# If Saudi Arabia successfully undercuts US & Canada shale oil production, will that industry rebound **URL:** \ **Category:** Great Debates\ **Created:** [January 3, 2015, 6:18pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866 "2015-01-03T18:18:41Z")\ **Posts on this page:** 10\ **Page:** 2
**Author:** ![BOOM](https://avatars.discourse-cdn.com/v4/letter/b/c4cdca/32.png) [@BOOM](https://boards.straightdope.com/u/BOOM)\ **Post date:** [January 4, 2015, 10:50pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/21 "2015-01-04T22:50:04Z")
> [@Wesley\_Clark](#): > > My understanding of part of why gas prices are going down is Saudi Arabia wants to drive down oil prices in the hopes it will bankrupt the shale oil industry in the US & Canada, which I think need oil to be at $60 a barrel or higher to be profitable. My understanding was different; the leading reason for the drop in oil price is the switch in the US to shale (obv. for energy production). Chinese cut back on growth being the second reason. ---
**Author:** ![Martin\_Hyde](https://avatars.discourse-cdn.com/v4/letter/m/47e85d/32.png) [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)\ **Post date:** [January 5, 2015, 12:28am UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/22 "2015-01-05T00:28:24Z")
> [@GIGObuster](#): > > I knew about a lot of you report here, but the point I was referring was that articles I saw reported that SA is losing money. > > [Saudi Arabia Feeling Pain Of Oil Price Plunge, But It Has Enough Currency Reserve To Last For Years | IBTimes](http://www.ibtimes.com/saudi-arabia-feeling-pain-oil-price-plunge-it-has-enough-currency-reserve-last-years-1767238) > > The point of the article is that SA is now doing the unnatural thing, but in reverse. Using their reserves to allow them sell at a loss for them so as to affect their enemies. And it looks like dumping to me, but I have to remark again that SA’s targets are also (mostly) ours nowadays. That’s not actually what I’m following from what you’re linking to, dumping means selling something for less than it costs [or selling something for less abroad than you do at home–a less widely accepted definition, though.] You appear to be conflating marginal break even price per unit with national budgets. Saudi Arabia can quite easily be selling oil at a profit (and likely is, given we know their break even point for production averages something in the neighborhood of $20/barrel, and we know they are not selling oil for that) but run a deficit as a country. While Saudi Arabia’s finances and that of Saudi Aramco (the national oil company of SA) are much more closely related than most countries (due to Aramco’s outsize influence over SA’s economy), they are not one and the same. Saudi Arabia is still a normal country that can set spending however it wants, including spending more than it takes in, which is what that article you’re talking about is saying. Saudi Arabia is choosing to spend at deficit _as a government_, but they aren’t selling oil at a loss. ---
**Author:** ![Chief\_Pedant](https://avatars.discourse-cdn.com/v4/letter/c/a6a055/32.png) [@Chief\_Pedant](https://boards.straightdope.com/u/Chief_Pedant)\ **Post date:** [January 5, 2015, 11:29am UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/23 "2015-01-05T11:29:50Z")
> [@GIGObuster](#): > > Yes, because I approach this from the environmental side of things too. The target of SA is also the alternate energy sources that are gaining ground around the world. > Not talking about defending the frackers here, but worried about what cornered regimes can do to world peace. Alternate energy sources are always going to have to compete with economic reality. I’m struggling right now with which energy companies to invest. One school of thought says oil doesn’t have much to do with alternate energy and the other (which is supported by stock price graphs) says it’s essentially all one energy pool. WRT Saudi Arabia, their cost of production is very low, so they aren’t “dumping.” They’re just making a lower profit margin. “Dumping” is when [China subsidizes solar panel manufacturing](http://www.greentechmedia.com/articles/read/SolarWorld-Wins-Again-Big-Anti-Dumping-Tariffs-in-US-China-Solar-Panel-Tra) to corner the market and undercuts production elsewhere with [prices that are artificially low.](http://rt.com/business/163552-us-china-solar-panels/) My gut is that cheap oil is not good for the alternate energy cause, but you can find arguments on both sides of the fence. If you find some really good ones leaning one way or another, I’d love to hear them before I plunk down any more cash into stocks. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [January 5, 2015, 4:36pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/24 "2015-01-05T16:36:54Z")
