Hidden Energy Articles

Hidden energy articles — The limits to our ability to artificially inflate oil prices

This week I want to call attention to a special report on The Ecologist by Sebastian Ordoñez and Daniel MacMilllen Voskoboynik entitled “A multinational fracking boom begins in Colombia”.

As hinted by the title, the report is about the increasing interest in fracking within the Colombian territory, where the government has already given up to 43 concessions to different multinationals interested in establishing fracking operations in the country. As one would expect from a source like The Ecologist, the article strongly opposes the move. For example, it notes that the country is too conflicted already as to bring in yet another source of contention. Do give it a thorough read before carrying on.

I do not want to refer to the debate of whether Colombia should frack or not, however. Instead, I want to remind that this article is an example of the fact that the United States is not the only country where fracking is possible. Let alone the only country where oil production can increase further. Colombia, Brazil, Nigeria, and many others are ready and willing to increase their oil production.

This is key to avoiding a temptation that I fear has driven the oil industry for a while now. That is, the idea that the focus should be on increasing oil prices through political agreements or disagreements. An example of the agreement-approach would be the attention that OPEC meetings receive upon the idea that OPEC can cut enough supply for prices to increase. Trump’s trigger-happy approach to the Syrian conflict gave us an example of the disagreement-approach, as it further evidenced that military intervention increases oil prices

However, the idea that you can solve the current crisis through artificially inflating prices misses the key driver of current oil prices: supply.

If you manage to artificially inflate prices successfully and for more than a couple weeks (a big if), the response is likely to be more production rather than sustained price stability.

Takeaway

The critical risk here is not what happens whilst you inflate prices but what can come afterwards. Because any artificial measures will eventually cease having an effect (because they cannot, by definition, carry on forever). By then, there will be much more supply glutting the market than we currently have. Alongside, prices would truly and absolutely collapse.

Image credits:
Graffiti about “price”. 
By Cat Branchman. CC BY 2.0.