This is a basic challenge to our attempts to get off fossil fuels. The only way for alternative energy sources to be viable is if they are cheaper than fossil fuel. But since fossil fuel supply outstrips demand, and prices have been set since the 1970s by cartel rather than market forces, there's always been the potential for the cartel to simply drop prices through the floor if they felt it would advance their interests.
That time is here.
But as Ghandi said, first they ignore you, then they laugh at you, then they fight you, then you win. They've gone from laughing at alternative energy to fighting it.
It's very rare that any country's government consists entirely of people acting in concert, so it seems strange to make a sweeping statement like that. Besides that, there are also real costs to environmental devastation.
Let's say government A implements a carbon tax that increases fossil fuel costs by 25%. Government B chooses not to do so. So energy, the driver of the economy, is 25% cheaper for government B, giving them a competitive advantage.
Now government A will be under massive internal pressure to abolish the carbon tax, because they're losing market share to the cheap energy of government B.
That's why it won't work. Externalized costs are a problem, but they're not a problem we're going to do anything about in a serious way.
The same could be said for international regulations on, say, fishery. We nevertheless have a system in place that, while flawed, is considerably better than just throwing our hands up.
Good point, but it's a little different. It works well for fish with well-defined fisheries in territorial waters, but it doesn't work for open ocean species. Bluefin tuna in particular is an example. They often cross oceans to get to breeding grounds, and that water is totally unregulated. It can be fished without regulation or reprisal.
This is an absurdly oversimplified scenario that in no way accounts for the broad set of options available to governments faced with other governments operating like this.
Let's just say your "Screw it, why bother?" approach is pretty far down the list.
Reality vs theory - "Screw it, why bother?" is the real-world top result. Do you see a concerted international effort to regulate away our dependence on fossil fuels? Because right now, the only concerted international effort I see is OPEC dumping oil on the market to underprice new competitors out of existence.
The "options" of which you speak are mostly what wealthy industrial nations impose on poor and underdeveloped countries. International politics and economics is a seriously hardball game. Sure, it could be better, but it won't be.
"Lack of political will" ignores the complexity of the situation, when actors are motivated to cheat or exclude themselves from consensus. It's not a far cry from saying we lack the political will to end all wars.
I'm an engineer. Rather than complaining about what I wish I could do if I only had the resources, I think about what I can do with the resources that I have. In the case of something like fossil fuel, I think about how to create a less expensive alternative. Truly cheap wind/solar would put oil out of business by default.
This is also why I idolize Elon Musk. Rather than complaining about the lack of political will on the part of governments to get humanity off Earth permanently and stop using fossil fuel altogether, he created SpaceX and Tesla, and is making it profitable to solve humanity's deepest problems.
Government A will more likely see their market operate in a rational way rather than irrational way.
The rational way for its market to respond will be to shift to non-carbon forms of energy generation (which are already pretty much cost competitive without subsidies anyhow).
The irrational way would simply be to stop producing and exporting goods because coal is more expensive.
The problem with that line of thought is that it's not going to be cheaper overnight. All the while Government A is plugging along on renewables, driving the price down, Government B is going to be eating Government A's lunch.
If the problem (CO2 pollution) is considered serious enough by multiple governments, Government A can join forces with Government C, D, and E and form a trade agreement against B. They can create a trade embargo against B, or have higher customs tax for products from Government B or other kinds of trade sanctions.
Isn't this just international politics 101? EU and US have trade sanctions against Russia at the moment. UN had embargo against South Africa during the apartheid. Environmental issues are no different.
Let's use a real-world example: China. How likely is that to work out? Now well. China gets cheaper oil, can't be easily coerced by force, and there is a large level of dependence.
First, if it works against Russia, it can work against China. It's just harder. Level of dependence between many EU countries and Russian energy sources are comparable to US trade with China.
Second, there's a false assumption in your real-world example that China doesn't want to protect their environment. If the danger is real and serious, they will. Currently they are just playing catch up with economic activity and living standards and at some point the environmental issues will become to focus. There is already raising environmental awareness in Chinese cities due to pollution.
>The problem with that line of thought is that it's not going to be cheaper overnight.
Absolutely wrong. Renewables are pretty much cost competitive without subsidies now. What you are saying may have been true 5 or 10 years ago but is not any longer.
