some here are still drinking the ‘renewables’ cool aid provided by their pushers/salesmen. ALL nonrenewables require high NET energy to be possible thru their life cycle.
So you put a wind tower in place using diesel powered cranes and trucks that go to the site over asphalt roads and steel bridges from huge factories where materials and minerals from all over the world are gathered by train from ports where oil powered ships have docked from foreign countries where they were loaded from trucks from mines also powered by oil machines that were made in factories…
Do you get the point?
Actual renewables are a child of oil. They will only last until they need replaced then it is game over. And they will NEVER be more than a small percentage of our future energy supply.
Makati1 on Mon, 15th Dec 2014 7:07 pm
Ooops! Need another cup of coffee!
“nonrenewables require…” should read: “renewables require…”
jjhman on Mon, 15th Dec 2014 7:24 pm
Some time ago I thought that the embedded energy in an automobile must be comparible to the amount of energy consumed by the vehicle in its operating lifetime. That is simply not true. Fuel consumed in operation is an order of magnitude greater than the embedded energy used in vehicle construction.
Instead getting yourselves all tumescent with insults why don’t you go see if you can find some evidence one way or the other on windmills and photovoltaics?
Speculawyer on Mon, 15th Dec 2014 8:21 pm
jjhman, why would people do that? They have their preconceived narrative already and thus just work backwards to cherry-pick the data to support it.
jjhman on Mon, 15th Dec 2014 8:28 pm
I miss the old Oil Drum. There were more adults there.
Makati1 on Tue, 16th Dec 2014 3:13 am
jjhman, did you add in the oil products used in the 10+ year lifetime of that car? Lubricants, tires, break linings, oil filters, air filters, replacement parts, coolants, cleaning materials, etc.? And the roads they require to run on have to be factored in somewhere. Bridges? Tunnels? I think that the energy cost over the life of the vehicle fast approaches the amount of energy used for fuel. Parts wear out based on the miles driven and the maintenance performed.
BTW: A cubic yard of concrete, in place, equals one barrel of oil energy.
Kenz300 on Wed, 17th Dec 2014 10:52 am
The cost to develop and extract fossil fuels keeps rising making shale, tar sands and deep water drilling costly and unprofitable in a low oil price environment.
The price of wind and solar keeps dropping every year making them more and more competitive with fossil fuels and profitable. There are no monthly fuel bills to worry about. No fluctuating monthly fuel bills.
Finite fossil fuels are the past. Unlimited alternative energy sources are the future.
Climate Change is real…… it is time to acknowledge it and speed up the transition to safer and cleaner alternative energy sources.