The technological innovation of the shale industry has benefits for conventional oil too, and will save us all money
The continuing plunge in the price of oil from $115 a barrel in mid-2014 to $30 today is really, really good news. I know just about every economic commentator says otherwise, predicting bankruptcies, stock market crashes, deflation, political turmoil and a return to gas guzzling. But that is because they are mostly paid to see the world from the point of view of producers, not consumers. Yes, some plutocrats and autocrats won’t like it, but for the rest of us this is a big cut in the cost of living. Worldwide, the fall in the oil price since 2014 has transferred $2 trillion from oil producers to oil consumers.
Oil is the largest and most indispensable commodity on which society depends, the vital energy-amplifier of our everyday actions. The value of the oil produced every year exceeds the value of natural gas, coal, iron ore, wheat, copper and cotton combined. Without oil, every industry would collapse — agriculture first of all. Cutting the price of oil enables you to travel, eat and clothe yourself more cheaply, which leaves you more money to spend on something else, which gives somebody else a job supplying that need, and so on. Sure, the low oil price is partly a symptom of a weak global economy (and a mild winter), and yes, it has probably overshot so that many producers and explorers will go out of business, making some rebound in the oil price inevitable. Plus, it has utterly discredited the public-finance plans of the Scottish Nationalists who would be presiding over a cold version of Venezuela now if they had persuaded Scotland to vote for independence. But lower energy prices will boost living standards.
The shale revolution is the dominant reason for the fall. I know columnists are not supposed to say I told you so, but I did: “Oil prices look set to fall as America exploits a shale cornucopia,” I wrote here in 2013, when the price was persistently high: “Shale gas is old hat; the shale oil revolution is proving a world changer.” This was at a time when pessimistic predictions that we had reached “peak oil” were still widespread, and many thought oil prices would rise even further.
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