A tax on carbon would just be a nudge over an already existing tipping point. It would turn a cost/benefit analysis that could go either way into a no brainer. That's what we want.
But this can be (and is) manipulated by government policy and social dynamics. The externalities of the fossil fuel energy binge are becoming increasingly impossible to ignore, which is depressing demand.
Do you think Africa, China, India all think like that? Most of whom are living on or below the poverty line? They'll be driving old put-puts and crappy desel trucks, tractors and cars for tens of years to come. How long before second/third hand electric cars are being exported in tens or hundreds of thousands to these countries? 50 years?
No one I know drives a NEW car, and I live in the UK. We all wait for 2nd/3rd hand cars to get to us.
Well India has very large kerosene subsidies for the poor, which they are managing to cut because prices have fallen. Replacing these with solar subsidies would make a huge difference, and cut fossil fuel use. And e-rickshaws took off quite fast.
The UK had new car sales of almost 2.5 million last year, ridiculously high, the highest in Europe, thats almost 10% of households bought a new car/
10% of households bought a new car, and that means that the average lifespan of a car with its FIRST owner must be on average 10 years. Cars might last 20-30 years in the UK as the previous poster pointed out, and longer in the rest of Europe which is already "rich" relative to India. I think you're proving his point exactly.
> 10% of households bought a new car, and that means that the average lifespan of a car with its FIRST owner must be on average 10 years.
Maybe I need more coffee, but wouldn't that only be true if every household only bought new cars?
In any case, we don't have to guess these things. Simple search found that in 2011 the mean car age on UK roads was 7.44 years. Even accounting for the long tail, that's actually pretty good.
Yes. Dirt cheap (new) solar panels have been sprouting all over Africa, India and China in the last couple of years. It's quite a sight to behold, sometimes.
These panels became such a 'threat' that Obama slapped tariffs on them.
I think you're being a bit pessimistic. People in third world countries love status symbols and want to do their part too. In the eighties, when Datsuns were all the rage in Pakistan, my grandfather was one of the very few to track down an imported used Australian Ford Laser sedan, which was surprisingly cheap (probably smuggled through Dubai).
Until recently, Pakistan had one of the highest adoption rates in the world of CNG in cars as an alternative to petrol, you could just flip a switch when you were cruising on a flat. We modified our Laser (may it rest in peace) accordingly.
The problem is that the market price of oil an coal don't reflect the long term costs of their use.
Renewable energy has all of its costs right up front. Fossil fuels have major deferred costs which allow the market to act without concern for the consequences.
Which is yet another reason that the market is dumb and should not be trusted with important decisions.
Another way to look at it is that the market is smart, but like any other information processing system, can only make the right decisions if given the right inputs. For the market to make the right decisions about energy policy, the real costs of oil and coal need to be priced in, by applying pollution taxes.
It can be fixed by highlighting politicians' use of the oil industry's money to fund their campaigns and calling them rude names when they do it (and equally, by saying nice things about politicians who don't...).
If it becomes politically unpalatable they will stop taking oil industry money. If the oil industry loses its seat at the policy table they will lose power, followed by money, followed by influence. It's a vicious (or virtuous) circle, depending upon how you look at it.
I don't think the article is saying that we should. In fact, it's talking about Saudi Arabia's efforts to move on themselves. They apparently even created a University with guards so that students and professors can exist w/o the typical religious expectations of their society.
Agreed. We don't and shouldn't follow. We should continue with developing currently existing and new technologies to loosen the worlds dependency on oil.
While also figuring out how to make fossil fuel safer for the environment.
Don't get me wrong, solar/wind and especially nuclear are great, but it's gonna be a loooong time before we're completely rid of gas, coal and oil.
There's so much of it and they're all so energy-dense and/or cheap that humans are gonna use them either until our planet turns into Venus or we figure out ways to reduce/eliminate those emissions. I'd prefer the latter.
Another thing people seem to forget is that plastic requires oil. It's relatively easy to move from gas to electric cars, I don't know of an alternative for plastic production however.
For at least "important" uses of plastic you can make it from plants. I haven't looked to see how the volume of plastic consumed compares to, say, the corn crop though.
