An Upside to Low Oil Prices?

While there is a clear downside to lower oil prices for renewable energy, there may also be a silver lining. Low oil prices are bad for renewable energy, but if they fall low enough they could decrease extraction of some of the dirtiest fossil fuels.

Declining oil prices are attributable to the fact that there is now more supply than demand. The low oil prices may be part of an effort by OPEC to leverage market forces that will slow extraction of tar sands oil in North America.

As oil prices decline extracting oil becomes less profitable. This particularly applies to dirty energy and resource intensive tar sands oil. By reducing margins it reduces the incentive for extraction. This applies downward pressure on the rush to exploit the Alberta tar sands and the Bakken shale in North Dakota.

To be profitable tar sands oil demands prices of between $60 and $100 per barrel. Goldman Sachs has predicted that oil prices will fall to around $70 per barrel in 2015. That is just ahead of the low end of the breakeven range. The current price of oil is around $80 per barrel.

At $70 a barrel this is below the break-even price for Bakken shale oil which is about $77 per barrel. The break-even point for Alberta’s tar sands are even lower at $63.50 per barrel.

Even if low oil prices manage to slow extraction of Bakken shale oil and the Alberta tar sands, it would still encourage more oil use and this will increase emissions. Cost cutting measures to maximize profit margins may
also eat away at emissions reductions efforts associated with the extraction
and refining of these dirty sources of energy.

Low oil prices will have a harmful impact on renewable energy as they will decrease investment and slow the growth of renewable energy.