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Earth Day 2015: Celebrate Cheap Abundant Oil

Earth Day 2015: Celebrate Cheap Abundant Oil Unleashed From The Earth By American Innovators

On Earth Day 2015 let’s take a brief walk back in time.

Just before Earth Day 2011 when oil was selling for $120 a barrel, former Saudi oil minister Sheikh Yamani put out the idea that oil prices could imminently reach $200 to $300 per barrel.   He was referring to the implications of unrest in the Middle East in the wake of the then recent Tunisian riots, which kicked off the poorly named “Arab Spring.”

However, instead of rising, oil prices hovered around $115 for the rest of that year and then started to slide. The slide turned into a collapse over the past year, with oil dipping below $50 per barrel in recent months.

Prices didn’t go into free-fall because turmoil in the Middle East abated: if anything that has gotten worse. The price collapsed because the world is now oversupplied with oil. This has happened once before in modern history.

The first price collapse from petroleum oversupply happened contemporaneous with Earth Day 1986.

At that time Sheikh Yamani, then the active Saudi Arabian oil minister, oversaw his nation’s strategic decision to increase output by 3 million barrels per day (MMbd). The flood of oil into markets drove global prices down to $20 per barrel (in $2014).

So we find ourselves nearly 30 years later with Earth Day 2015 contemporaneous with low oil prices again. And again it’s from too much oil sloshing around markets. But this time a decision from a single oil monarch didn’t increase production. All of OPEC’s spare production capacity, including Saudi Arabia, is now only slightly more than 2.5 MMbd. Today’s oversupply is the result of the collective actions of hundreds of companies leading to a rapid and unexpected gush of 4 MMbd of oil from American shale fields – with majority of that increase occurring in the past three years.

The Energy Information Administration (EIA) has noted that U.S. oil production grew by 1.2 MMbd in 2014 alone, a one-year increase greater than that of any single year since the oil age began more than a century ago. This surprise was not the result of “new discoveries.” The shale fields have been mapped for a century. It was not the result of new government policies. It was the direct result of two things: the maturation of new shale hydrocarbon technologies deployed on private and state-owned–not federal—lands, in combination with liquid capital markets in America eager to fuel that expansion with hundreds of billions of dollars.