The unexpected strength in traditional energy development this year is a reminder that, at this moment in this country, the use of fossil fuels is not receding into the distance to be replaced by renewables. No. In fact, fossil fuels are enjoying a considerable resurgence. The result is new twists and turns for U.S. companies and consumers.
Oil from the Bakken formation in North Dakota is significantly reducing the U.S.’s reliance on foreign oil. Combined with slower economic growth in China and the Saudis’ desire to protect market share even as prices fall, oil is now about $80 per 32-gallon barrel. It had been more than $100, and analysts say it could fall further to the mid-to-low $70s. That is a price that comes close to making expensive oil from hydraulic fracturing uneconomical.
Depending on which energy sources you embrace, that is positive or negative.
A surprising beneficiary with the Bakken discoveries have been the railroad companies, which are benefiting from the absence of pipelines out of the field. The oil companies also like the market flexibility, and thus better prices, that comes with varied railroad distribution rather than with fixed pipeline routes.
The downside of the increased railroad tank-car traffic has been the risk of accidents and fire in or near the multitude of towns and cities along the railroad routes. The Bakken oil is slightly more volatile than other oil, and most tanks’ cars are not as heavy duty as they ought to be.
For drivers, the lower price has brought down gasoline prices. Drivers in the U.S. on average are enjoying prices somewhat below $3.50, rather than closer to $4. That means consumers have more money for other spending, and Christmas is near.
In the meantime, Russia, which has a sluggish economy and depends on oil for a major portion of its revenue from exports, is feeling a financial crunch. Given how much of the world feels about the Russian incursion into Ukraine, that is just fine.
On yet another front, there have been federal prohibitions against selling U.S. oil overseas. Now, the largest oil companies have oil to sell, and they want the option of making sales overseas, where prices can be much higher. Small oil companies that operate refineries are opposed. They would have to pay more for oil and thus see their profits decline.
And, what does lower gasoline prices mean for the sales of increasingly fuel-efficient autos that U.S. and overseas engineers are developing? A short interruption, perhaps, but drivers everywhere are increasingly appreciative of the better gas mileage that comes with most new models. Even the full-sized pickup trucks, which are so profitable for Detroit, now get 20 to 25 miles to the gallon.
Perhaps there once were constants in energy development and availability, but not today. Increased fossil-fuel production, renewables, fuel efficiencies and countries with diverse economic and political agendas make for a changing energy world.
