Drilling incentive wanes

NEW YORK – Deepwater drilling rigs are sitting idle. Fracking plans are being scaled back. Enormous new projects to squeeze oil out of the tar sands of Canada are being shelved.

Maybe low oil prices aren’t so bad for the environment after all.

The global price of oil has plummeted 31 percent in just five months, a steep and surprising drop after a four-year period of prices near or above $100 a barrel.

Not long ago a drop of that magnitude would have hit the environmental community like a gut-punch. The lower the price of fossil fuels, the argument went, the less incentive there would be to develop and use cleaner alternatives like batteries or advanced biofuels.

But at around $75 a barrel, the price is high enough to keep investments flowing into alternatives, while giving energy companies less reason to pursue expensive and risky oil fields that also pose the greatest threat to the environment.

“Low prices keep the dirty stuff in the ground,” said Ashok Gupta, director of programs at the Natural Resources Defense Council.

As oil demand in developing countries began rising in the last decade, drillers struggled to keep up and prices began to rise. It seemed the world might be running out of oil. Investors poured money into advanced biofuels companies and battery-makers betting high oil prices would make it cheaper to drive on plant waste or electricity.

It hasn’t happened yet. Even after years of growth, electric cars accounted for just 0.4 percent of new vehicle sales so far this year, according to Edmunds.com.

The high prices instead inspired drillers and investors to pursue oil wherever it might be found no matter the expense. They developed projects in environmentally-sensitive areas or using environmentally-destructive methods. They developed technology that has unlocked vast resources once thought out of reach. What was once a shortage now looks to be a surplus.

“It was a net negative from a climate perspective,” said Andrew Logan, director of oil and gas programs at the environmental group Ceres. “It locked us into long-term dependence on oil.”

Scientists say that in order to keep global temperatures from rising to especially dangerous levels, society has to resist pulling up and burning the enormous amounts of oil that companies have found.

The question now is whether this plunge in prices will help or hurt that effort.

Some say the answer is clear: “There will be more demand (for fossil fuels) and less incentive for alternative technology,” said James Stock, an economist who recently served on the Council of Economic Advisers and is now at Harvard University. “In the long run it is unambiguously bad to have low oil prices from an environmental perspective.”

But low oil prices don’t always translate to higher demand.

In the U.S., strict fuel economy standards are making cars and trucks more efficient, helping to reduce demand regardless of price. The Energy Department predicted this week that the average price of gasoline would fall 13 percent next year – yet demand would also fall.

In much of the developing world – which is propelling the rising global demand for oil – fuel prices are set by the government, not by markets. Consumers don’t pay less even if the price on the open market falls.

And while low oil prices encourage drivers to use more, they also force oil companies to drill less. The places they cut back first are areas that are risky, like the Arctic or deep offshore, or require lots of energy, like the Canadian tar sands, because they are the most expensive.