If the price of oil falls far enough, then it will not be worth it to keep producing. Since the oil companies know how to sell energy already, could this lead to them producing alternatives, or building electric car chargers in gas stations?
The drop in oil prices reflects an increase in supply, not a decrease in demand. Falling oil prices will create less investment in alternative energies, not more.
If solar (for instance) costs more than oil, would you spend money figuring out how to make solar cost less, or just buy oil? The idea of investing in alternative energies is the expectation that the cost of oil will rise eventually until other energy sources are competitive, and to combat global warming. A drop in oil prices makes other sources of energy less desirable, not more.
Regards,
Shodan
Didn’t take Econ 101 i see
At which point you don’t produce as much, and the price rises again. There’s always some equilibrium point, and prices always stay fairly close to it.
High prices correct high prices and low prices correct low prices
Oil is used for transportation, I’m not sure what impact it would have on renewables like solar or wind which make up the bulk of renewable energy investments.
What happens if oil prices drop too much is some companies that dig up oil go out of business, and prices go up again.
QFT.
Just like coal and natural gas, petroleum can be used to generate electricity in conventional power plants.
I think I see what the OP’s getting at, which is that there has to be a break-even per bbl price that below which, a given oil company makes no profit.
And if through some sort of miracle, oil became plentiful and cheap enough to produce for long enough for the equilibrium price of oil to settle somewhere near or below this price for the majority of the big oil companies, would they then invest in alternative energy sources that are presumably more profitable?
Assuming your oil availability miracle did occur (IMO, it would take some sort of powerful sorcerer), then I think that some proportion would reinvent themselves as energy companies even more than they have, and invest in renewable energy and market the crap out of it as a environmentally friendly alternative. The rest would probably double-down and tighten their belts and make a go of remaining oil companies, but would probably go under anyway.
It could be, but it mostly isn’t. Liquid fuels are extremely convenient for transportation compared to gas or solid fuels, and so the vast majority of oil goes to transportation fuels of one kind or another. Stationary power plants can have special equipment for dealing with gas or solids that aren’t practical in vehicles.
But look what you are saying. You’re saying that oil becomes cheap enough to produce that it falls below the price to produce? That can’t happen. If we discovered tomorrow a giant ocean of free gasoline it might put oil wells out of business, but it wouldn’t be because we switched to solar cars, it would be because we’re filling up our gasoline cars on the new nearly-free gasoline.
If the cost to produce falls, then the cost to produce falls. The price of the finished product will settle at a new equilibrium price. If that price is low enough then producers will get out of the gasoline business, until the price rises enough for producers to get back into the gasoline business. It can’t fall to the point where it’s too expensive.
Why would you presume those alternative sources would be more profitable? They would almost certainly become less profitable.
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And if through some sort of miracle, oil became plentiful and cheap enough to produce for long enough for the equilibrium price of oil to settle somewhere near or below this price for the majority of the big oil companies, would they then invest in alternative energy sources that are presumably more profitable?
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I think you have it backwards - some other energy source becoming more profitable might cause reduced investment in oil, but not vice versa.
IOW tomorrow morning LexCorp announces two radical new inventions - a method of collecting solar energy such that an hour in the sun will provide enough power to drive an SUV for a month, and a new battery design that will store enough energy to drive that SUV for a year without recharging. No doubt the bottom would drop out of the oil market, but not until demand for gasoline started to dry up when consumers bought cars with the new technology.
Regards,
Shodan
True, but that’s because generally tight supplies of petroleum and inelasticity of demand to fuel cars and trucks and buses and airplanes means that (a) there’s rarely much petroleum left over for other purposes, and (b) that means that what drives the price is what drivers will pay for gasoline.
In a serious enough glut of petroleum, price would presumably drop until it made economic sense for power plants to burn oil rather than natural gas. At which point the competition between oil and alternate sources of power like solar and wind would be direct, to the detriment of the latter.
I wasn’t trying to say that it would be cheaper than the price to produce it, but rather that if by some miracle, it became significantly cheaper through abundance, or some ease of production improvement, it could very easily become non profitable for the majority of oil companies. I was saying that the equilibrium price could be be below the break-even point for most oil companies… I didn’t phrase my sentence very well, I suppose.
Under those circumstances, I could see some companies switching their core businesses from being oil companies to being something else and possibly investing in other things besides oil, including alternative energy companies. It’s not like environmental consciousness or government regulations are going to go away if oil became super-abundant.
And just because there’s a cheap alternative doesn’t guarantee that a more expensive product can’t also be profitable. It’s more a matter of marketing and finding the right market. Look at organic food- no scientifically determined benefits, yet people will willingly pay 3x the price for something like organic flour and other commodity items that are already super-cheap.
The only thing, and I mean the ONLY thing that will *ever *push alternative energy sources into the mainstream will be expensive and scarce oil reserves. IOW when alternatives are cheaper to buy than oil. The environment, terrorism, politics etc., none of these will ever even be a close second to cost…
Yeah. In times of cheap oil, tarps get pulled over half-finished prototypes and grants and funding end with the quarter.
Someone walking out the door might reach for the light switch and possibly think to themselves, “…maybe someday.”
I agree that this is the most likely scenario, but there could be some technological breakthru that made another energy source affordable.
I have always heard that practical fusion energy is fifty years away, and has been so for the last fifty years. Much the same for other forms of alternative energy.
Ultimately we can build a ring of solar collection panels around the sun, and get our energy that way. We just need a really long extension cord.
Regards,
Shodan
ISTM that the premise of the OP is that alternative energy could be made a lot more efficient and less costly, but no energy companies are bothering to invest in research that might make this possible because they’re all too busy making money hand-over-fist in oil. But if they couldn’t make money in the oil business (because OPEC and other producers continued to flood the market) they would look more seriously into the possibility of improving the alternative energy processes and might possibly make it a whole lot more efficient than it is today.
FWIW, I don’t think much of this thesis - to the contrary, there has been an enormous amount of investment and government subsidies for alternative energy - but I think that’s what the OP was driving at, anyway.
The only aspect I can see about falling oil prices providing a incentive for alternative energy is oil price instability, which falling prices are part of.
Well that and perhaps the incentive to lower tariffs on imported (read Chinese made) solar panels to keep the price of solar competitive with lower oil prices.