A weak dollar subsidy that the US oil industry cannot compete with

“The rates of return are very little under fifty dollars.” How legendary oilman Harold Hamm described the state of mining to Gregory Zuckerman in his 2013 book, The Frakers.

The high cost of oil drilling in the state is of most concern to us right now, and as the debate continues among energy advocates over which energy is the “right” one. In one recent piece at Wall Street JournalAlways On Energy Research vice president Isaac Orr and policy analyst Sarah Montalbano wrote that “solar power cannot compete with other energy sources without” federal handouts.

They will not be judged on their argument. On the contrary, it will be said that solar energy, like any other marketable good, cannot be judged in a static way. To see why, consider natural gas. For the longest time, producing liquid natural gas made less sense given the challenge of transporting it over long distances domestically or globally. This is no longer true.

It raises questions about what solar energy could be, not what it is now. Admittedly, there are times of the day when so much solar energy is produced that the price of it plummets. What are the long-term possibilities there?

Regarding what was asked, the same applies to domestic oil exploration. Check out the Hamm quote above. It’s a reminder that oil can hardly stand on its own right now.

Consider the price per barrel at which the fracs break. $10/bbl and $7/bbl isn’t the number, but that’s how the price of crude fell in the 1990s and 1980s respectively.

Thinking about how cheap oil used to be, he rates the question of why. There was plenty of US energy exploration in the 1920s^u the last decades of the century? The exact opposite. As Frackers Author Zuckerman clarified in the book, the last two decades of the 20s^u century was “among the worst periods in the history of the domestic energy industry, and an estimated 90 percent of oil and gas companies went out of business.” With the commodity so cheap, there was no economic way to mine crude in the US

Was the US economy in decline during these decades, along with the world economy? Just. Lest readers forget, oil fell to $7 during the booming Reagan 80s and $10 in the similarly booming Clinton 90s.

So what is the story or what was it? Consider the US dollar earned by every American worker. Also consider that oil is priced in dollars. In the 80s and 90s, a strong dollar meant that oil and its byproducts like gasoline were very cheap. Americans hardly suffered from this state of economic affairs, but the US energy industry did.

Which is a response to Orr and Montalbano. While they claim that US solar cannot stand on its own without federal subsidies, they gloss over the inconvenient truth that US oil producers cannot stay afloat without a weak dollar that every American suffers and that supports the price of crude oil.

Will it always stay that way? The guess here is that it won’t. As mentioned earlier, it is foolish to apply static concepts to any market good. It is possible that over time fracking returns will be abundant in the $10s the way they are currently only over $50.

For now, the subsidy argument cuts both ways. If Orr, Montalbano and other critics of alternative energy want the government to get out of the job of handing out favors, they would help their case by pointing out that the energy sector’s benefits have hardly stopped with solar, wind and others.

As fracking’s prominence confirms, critics of alternative energies are trying to take potshots from the glass house. But if they are serious about subsidies, they will recognize the ones that the domestic oil industry cannot compete without.