January 6, 2015

The Energy Behind Energy

It can be difficult to imagine a more fertile period in the history of industrialization when so many changes are being introduced, and occasionally imposed, on society all in the name of better world. Prevailing opinions predicting the outcomes of events underscores how much of the recent volatility in the price of oil is a perfect example of the chaos that characterizes those opinions. In the end are we ignoring the broad new realities for the 21st century that may correlate with our wishes but none the less will more likely belly flop in the pool of broader conventional wisdom? I believe that lower oil presents more benefits than simply more money in the consumers’ pocket.  I also believe it is the source of the most inviting entry point to the true expansion of consumer driven alternative fuel growth since the 1970’s. And lastly I believe we are looking at the greatest catalyst for world peace since the beginning of the industrial revolution.
Oil has been at the center of the industrial commerce of western styled democracies since before the 20th century. What begin as a domestic affair and blended into a brisk import business, with the US connecting with Saudi Arabia and the UK finding partnerships in Persia, later Iran. The end result of this was to ultimately shift to nationalization starting with Iran following the 1979 Revolution and more recently America’s shift to domestic resource exploration and away from Saudi Arabia. In the interim along with the Mideast and other oil producers following the guideline to nationalize, OPEC* was created to aid in organizing their procedures. What actually occurred was a thug like organization aimed at keeping the world addicted to oil by keeping it both plentiful and cheap. And if the world was not consuming enough for OPEC tastes, or if some political event created upset with the members, they would punish the western consumer. The 1973 gas crisis is only one example where the quadrupling of oil prices caused havoc with the economy.
Now flash forward and the domestic landscape is littered with events that drove the price of oil higher in 2008 when prices went over $140 a barrel. I believe it to be no coincidence that such an event might’ve precipitated the first signs of the slowdown in economic activity as higher prices are a draw of capital away from individuals and institutions. And while environmentalists sized on the event growing public awareness and unfortunately public annoyance with their cause I see the current decrease in the price of oil as having the more positive influence, since I believe at this point in time very little can dull awareness but there is plenty of room to soothe annoyances. And if large capitalized companies see the value in adapting their downstream revenue to more competitively valued clean alternatives such as natural gas and solar power, the answer will lie in the margins. And when it comes to margins, business pays attention.

And of course while the domestic consumer and private industry enjoys their respective benefits from lower energy prices, politicians will take credit for the outcome, particularly low inflation. In the meantime I’ve been focused lately on the issues facing Russia, Iran, Venezuela and the handful of other countries hell bent on turning the world economy into a socialist nirvana. I couldn’t help think how many of those countries rely on high energy prices to fund their ambitions. A simplistic perspective perhaps and although I admit the notion of world peace initiates some attention, I really believe that the decline in oil, however arrived at, is a game changer. And as a realist I also see the inevitable push back that will accompany that outcome globally which will be aimed at pushing energy prices up. My prediction is, it won’t matter to the west who may find their primary distractions, distracted themselves, and might just turn it’s attentions to economics, good for people and good for markets and good for peace.