Shale-Oil: A Win-Win

An article in Wednesday’s Wall Street Journal was headlined “Warning Is Sounded on Shale” (print edition).  The first sentence explained: “U.S. shale companies are churning out crude oil at a record pace that could overwhelm global demand and reverse the oil market’s fragile recovery, a top energy-market observer said Tuesday.” 

After reading this, I thought to myself, how is this a problem?  I understand companies in the energy business might prefer prices to be higher (and life easier), but shale-oil companies increasing the supply of oil sounds great for customers and consumers.

According to the article, the  flexibility of U.S. shale companies to increase production reduces the likelihood of price spikes like we had in 2011 to 2014, when oil was over $100 a barrel.  This helps consumers.  It especially helps those consumers who have to pay a relatively high percentage of their income for heat and electricity.  If your energy costs are only 1% or 2% of your budget, a 50% increase is eminently manageable.  But if energy costs are 10% of your budget, as they are for poorer people in much of the United States, a 50% increase, or even a 25% increase, in energy costs is a problem.

Plus, not only does U.S. shale-oil production keep prices down for consumers in the U.S., it also limits the amount of money going to countries like Russia.  OPEC and Russia have tried to keep prices up (and they have succeeded some) by reducing their production of oil.  However, the ability of U.S. shale producers to ramp up production on relatively short notice has limited the ability of OPEC/Russia to increase prices by cutting supplies.  Which means that not only is Vladimir Putin selling less oil than he wants, but he is getting a lower price than he wants on the oil he does sell.  

Lower prices for U.S. consumers.  Less money for Vladimir Putin.  Sounds like shale-oil is a win-win.  If you include the decreased pollution from shale-gas, as opposed to coal, it’s a win-win-win.