Tag Archives: Horizontal Drilling

Eight predictions for 2015

These are from The Federalist.

The list:

  1. The oil stimulus
  2. The EPA’s war on energy
  3. The Supreme Court gets another shot at ObamaCare
  4. Republicans will have just enough power to fight over it
  5. Will anyone challenge Hillary?
  6. A police rebellion
  7. Russia will be in trouble and will be trouble
  8. Did anybody tell the enemy the war is over?

Here’s the one I want to highlight, because it’s the one that concerns me most, at least until we get a Republican President:

7) Russia will be in trouble and will be trouble.

One of the most enjoyable consequences of the oil price collapse is seeing how it takes the wind out of the sails of a whole collection of evil regimes.

Oil is the dictators’ best friend. It is a steady source of revenue that can be maintained and controlled by the government, often with the help of foreign subcontractors, even when government controls, corruption, and cronyism have crushed the rest of the economy. So a collapse in the price of oil is a disaster for the bad guys.

Nobody is getting hit worse than the regime in Venezuela, which is now on the verge of defaulting on its debt. Since Venezuela has been a big economic sponsor of the regime in Cuba, you can see how a Venezuelan collapse will affect Cuba—and may well be the reason the Castros are seeking a lifeline from President Obama.

But the big geopolitical implications will come from the impact of the oil collapse on Russia. For years, the conventional wisdom has been that Europe is dependent on buying Russian oil and gas; now we’re about to see to what extent Russia is dependent on selling its oil and gas to Europe.

The downside is, as Megan McArdle puts it, “Russia’s Problems Are Everyone’s Problems.” “[T]he world is about to experience a major financial crisis in a country that seems to deal with its internal troubles by slicing off bits of neighboring countries.” Like its leader, Vladimir Putin, Russia is a country with a Napoleon complex: the smaller and weaker it gets, the more belligerent it becomes, as a form of overcompensation.

But shirtless macho posturing only gets you so far when you don’t have the cash to back it up. There is some speculation that a financial crisis could lead to defections in Russia’s “near abroad,” its ring of former Soviet republics and fellow kleptocracies. Then there’s the fact that Putin’s aggression has permanently alienated Ukraine, which is now taking steps toward joining NATO. Meanwhile, the Baltic states are increasing their defense budgets. One hopes that other European nations will follow, at a time when Russia is not in a position to match their spending.

I think Russia is weak enough that Putin would slink away with his tail between his legs, if we had an American leader with the guts to call his bluff. But that’s not going to happen, so in 2015, look for a volatile mix of greater belligerence and diminished capability.

When I hear about the collapse of the Russian currency, it makes me worry that we could a lot of scary scenarios as Putin tries to hold his state together.

Good news: Venezuelan President complains that fracking is “flooding” oil markets

Gas prices vs domestic oil production
Gas prices vs domestic oil production

(Click for larger image. Source)

Why are gas prices so low all of a sudden?

Well, let’s ask the communist President of Venezuela:

The broadcast networks may not want to give credit to hydraulic fracturing for increasing U.S. oil production and lowering global oil prices, but at least one angry world leader did just that.

Venezuelan President Nicolas Maduro complained that fracking in the U.S. has “flooded” the world market and contributed to lower oil prices, a connection that broadcast networks’ evening news reports barely made recently.

“The oil they’re taking from (shale deposits) and the gas. They’ve flooded the international market to batter the Russian economy …, Iran and to hurt us, Venezuela,” Maduro said in a broadcast on VTV, a state-run TV channel in Venezuela, according to Fox News Latino.

Fracking has been one cause of increased oil production in the U.S. That increased production helped lower oil prices by more than 30 percent since September 29. The decline in oil prices since June has severely impacted Venezuela, since oil exports were a major source of government income. “Some estimates put the break-even price for Venezuela to balance its budget at around $121 a barrel,” CNBC reported on December 7. That’s more than double current oil prices. Oil closed at $59.15-per-barrel on December 11.

As of January 2014, Venezuela’s state-run oil company brought in 96 percent of foreign earnings, according to The Economist. Maduro announced on December 2 that the government would cut spending by 20 percent.

[…]Venezuela was experiencing particular difficulties. That economy was on the verge of collapsing, CNBC said on Dec. 1. If low oil prices continued, Venezuela may face a “game over” situation and “barbarity and people looting.”

Do you know who else is hurt by this? Russia. I sure hope they don’t do anything aggressive to their neighbors while their economy feels the pinch of lower gas prices.

It’s a good thing when villains shake their fists at us, but it’s a better thing when consumers pay less for gas:

Thanks in part to the widespread use of technologies like hydraulic fracturing and horizontal drilling, global oil prices plummeted in 2014. Energy experts even predicted the U.S. could be the top oil producer in the next several years.

[…]Fracking and other advanced technologies helped the U.S. nearly double its average daily output of oil, from 5 million barrels in 2008 to an expected 9.42 million barrels in 2015. The huge supply increase was one factor sending crude oil prices down. Crude fell by more than 32 percent, from $93 to $63 just since Sept. 29. This already drove gas prices down to a national average of $2.66 for regular on Dec. 9, according to AAA.

This is great news for consumers and businesses which could save as much as $1.3 trillion worldwide because of lower oil prices, according to Julian Jessop, chief global economist at Capital Economics in London. Here in the U.S., Americans could save $230 billion if prices remain low for the next year, The Washington Post said on Dec. 1.

The only bad side to this story is that fracking is an expensive way of drilling, so as the price of oil drops, energy companies will be scaling back fracking until it becomes profitable again.

I think this story is important, because it helps to explain what the people who oppose the Keystone XL pipeline are concerned about. They know that there are two results to allowing that pipeline to be built. First, a hell of a lot of jobs will be created, reducing dependency on government. Second, the price of gas at the pump will go down further. That’s what the environmentalists (and their Democrat allies in Washington) are seeking to avoid. They want more government dependency, and higher gas prices.