The U.S. oil industry will emerge from this price reduction healthier. Go back and read articles from 2008/2009 when gas prices collapsed and you will see a general agreement that the gas unconventional resource plays required $6 to $7 per mcf to be economic. Flash forward five years and now the dry gas Marcellus can make money at sub $2 with the overall market very profitable at $4. Efficiency gains like pad drilling and increasing lateral lengths have improved the economics. The economics on oil wells have gone down as well. Improvements to infrastructure have also helped lower pricing deducts in areas like West Texas and North Dakota that have helped as well; this continues to improve. What we will see is that the disciplined good management teams will make it through this fine and the poor ones will not. Their will be some asset consolidation and the overall industry will come out of it fine. The service companies will, like always, suffer the most. Drilling contractors are really struggling right now. ---
**Author:** ![GIGObuster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gigobuster/32/421_2.png) [@GIGObuster](https://boards.straightdope.com/u/GIGObuster)\ **Post date:** [January 5, 2015, 5:07pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/25 "2015-01-05T17:07:42Z")
> [@Chief\_Pedant](#): > > Alternate energy sources are always going to have to compete with economic reality. I’m struggling right now with which energy companies to invest. One school of thought says oil doesn’t have much to do with alternate energy and the other (which is supported by stock price graphs) says it’s essentially all one energy pool. > > WRT Saudi Arabia, their cost of production is very low, so they aren’t “dumping.” They’re just making a lower profit margin. “Dumping” is when [China subsidizes solar panel manufacturing](http://www.greentechmedia.com/articles/read/SolarWorld-Wins-Again-Big-Anti-Dumping-Tariffs-in-US-China-Solar-Panel-Tra) to corner the market and undercuts production elsewhere with [prices that are artificially low.](http://rt.com/business/163552-us-china-solar-panels/) And they got tariffs imposed on them, (something that I mentioned is done when dumping and I granted already the point of SA not really dumping; but related to your item, even with the tariffs, the solar panels are still getting cheaper. > [@Chief\_Pedant](#): > > My gut is that cheap oil is not good for the alternate energy cause, but you can find arguments on both sides of the fence. If you find some really good ones leaning one way or another, I’d love to hear them before I plunk down any more cash into stocks. Gut feelings are not as good when more experienced people are reporting something else. Here is some information from the Environmental Defense Fund: > **[Why Falling Oil Prices Don’t Hurt Demand for Renewable Energy - Energy Exchange](https://blogs.edf.org/energyexchange/2015/01/05/why-falling-oil-prices-dont-hurt-demand-for-renewable-energy/)** > > By: Victor A. Rojas, Senior Manager, Financial Policy, and Paul Stinson, Program Coordinator It’s understandable that many people would look at falling oil prices and wonder what it might mean for clean, renewable energy sources. Some recent... > [@](#): > > Oil can mean energy, but energy doesn’t mean oil > > The historic correlation between the price of oil and the demand for renewable energy has been increasingly weakened in today’s global markets. Like apples and oranges, we use oil and renewables to make completely different types of juice: oil primarily to produce transportation fuels, and renewables primarily to generate electricity. From an economics perspective, oil and renewables are not substitutes: when the price of one decreases, demand for the other does not decrease. > > But, if the falling price of oil doesn’t affect demand for renewables, why does it seem to weaken renewables stocks, even as solar power, for example, is growing faster than ever before? Simply put, it’s a problem of perception. > > It is engrained in the public consciousness that the price of oil represents the price of energy in general. This correlation is a perceptual challenge with widespread financial and political repercussions. The mistaken logic that all energy is cheap because oil is cheap can create a disincentive for investors, policymakers, and customers to support renewables and energy efficiency. > [@](#): > > Promise for a cleaner, more reliable energy future > > If oil price volatility doesn’t mean reduced demand for renewables, then what, in fact, does it mean? According to Christiana Figueres, the UN’s climate chief, it means that investing in fossil fuels like oil is an increasingly risky strategy. At the recent UN climate talks in Lima, Peru, Figueres maintained that the instability of oil prices “is exactly one of the main reasons why we must move to renewable energy, which has a completely predictable cost of zero for fuel.” > > What’s more, as noted in a market report from Bernstein Research last month, “Renewable energy is a technology. In the technology sector, costs always go down. Fossil fuels are extracted. In extractive industries, costs (almost) always go up.” > > In other words, now is the time to be building the foundation for a stable energy future protected from the price volatility of fossil fuels. The good news is we’re well on our way. From solar, to wind, and energy storage, we’re reaching tipping points that promise further cost reductions and market acceptance for clean energy technologies. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [January 5, 2015, 6:41pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/26 "2015-01-05T18:41:05Z")
