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Short-Term Pain Long-Term Gain

Ethanol Producer Magazine

Feb 18, 2015

By Mike Bryan

Low oil prices and the resulting low gasoline prices have certainly been a boon to motorists. If someone were to have asked me, I would have said that oil would never again be this low. But then, when corn was $7 a bushel, many thought that they would never see corn prices below $5 again. So as the old saying goes, “nothing cures high prices like high prices.”

While not everyone would agree, the recent fall in oil prices makes an even stronger case for all forms of domestic energy, both renewable and nonrenewable. In fact, what the oil producing countries are doing makes a strong case for greater energy independence in general. The cost of extraction has not changed, nor has the cost of transportation and refining. What has changed is reduced demand because of shale oil discoveries like the Bakken and a strong and growing renewable fuels industry.

The cost of extracting a barrel of oil is likely less than $10, so oil producing regions of the world can and are playing fast and loose with the price in an attempt to decimate the shale oil industry and at the same time cripple the renewable energy industry. This is economics 101, when demand lessens, you reduce your price to maintain market share and then slowly raise your price as the opportunity avails itself, with a side benefit of crippling competition in the process.

My point is that we should all be scared out of our wits to really see the power that these oil rich countries have over our economy, our environment and our energy future. When an intentional price cut is imposed by one segment of our energy supply chain that is exclusively designed to eliminate competition, we should not celebrate it, we should be mad as hell.

Whether it is in the first quarter or second quarter of 2015 or sometime later in the year, the price of oil will return to a higher price. The question we must come to grips with is what will be the long-term fallout on domestic oil production and the renewable fuels industry as a result of this short-term drop in oil price? It is, indeed, a shot across the bow of domestic oil and renewable fuels, that “we” can make your industries noncompetitive anytime “we” want. “We” control the market and “we” will decide what domestic energy programs succeed or fail.

If ever there was a time when the government should rally behind the domestic energy industry to subsidize or support in any way possible its continued growth, now is that time. Because once new investment dries up because major oil producing countries decide it should, it will never regain its momentum. Who would invest in something that someone else, at their discretion, could make unprofitable overnight?

Artificially low oil prices should be seen as what they really are, a wakeup call for the world to vow to never be dependent on a single energy source again. While the price of energy independence may be more in the near-term, long-term the benefits of that independence will be huge.
That’s the way I see it.

Read the original story here: Short-Term Pain Long-Term Gain