The chemical industry requires oil and gas as both a raw material and a source of industrial heat. The fossil-derived industrial heat may be replaced by electricity produced from various sources, including nuclear. Secondly, if electricity becomes relatively abundant, that could create an economy completely independent on fossil fuel, since you can convert just about any generic organic matter (and ultimately from CO2 and water) into chemical products.
Haven't we been moving away from oil for at least 40 years, since the U.S. oil crisis in the 1970's? Carter put solar energy in the White House. Are we on the 100 plan to move away from oil?
Not quite. Carter's White House solar panels were thermal.
“a generation from now, this solar heater can either be a curiosity, a museum piece, an example of a road not taken, or it can be a small part of one of the greatest and most exciting adventures ever undertaken by the American people; harnessing the power of the Sun to enrich our lives as we move away from our crippling dependence on foreign oil.”
During Reagan's administration, the panels were moved to Unity College in Maine where they heated water on the campus.
I think we're running into the weeds. The point is that we've been trying to move off oil for 40 years. At this rate it's going to be a very long time before the job is done.
In fact, we might run out of oil before we actually replace it.
In the 70's and early 80's economical small Japanese cars were bought in droves. Replacing the giant US gas gusslers of the 60's and 70's.
90's, 2000's oil got cheap again (or was in supply at least) and what was the hottest car model?, gigantic gas gussling SUV's?
We move away from high prices. That is all.
And what the government has been moving away from since the 70's is dependence on foreign oil. A small part of which is renewables and efficiency. But larger part has been domestic production nukes and natural gas (which US has lots of).
No, consumption fell in the 1970s and 1980s, but rose again after that, until the 2008 crisis, when it did fall again. But it is higher than the time of the oil shock.
I think you missed the rhetorical question. The world has been trying to move away from fossil fuels since at least the 1970's. We've spent billions (trillions?) on research, tax credits, ethanol in gas, etc and it seems like we've barely moved the needle. WTF?
It's interesting to read about a new super efficient solar cell on HN every few months, but at some point shouldn't we try to figure out what'll it really take to solve our energy problem?
We don't have to go along with this plan. We could raise taxes on oil and drive SA into the ground. The world would be a better place without oil being part of our energy production.
This would also raise prices on gas and petroleum products (such as lubricants, cosmetics, plastics) on Americans which probably isn't a good idea given the current state of affairs for the low and middle classes.
Some people do try to move away where practical. But if you really look at everything you do in a day, petroleum products are everywhere. Even if you take electric-powered transportation (or walk/bike), and run your own solar panels for electricity, and grow all your own food using hand tools... you still probably use plastic somewhere in your life.
But plastic isn't really a big deal when it comes to petroleum consumption. There was an amusing quote I read some time ago, in which the author hypothesized that in hundreds of years, people will be shocked that we as a civilization just lit petroleum (or distillates) on fire, or blew it up in engines, given how incredibly useful it is for things like plastics.
That's just as bad as oil, and in some cases worse.
This type of manufacturing process requires tremendous inputs of energy, particularly the forging of materials like steel, aluminum, glass and plastic. Interestingly, lightweight vehicles can sometimes be more energy-intensive to build than heavier cars because lighter metals like aluminum are harder to forge than stainless steel [source: Moon]. Experts estimate that 10 to 20 percent of a vehicle's total lifetime greenhouse gas emissions are released during the manufacturing stage alone
Unfortunately, both nickel-hydride batteries and the newer lithium-ion batteries rely on the mining of nickel, copper and so-called rare earth metals. The production of lithium-ion batteries account for 2 to 5 percent of total lifetime hybrid emissions and nickel-hydride batteries are responsible for higher sulfur oxide emissions, roughly 22 pounds (10 kilograms) per hybrid compared with 2.2 pounds (about 1 kilogram) for a conventional vehicle [sources: Samaras and Burnham et al].
It's only just as bad as oil, and in some cases worse, if you charge the batteries with electricity produced from coal. Stop doing that (or just don't start; most places get a majority of their electricity from non-coal sources) and you're doing way better.
This idea that battery production is more environmentally harmful than burning gasoline is largely a myth pushed by people who are politically opposed to alternative fuels. See also the infamous (and infamously wrong) article from a few years back claiming that a Hummer is less environmentally harmful over its lifetime than a Prius.
