Barrels image via barekim/flickr. Creative Commons 2.0 license.

Three things you shouldn’t miss this week

  1. Chart: Price chart for crude oil brent
Source: Nasdaq
  1. ArticlePrice fall hastens decline of ‘big oil’ as Western majors retreat – This year’s fall in energy prices is hastening the decline of big oil, as the seven Western majors sell-off assets, cut investment, return money to shareholders and shrink in size.
  1. ArticleFirst new British nuclear plant in decades wins EU funding fight – A British plan to guarantee the price of power from its first new nuclear project in decades won European Union backing in a landmark ruling on Wednesday that now faces legal challenges.

 

Oil prices plunged to a four year low of just $85 per barrel this week – down from around $115 as recently as mid-June. This comes after five years of sky-high prices for the global economy’s lubricant, with many experts predicting an imminent downturn. So does the plummeting price of oil signal an end to our resource worries and spell hope for the economic outlook? We think not.
 
Firstly, where has this sudden price collapse come from? The US shale revolution has certainly contributed to the falling price, adding around 3.5 million barrels/day of oil production since 2008, and surprisingly strong output from crisis-torn Libya has added to the recent glut. Crucially, more and more production is coming from “unconventional sources” – the ones that are so hard to get at that, until now, we haven’t bothered. But it’s not just surging supply that has the oil and stock markets spooked. Oil consumption is falling too: the International Energy Agency has slashed its 2015 oil demand forecast by 300,000 barrels/day.
 
But what does that mean for the economy? Bad news for the oil industry as this macro-driven fall in price comes at a time when production costs continue to rise. Essentially, the ‘easy’ oil is running out and replacing that production is getting ever more expensive. Analyst Steven Kopits reports that exploration and production costs have been rising at 11% a year since 1999, while the amount of oil produced for that extra spend has fallen.
 
A Bloomberg News analysis of 61 shale drillers early this year found that shale debt has almost doubled over the past four years while revenue has increased just 5.6 percent. The fossil fuel industry is doing its best to keep face, but it can’t outrun the problems of its business model. Now more than ever it is clear that a sustainable economy cannot rely on this outdated and indebted industry.
 
High oil prices threaten our economy; low prices threaten the oil industry. How much longer will we rely on this volatile industry that is not only destroying our environment but also destroying itself? The argument for kicking oil before it kicks us is stronger than ever.
 
Related Reports and Commentary
Energy Efficiency Market Report – International Energy Agency
Recognising Risk, Perpetuating Uncertainty – A baseline survey of climate disclosures by fossil fuel companies – Carbon Tracker