> [@GIGObuster](#): > > Gut feelings are not as good when more experienced people are reporting something else. Here is some information from the Environmental Defense Fund: > > [Why Falling Oil Prices Don’t Hurt Demand for Renewable Energy - Energy Exchange](http://blogs.edf.org/energyexchange/2015/01/05/why-falling-oil-prices-dont-hurt-demand-for-renewable-energy/) Of course this ignores the fact that natural gas prices have also fallen considerably and natural gas is a direct competitor to renewables. ---
**Author:** ![Chief\_Pedant](https://avatars.discourse-cdn.com/v4/letter/c/a6a055/32.png) [@Chief\_Pedant](https://boards.straightdope.com/u/Chief_Pedant)\ **Post date:** [January 5, 2015, 7:03pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/27 "2015-01-05T19:03:15Z")
> [@GIGObuster](#): > > Gut feelings are not as good when more experienced people are reporting something else. Here is some information from the Environmental Defense Fund: > > [Why Falling Oil Prices Don’t Hurt Demand for Renewable Energy - Energy Exchange](http://blogs.edf.org/energyexchange/2015/01/05/why-falling-oil-prices-dont-hurt-demand-for-renewable-energy/) Well, if you are happy with that analysis, why did you say earlier that you were concerned about the effect of cheap oil on renewables? From this investor’s perspective, the issue is whether falling oil prices hurt renewable energy stocks, and not whether or not they should, or whether or not they affect demand. [Here](http://news.investors.com/121514-730501-why-solar-stocks-have-fallen-with-oil-price-s.htm?ven=djcp&src=aurlabo) is the kind of chart that concerns me. OTOH, maybe this is a good buying opportunity for renewables… What’s your gut? 😉 ---
**Author:** ![GIGObuster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gigobuster/32/421_2.png) [@GIGObuster](https://boards.straightdope.com/u/GIGObuster)\ **Post date:** [January 5, 2015, 10:58pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/28 "2015-01-05T22:58:11Z")
> [@Chief\_Pedant](#): > > Well, if you are happy with that analysis, why did you say earlier that you were concerned about the effect of cheap oil on renewables? Read it again, the main reason is to make oil cheaper than renewables were becoming. > [@Chief\_Pedant](#): > > From this investor’s perspective, the issue is whether falling oil prices hurt renewable energy stocks, and not whether or not they should, or whether or not they affect demand. And the point stands, what SA is doing is an attempt to keep fossil fuels as the main energy source, it looks more desperate to me as in reality what it underscores is the volatility of the fossil fuel market. > [@Chief\_Pedant](#): > > [Here](http://news.investors.com/121514-730501-why-solar-stocks-have-fallen-with-oil-price-s.htm?ven=djcp&src=aurlabo) is the kind of chart that concerns me. > > OTOH, maybe this is a good buying opportunity for renewables… > > What’s your gut? 😉 What the experts on the cite you made are telling us in the graph itself: _ **“Experts said that solar and oil aren’t substitutes.”** _ ---
**Author:** ![GIGObuster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gigobuster/32/421_2.png) [@GIGObuster](https://boards.straightdope.com/u/GIGObuster)\ **Post date:** [January 5, 2015, 11:03pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/29 "2015-01-05T23:03:31Z")
> [@LonghornDave](#): > > Of course this ignores the fact that natural gas prices have also fallen considerably and natural gas is a direct competitor to renewables. Not really, from the environmental point of view even the EDF reports that Natural Gas can (some effort is needed to control leaks at the source) and is many times better than other fossil fuel options regarding emissions. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [January 7, 2015, 3:55pm UTC](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866/30 "2015-01-07T15:55:28Z")
> [@GIGObuster](#): > > Not really, from the environmental point of view even the EDF reports that Natural Gas can (some effort is needed to control leaks at the source) and is many times better than other fossil fuel options regarding emissions. No, I mean the argument is that falling oil prices shouldn’t hurt renewables since they are used for different purposes (transportation versus power generation). Gas prices have also fallen and that is used for power generation; therefore a direct competitor to renewables. Has nothing to do with environmentalism or relative cleanliness of fuels. [Previous page](https://boards.straightdope.com/t/if-saudi-arabia-successfully-undercuts-us-canada-shale-oil-production-will-that-industry-rebound/708866.md?page=1)