One relevant consideration is that e.g. aluminum manufacturing, while energy-intensive, is also renewable-friendly. That is, suppose you have a gigawatt of solar panels. You can't use them for lighting at night without also supplying storage. But aluminum smelting can just run when the sun shines, and can be located wherever the sun is most available. Or put another way, aluminum is a good form in which to store renewable energy.
"Demand destruction" is nonsense. There will always be demand for hydrocarbons. Oil and its distillates remain the only viable means of fueling most motor vehicles, Tesla's hype machine notwithstanding. Even if you could somehow find the trillions of dollars needed to electrify every railway in the world and the tens of trillions more to build enough lithium batteries to replace every auto on the world's roads with an electric one (assuming you didn't use that lithium for grid-tied residential storage instead), you would still have shipping, industrial processes, home heating, forklifts, barbecues, remote residential, mining, and forestry applications, trucking, job site, datacenter, and medical generators, legacy power plants, and countless other sources of demand for petroleum products. Plus some that probably don't even exist yet (many of which may well be carbon-neutral, unlike fuel applications). The notion that $150 oil's modest pinching of SUV drivers' wallets will magically make all of the above go away is lunacy.
This is great for all the shale and other high-cost producers, at least for those with patient investors. The Saudis are setting things up so that the folks with shale will be the last people with accessible oil. The sooner the shale producers shut down, the more oil they'll have available to sell later at prices vastly higher than any ever seen. Meanwhile, the Saudis will have pumped their fields dry at rock bottom prices, minimizing their total return. Economically speaking, this is the biggest gift to the US and Canada that the Saudis could possibly make. All that's left is for investors in shale to sit tight, or failing that to sell out to wiser ones at fire-sale prices. Keep careful watch on who buys up the leases from bankrupt shale producers over the next year or two; if they have the right attitude they will be worth a dozen fortunes a few decades down the road.
The Nissan Leaf demonstrates the real future of electric vehicles, not Tesla.
>The notion that $150 oil's modest pinching of SUV drivers' wallets will magically make all of the above go away is lunacy.
Running your car on electricity is already way cheaper than gasoline and has been for some time. The only thing needed to get most people to switch is a slightly cheaper and hardier battery. A more expensive electric car is often still cheaper in the long run.
The Saudis can see this, which is why they're worried, and that is the main reason why oil is so cheap right now and will remain so, possibly indefinitely.
Demand destruction does not mean what you think it means. It does not mean that people will magically stop wanting cars because petrol is expensive. Rather, it means that because petrol is expensive, 95% of the market will suck it up and pay whatever prices is at the pump, but the poorer and most vulnerable 5% will face a financial crisis (on the personal dimension) because they simply cannot do so. So, they end up loosing their cars, their jobs and a bunch of other side effects. It's all simple microeconomics, allocation of a scarce good goes to the higher bidders.
In the short term this mechanism makes prices to self correct. If they rise so much that people cannot afford petrol and there's petrol to be sold, the price will have to go down and find another point of equilibrium.
The problem is that markets are rarely linear processes, and there are inherent delays between causes and effects. So signals take a non negligible time to move through the markets, and in practice this causes instability. And if the delays takes long enough, a business or industry can and do erode its own customer base.
The diplomatic bond between the U.S. and Saudi Arabia is really something to ponder. Both nations are making bad deals to support a seemingly incoherent political policy.
Does a documentary or any in-depth information exist for the King Abdullah University of Science and Technology? I found the details of this university fascinating.
FTA:
Heavily armed guards on land and at sea protect the facility, where unveiled women study and work side by side with men, undisturbed by the religious police who patrol Saudi cities. Research there is aimed at scientific and commercial breakthroughs using those things Saudi Arabia has in abundance, such as sun, sand, and saltwater.
I recently attended a conference at KAUST. It's a microcosm, and a very interesting one. They have absolutely world class facilities for science. The campus amenities are very nice. Housing is provided, and is probably 2x what you would get yourself. The hotel room (if you can call it that) that I stayed in was a 1300 sq.ft. two bedroom, two bath. The campus is a designed town, so everything is walkable and there are lots of greenways. There is schooling for elementary through high school, though I was told there are very few high school aged kids. However, there were many elementary aged children, and they seemed to lead a free-er life than their US contemporaries. I suppose there is no need to be a helicopter parent when you are in such a community. They have two recreational facilities which rival large state schools facilities in size and rival large private schools in quality. They pay their grad students, postdocs, and faculty on about a 2-3x multiplier.
