STRIKING A BALANCE: Oil Prices Low Enough to Slow Drilling, but Still High Enough to Spur Research

The conventional wisdom that lower oil prices are bad for the environment may not necessarily be the case. Although plummeting oil prices have contributed to a recent slowdown in fracking operations and drilling activities, research dollars continue to flow into the development of alternative energy sources. At the current $75 a barrel, some experts believe we may have struck the perfect balance between environmental and economic interests in the energy field.

The sweet spot appears to be within the $60-$80 range. Lower than that, environmentalists argue, consumption increases and there’s less of an incentive to develop cleaner alternatives to fossil fuels. Prices higher than $80 per barrel, on the other hand, drive research into the development of cleaner alternatives to fossil fuels. Higher profits per barrel also give oil companies less of a reason to explore environmentally sensitive oil fields. For example, in light of the global price slide, Norwegian oil giant Statoil shelved plans to develop a Canadian drilling project that would have produced 40,000 barrels of day of oil for years. The energy-intensive project would have been too expensive in light of current oil prices and construction costs.

The price of oil has fallen, in part, due to increased energy production in the US and elsewhere. Improved hydraulic fracturing and horizontal drilling techniques enabled US producers to access supplies trapped in shale-oil fields. These advances have unlocked large resources previously thought to be inaccessible. The world is no longer on the verge of running out of oil.

According to a report issued by the United States Energy Information Administration last week, US production reached 8.9 million barrels a day in October, the highest monthly level since March 1986. Domestic production will likely average 9 million barrels a day in December. The Energy Department predicted that the average price of gasoline would fall 13 percent next year, as would overall demand for gasoline, which is another trend that seems to defy conventional wisdom.

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