Due to fracking, solar energy advances, and higher adoption of natural gas, the US was on the road to energy independence, right? Not so fast. Some other energy-rich countries (led by our friend, Saudi Arabia) didn’t like that we were becoming less dependent on them for our energy supply. How could they turn the tide? Well most of the new-age energy companies were only profitable if the price of oil remained relatively high – perhaps around $60 per barrel. Since US companies are subject to market forces (ok we have subsidies for solar, but look past that for now), they would have to cut or even cease production if the price of oil dropped significantly. These companies may even go bankrupt and/or out of business if the price of oil remained low long enough. Oil is now barely above $30/bbl.
Most of the rest of the world’s energy companies are highly influenced if not completely controlled by their governments.. People are only now started to talk about it, but we have been under attack for months! By flooding the market will oil, these countries aim to destroy US energy independence. The strategy against us is working! Capitalism doesn’t stand a chance when profit isn’t the necessarily the motive.
Here is an article (and short video) that sort of addresses the point. http://www.cnbc.com/2016/01/06/kilduff-time-for-an-oil-and-gas-industry-bailout-commentary.html
Some say that we should be happy that energy prices have come down as it means driving our cars, heating our homes, and otherwise using electricity will cost less. I fear this may be short-sighted. I predict we will see major upheaval across the energy industry – oil, natural gas, coal, solar, etc. The highly leveraged companies will go under first, but smaller firms will soon follow. Only the larger more established US energy firms will survive. In fact, they will buy the assets of the distressed oil companies at fire sale prices and stockpile the newly acquired resources for use at a later date when oil prices eventually climb again. This is already starting to play out now.
It will also have a massive negative wealth effect for many towns and the people involved in the energy industry around the US (and our real friends in Canada). We are already starting to see this play out too.