However, the campus is small, it's circumference is only ~5 miles, after a week, I was feeling content, but somewhat trapped. I feel it would be a very good place to do work for a few years, but life would be difficult to compare to a "normal" US lifestyle.
It's not that the law doesn't apply, they just categorise it as a private rather than public space. Most education facilities for girls are the same even if some of the staff are men. I've actualy been there a while back, it's a fantastic facility.
The bigger headache is keeping those educated people in SA, a country unlikely to reform socially very much to accomodate them, let alone the competition for skilled people in general. The social exclusion of women alone is a great drag on productivity.
You might be underestimating the happiness factor of the SA middle class.
A few years ago two SA college professors hired me to remotely tutor their daughter in computer science. She seemed very content with the status quo and her prospects for a happy life. I have to admit to some surprise about her attitudes, and I realize this is only one data point.
The Saudi regime now offers fully paid foreign school and a comfortable living allowance, thousands of them are in my city going to university. They are all total hedonists here but told me they want to go back home after and enjoy their privileged status there. None of them want to stay overseas that I've met.
I love how science exists on a plane seemingly above religion and money. It seems that most leaders when behind closed doors, understand the value of education, science and the benefits it has to society long term. Even those flush with money, understand that sustainability long-term is dependent on attracting and fostering the top minds from around the world and within their own borders.
Seems that nobody is getting peak oil right. The rise of the North Dakota shale is the confirmation of that theory.
Also Saudi Arabia is doomed. The kingdom will be collateral damage in the poaching war (its not hot, its not cold) ... to hit russia, the US is doing its best to bring Iran back online. US is self sufficient so they don't fear supply crunch, Europe is moving fast with renewable energy ... and we have nice battery progress lately which is main roadblock.
America currently has 690 million barrels in strategic reserve (It's silly to assume that Canadian imports would ever be cut off, but if the 3 million barrels elsewise got cut, we could potentially last for years on the reserve).
That 690 million barrel reserve doesn't count the nation stock of oil. The United States is experiencing a massive oil glut with the oil inventories currently at an 80 year high (and sitting near maximum national capacity) at 482.4 million barrels of inventory. http://www.arkansasonline.com/news/2015/apr/13/tanks-full-of...
So yeah, the US imports about 5,000,000 barrels a day (strong majority of that from Canada), but has over 1,000,000,000 barrels of oil stored inside our borders as inventory and reserve.
200 days at current usage. If the supply was cut off, of course, prices would go up and usage would go down. Prices going up would re-open a huge amount of U.S. production that is currently shut-in.
The U.S. is not self sufficient at current production. The U.S. produces almost 9 million barrels a day and uses almost 19 million. The U.S. could be self sufficient but the permit restrictions on shallow water drilling as well as other political issues make self sufficiency a ways off. As far as Europe and renewables, I think the perception is far more positive than the reality. Windmills and solar provide a very small part of Europe's energy. Russian natural gas is by far the most important energy source. France has had good luck with nuclear but the anti-nuke crowd is rather robust, limiting expansion.
US production for the 3rd quarter of 2014 was over 14 million barrels a day (the most recent quarter I saw numbers for, see my EIA link in another comment).
Indeed. Europe is still heavily reliant on coal and petroleum. Anti-nuclear crowd is incredibly robust and they are limiting expansion in numerous places. Windmills, solar and hydro are not capable of replacing fossil fuels without the help of nuclear, unless we want to cover all of Europe in windmills and solar panels.
But we are moving in the right direction, but Europe is not doing as well as we like to pretend.
Although Peak Oil won't really happen if demand drops before we hit the supply peak. We might transition to renewables and eventually fusion and never actually experience the specific dynamic Peak Oil envisioned.
That's what the origional poster was saying. See there are 3 peaks that we care about. The first is Peak American Supply, the next is Peak Traditional Worldwide supply, and the third is Peak worldwide non traditional supply.
