Impacts of low oil prices

By Drs. Robert & Sonia Vogl
President and Vice President, Illinois Renewable Energy Association

This past Tuesday, crude oil prices were at $87.170 per barrel and falling. Gasoline prices in Illinois averaged $3.291 per gallon. Falling prices will make for happy motoring, but experience reveals prices can rise dramatically with supply disruptions.

According to a recent article by Ron Bousso and Joshua Schneyer in Reuters, Saudi Arabia is privately informing others they would be comfortable with a much lower price for oil for a year or two. Oil prices below $80 to $90 per barrel could slow investments in unconventional sources such as shale from North Dakota and Texas, tar sands from Canada, and deep ocean sources.

Saudi Arabia remains a low-cost, high-volume producer of conventional oil. In early October, the Saudis cut the price of oil to Asia to maintain their customer base.

For economist Jeff Rubin, oil prices are falling because the supply exceeds the rate of consumption. With global economic growth expected to remain weak, demand for oil is also weak. He suggests that oil prices could fall as low as $40 to $60 per barrel. He also notes that the price of coal has fallen to $70 per ton from $140 per ton in 2011.

OPEC (Organization of the Petroleum Exporting Countries) as a monopoly already violates market principles. Some observers consider the drop in oil prices as politically motivated. Lower prices will cut into oil revenues in Russia, Iran and Venezuela, damaging their economies and creating internal tensions. The internal pressures could produce changes advancing U.S. policy goals.

Low energy prices can also undercut political support for efficiency and renewable energy programs and investments, as well as benefit fossil fuel interests.

During the 1980s, Saudi Arabia stepped up oil production, forcing down the price of oil to $10 per barrel. There were reports that the increased production was in response to a request from the U.S. government. The low prices helped our economy, contributed to the breakup of the Soviet Union, and provided a rationale to cut government support for efficiency and renewable energy programs in the United States.

Solar efforts at the time focused on solar hot air and water systems and passive solar building designs. A classic example of how energy consumption could be dramatically reduced was the construction of the solar business district in Soldiers Grove, Wisconsin. Solar electrical systems were in the early stages of development and were too costly for widespread implementation.

To sustain the solar vision, Richard Perez of Home Power magazine suggested the creation of energy fairs for advocates to share ideas, interact with one another and encourage others to adopt the technologies. In contrast to the 1980s, the technologies have been widely adopted around the globe. They are performing well and benefiting from falling costs and continuous improvements. Major firms concerned about climate change and seeking to control their own energy supplies are investing in renewable energy and efficiency. Many of our energy needs and those of the world can be best met with renewable energy.

Efficiency and renewable energy sources allow consumers to escape the volatility of energy prices and gain a measure of energy independence and security. They are investments in our energy future.

Drs. Robert and Sonia Vogl are founders and officers of the Illinois Renewable Energy Association (IREA) and coordinate the annual Renewable Energy and Sustainable Lifestyle Fair. E-mail sonia@essex1.com.

From the Oct. 22-28, 2014, issue

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