At What Point are Oil Prices Too Low?

America has endured an extended period of unstable, unreliable and overpriced oil. Only Americans in their 60’s and 70’s can recall a time when fuel prices fluctuated very little and the cost of a tank of gas would not decimate a family budget. Surprisingly, Americans may again be able to enjoy stable and affordable energy. But that opportunity will be forfeited if Americans allow oil prices to fall below the price required for America to continue its push for energy independence.

Unfortunately, the price at which oil can be produced profitably depends on where the oil is being produced. Oil produced from offshore wells is more expensive than oil produced from wells on land. Oil prices below $100 a barrel makes new offshore drilling unprofitable. In other words, additional offshore wells will not be developed.

America has endured an extended period of unstable, unreliable and overpriced oil. Only Americans in their 60’s and 70’s can recall a time when fuel prices fluctuated very little and the cost of a tank of gas would not decimate a family budget. Surprisingly, Americans may again be able to enjoy stable and affordable energy. But that opportunity will be forfeited if Americans allow oil prices to fall below the price required for America to continue its push for energy independence.

The question which is difficult to answer is whether America can attain energy independence without drilling offshore wells. Quite simply, if America limits its new oil production to conventional oil, America will be required to develop its offshore oil reserves. But if America follows Canada’s lead and develops its non-conventional oil resources, the road to America’s energy independence changes dramatically.

There is still plenty of ‘tight’ oil which is now available due to advances in horizontal drilling and fracking. At some point this source of oil will peak. What then? America contains the World’s largest known reserves of oil shale. Literally trillions of barrels of oil can be produced from this oil shale. Then there is America’s vast coal reserves which can also be converted to oil. The picture should be clear: Producing the oil required to fuel America’s economy is not the problem. The problem is how to do so while at the same time undoing the environmental damages of past indiscretions while re-establishing the balance of carbon exchange between Earth and Earth’s atmosphere.

According to sources in the energy industry, America’s oil shale will profitably produce oil at $60 per barrel or less. Land based conventional oil wells, including those requiring fracking, can also operate profitably for $60 per barrel. According to a project by a Texas university, coal can be converted to oil for far less than $60 per barrel.

Here’s a thought: Maybe America should set a minimum price of $60 per barrel for its oil. Imported oil would be subject to a tariff equal to the difference between $60 per barrel and a lower World market price. The tariff could be earmarked for environmental research and development. Think about it: Many Americans would experience stable and affordable fuel costs for the first time in their lives. The American oil industry would also benefit from predictable profits which could be increased with advances in energy technology. Most importantly, no other nation or collection of nations would be able to influence America’s economy and security. Is it time for Americans to consider their fossil fuel resources as too important to be subjected to open market price pressures and political agendas?