I think he was implying that the transition to shale is an indication that we are moving to unconventional sources, thus indicating we've peaked on traditional sources.
We're almost certainly talking about a period inside the next ten years. You think solar is good to go on a massive scale so soon? I don't.
The shale and tar sands stuff is a bit of a joke. We're talking total proven reserves equivalent to something like six years of US consumption. I'm sure it has made some people rich and will make others rich, but it means approximately nothing in the grand scheme of things.
Very few people understand the financial dynamics of Peak Oil. We're seeing them play out right now. As the cost of extraction goes ever upwards, there is tremendous deflationary pressure throughout the economy, because the issuance of new credit is intimately tied to the availability of cheap energy. A plunging oil price and bankrupt drillers is exactly what you would expect at Peak Oil.
Know what peak oil and nuclear fusion have in common? They're always 10 years away!
I've been hearing this "doom and gloom" since the mid-90's. We're always 10 years away from a complete collapse of our oil-based economy and a Mad Max style dystopian society.
We were 10 years away in 1994, we were 10 years away in 2004, and then in 2014. I will bet you $10 right now that you'll declare in 2024 that Peak Oil is going to hit us in 2034.
And now we have cheaper gas than we've had in a while, and we're producing more and more. Why would "I" (average Joe Blow) believe the doom-and-gloom crowd, ever? Even if "Peak oil" was literally next Wednesday, fewer and fewer people will listen.
Peak Oil won't trigger a Mad Max dystopia. It will trigger pretty much what we've been seeing lately: ongoing financial crises and instability, deflationary pressures, growing unemployment, low/zero growth, etc. Please review the link above.
You just have to look at oil production costs to know something has changed and continues to change. It's just not the 90s anymore. Many, many drillers need $80 oil to be solvent. The global economy can't afford oil that expensive. Every time it climbs up towards $100 we get a big economic slowdown and oil price crash to much lower levels.
Interesting throughout. As I understand it, this policy is a tool for buying the Saudi ruling class time to reshape the society into somthing that is compatible with and competitive in the future, yet saudi-arabic.
Such Top-to-Bottom approaches are often loathed upon but I'd say good for them. Still, at some point the money spent on its citizens well-being will have to exceed the money spent on mistreating them. How many educated Saudis does it take to stand up for the whip-lashed ones?
Betting that transformation-process on the oil-market seems like a risky business to me.
I think this is the real underlying issue. SA is looking at all this oil inventory, and if their oil ends up going unsold, they lose money in the long run. This may end up being a clearance sale. My guess is that they'll try to seek a maximum price without reigniting the US shale insustry over the next year. That price might be $60/$70.
Well, it costs them virtually nothing to extract, which is why they are able to sustain such low prices for such a long time.
In the long run they are screwed by the Dutch disease. They don't create anything apart from oil, so once demand dries up, their exports shrink 90% and their economy shrinks 55%. This probably means violent revolution as well as impoverishment.
tl;dr: SA is lowering prizes not only to kill shale, but also to prolong the age of oil and buy time in order for the country to find other sources of income.
We should be pushing legislators to dump massive amounts of money into alternative energy and (anther issue that is grossly overlooked) alternative materials research and policy changes.
Even if we were able to sever the ties to oil for energy, it still does nothing for all the various products that are made from oil. I don't most people quite realize how much of basically everything around them is made primarily from oil based products. Heck, you even eat and drink oil based products.
Here is my brother's pet theory on why the price of oil fell.
Saudi Arabia wanted the USA to intervene against ISIS. The USA wanted the price of oil the fall to hamper Russia and Venezuela. Russia because they are getting aggressive and doing things in the Ukraine and Syria that we don't like. Venezuela because they are the center of anti-Americanism in South and Central America.
Which is exactly what happened. We bombed ISIS. The price of oil fell. Russia and Venezuela have been hurting.
There will likely never be proof whether this theory is correct. But leadership in both Venezuela and Russia have come out with the same theory. Articles like http://www.nytimes.com/2015/02/04/world/middleeast/saudi-ara... make it clear that the USA and Saudi Arabia are playing the geopolitical angle with Russia. And our current efforts to normalize relations with Cuba sure looks to me like an attempt to strip Venezuela's closest ally away from them.
No. The price has fallen as demand has waned, or at least did not match expectations as global GDP expectations fell.
