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Page added on January 8, 2013
Will fracking lead to cheap oil for all? Not necessarily
FT Alphaville‘s Kate Mackenzie has an excerpt of a very interesting research note from energy consultant Phil Verleger. The bulk of the note is a look back at the apparent vindication of MIT economist Morris Adelman, who rejected the ideas of “peak oil” at the time when they were most fashionable. Adelman, Verleger writes, accurately surmised that technological advances would mean the total reserves are far less predictable than a narrative of rising prices and increasing scarcity would imply.
But Mackenzie picks out the surprising twist in Verleger’s note. While he, like so many others, points to the massive change wrought on the global energy market by the invention of fracking and other techniques for extracting unconventional reserves, he doesn’t see that as leading to a predictable fall in prices. While a glut of unconventional oil would be good enough to depress prices, it couldn’t simply replace the traditional OPEC countries. And the way they would deal with that squeeze could have strong repercussions:
Periods of low oil prices will undermine existing governments in nations such as Russia, Kuwait, Iraq, Algeria, Nigeria, Iran, United Arab Emirates, and Venezuela. These countries have not used oil revenues to diversify economies and build infrastructure for the post-petroleum future. Instead the monies have gone to fund larger and larger transfer (welfare) payments to mushrooming populations.
Adelman’s vindication will mean these nations must curtail such payments when they are forced to cut sales and production sharply or when prices fall. Political instability will increase as such times.
Supply and demand are complicated things. There’s a reason economists love the phrase ceteris paribus – “all else being equal” – and thats because most of the time, they aren’t. Fracking will introduce a downward pressure on prices, we know that. But the responses of the multifarious other producers and consumers to that pressure are chaotic and barely predictable. A simple prediction of a world of cheap oil might not be as safe a bet as it seems.
6 Comments on "Will fracking lead to cheap oil for all? Not necessarily"
bakkendispatch on Tue, 8th Jan 2013 7:12 pm
Well said. This is a point I keep making. Shale oil is a totally different ball game in terms of the expense and energy needed to extract the oil. Not to mention, there only so much out there that can be fracked. Shale formations like the Bakken are few and far between, and that’s still trying to break 1 million barrels per day.
Rick on Tue, 8th Jan 2013 9:07 pm
Kind of a weird article.
Also –> “These countries have not used oil revenues to diversify economies and build infrastructure for the post-petroleum future.” WTF, this also applies big time to the US.
And Fracking is just another bubble. It has and will continue to cause more pollution, more CO2 emissions, etc.
Fracking is also what Peak Oil looks like.
BillT on Wed, 9th Jan 2013 3:12 am
I think the debate is academic. I don’t see the system lasting long enough to use even a significant percentage of whatever oil sludge is left in the world. If the latest findings re: temperature change is anywhere near correct, we will soon be worrying about eating more than about driving. And we have passed the point where there is anything man can do to prevent our own extinction in the next few decades.
Can’t happen that fast you say? Why not? One massive solar flare from the sun can do it in a few seconds. Destroy the ozone layer, or the magnetic field around the earth and we are done.
Man has the power right now to take out all life on earth in a matter of hours. 20,000 nukes in storage and in weapons all over the globe. If man can do it, certainly nature can. Think about it…
Mike999 on Wed, 9th Jan 2013 1:05 pm
Free cancer and Neurotoxins.
And in Republican counties, sad.
Kenz300 on Wed, 9th Jan 2013 4:50 pm
Quote — “Periods of low oil prices will undermine existing governments in nations such as Russia, Kuwait, Iraq, Algeria, Nigeria, Iran, United Arab Emirates, and Venezuela. These countries have not used oil revenues to diversify economies and build infrastructure for the post-petroleum future. Instead the monies have gone to fund larger and larger transfer (welfare) payments to mushrooming populations.”
———————-
Maybe the endless rise of populations is not sustainable.
Jennifer on Wed, 16th Jan 2013 9:25 pm
I can definitely say that there is a lot of controversy about the idea of fracking and many people are not completely up to speed on all of the facts. Viral Technologies just conducted research over social media on the topic of unconventional oil in the United States. Interestingly, the vast majority of the online public was more concerned with water pollution than the economic impact or lack there of. Here is a link to the findings: http://bit.ly/V87gKY