Normally Saudi would reduce supply to keep the price up. But they've taken the opportunity to attack their biggest threat: US Shale oil. By keeping production up, the price has dropped and that is pushing shale oil extractors out of business: these guys need ~$60/barrel to be profitable. It's having a real impact - just look at the US High Yield sector. Firms are going bust, credit spreads are blowing wider and investment in the sector is dropping.
So when enough investment in Shale is killed off, the Saudis will reduce supply... jacking up the price and happy days for them.
This is a good analysis. However, it is a little odd that everyone mentions the Saudi failure to reduce supply as a factor in lower prices, but no one mentions the increased supply from US shale oil. Although up slightly, conventionals are relatively flat. Most of the global supply increase has come from nonconventionals and US shale oil's role is significant.
Interestingly, most US shale oil investments seem to properly protected against price drops via commodities contracts - at least through this year - so the near term pain will be in the financial industry.
I tend to think that there is some connection between the lack of production cuts from Saudi Arabia and ISIS/Russia politics, but it can also be the case that they can't afford to cut roughly 1/3 of their production.
Because the House of Saud (ie the royal family) are relatively secular people whose main interest is in maintaining power in a country of extremists. They are willing to fund their own radicals to keep from having a revolution. But at the same time they are scared that those same radicals will some day decide the royal family is too corrupt to lead a pure Islamic state.
ISIS represents exactly the kind of movement that they are afraid would lead to this result.
ISIS is fundamentally different from Al Qaeda and the sort of Wahhibist terrorism that the Saudis have historically been involved in. It is a direct threat to the Saudi government, and every other Arab government.
I'll point out that the Saudis have actively bombed ISIS. They're militarily involved in this war. It's a huge, huge deal for them.
Individuals in Saudia Arabia who are against the monarchy. Not the Saudi government per se. Although the lines are certainly blurred when you consider that both the US and Saudis funded 'moderate' rebels in Syria, many of whom weren't so moderate and joined ISIS. And then of course Qatar and Turkey have also funded and assisted various rebel groups in Syria, many of whom are now ISIS as well.
ISIS has tremendous popular support. A lot of ordinary people throughout the Arab world applaud their return to a pre-westernized Arab society. They actively provoke Arab governments, because it can lead to revolution in those other countries.
So yeah, lots of wealthy individuals in Saudi Arabia have funded them. But the government itself is terrified.
The Islamic State in Iraq and the Levant (ISIL) -- sometimes called the Islamic State in Iraq and Syria (ISIS) -- has had only one previous name, the Islamic State in Iraq (ISI). Arguably, even that's not really a previous name but just one of two groups that formed ISIL, though the other was itself an offshoot of ISI, so the point is debatable either way.
Among the organizations that came together to form ISI was the group formerly known as "al-Qaeda in Iraq", but even for that group, the name change in 2004 to "al-Qaeda in Iraq", was an opportunistic rebranding reflecting the currency of the "al-Qaeda" brand (and, arguably, also the simultaneous weakness of the actual substantive "al-Qaeda" organization, which made it interested in having in-name-only affiliates) in radical Islamic circles in 2004; it wasn't the original name of the group, which had been around for several years before affiliating itself with the al-Qaeda brand.
So the statement that ISIL -- or ISIS, if you prefer -- is "fundamentally different than al-Qaeda" is fairly accurate even if the main component of ISIL is a group that was for a few years affiliated loosely with al-Qaeda.
ISIS (at least last year, don't know right now) funded their operations in large part with stolen oil. When the price of oil halved, that hurt their operations significantly.
So the good news is that their intentions seem to be to keep oil prices low for a prolonged period. Was wondering how long they'd keep prices at current levels. Should be a lot of carnage and opportunity for finding bargains once a lot of these over leveraged oil companies start defaulting.
This whole thing is silly. They have no choice but to pump and get as much revenue as they possibly can. They are starved for cash.
OPEC does not really set enforceable quotas and nobody in Saudi plans out oil prices. OPEC is about flying around to five star hotels and taking credit when the oil price is up.
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel."
That time is here.
But as Ghandi said, first they ignore you, then they laugh at you, then they fight you, then you win. They've gone from laughing at alternative energy to fighting it.