The 2012 election was supposed to be decided by sky-high gas prices. A gallon of regular gas cost more on average during 2011 than it ever had before, and in the first few months of the year, amid growing tensions in the Middle East, there seemed to be no limit to how expensive oil could get. But since Brent crude--a benchmark used by oil markets--reached $128 a barrel in March, oil has been on a long downward slide, falling below $90 a barrel, with investors expecting further declines. All of which means that gas could be closer to $3 a gal. than $4 come election time.
Lower oil prices are good news for President Obama and good news in general for the global economy. The U.S. will benefit especially from the fact that much of the new cheap oil production will come from domestic sources, including the shale oil found in booming North Dakota. But there's one major loser from inexpensive oil, especially if it's managed poorly--and that's the environment. The one clear benefit of reaching peak oil--when the world was expected to run out of easily accessible crude--was that it would force the world to find alternatives fast. But if we can count on cheap oil for years and even decades to come, it's going to be that much tougher to break our addiction to crude.
Since the burning of oil is responsible for about 40% of the greenhouse gases that come from fossil fuels--second only to coal--this has serious implications for climate change. NASA climatologist James Hansen may not have been far off when he predicted several years ago that tapping the vast Canadian oil sands--one of the new sources that will likely boost crude production in the years to come--could mean "game over" for the climate.
Why are oil prices falling so fast? Much of it is due to worries over a global economic slowdown. Recessions, after all, reduce demand for oil, and reduced demand means lower prices. But some analysts believe we could be on the brink of a major surge in global oil production, which would lower prices tremendously. A new report published by Harvard's Belfer Center for Science and International Affairs predicts that global oil-output capacity is likely to grow nearly 20% by 2020, to some 110 million barrels a day. "Contrary to what most people believe, oil-supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption," wrote Leonardo Maugeri, a former oil-industry executive and the author of the Belfer Center report. "This could lead to a glut of overproduction and a steep dip in prices."
More immediately, though, a collapse in the price of oil is bad news for companies working in clean tech--especially transportation technologies. Start-ups like Massachusetts' A123 Systems, which provides lithium-ion batteries for electric cars, are already struggling to survive the weak economy and could be sunk if gas prices remain below $3.50 a gal. The same goes for plug-in cars like the Chevy Volt and the Nissan Leaf, which have sold more slowly than automakers expected, even with large government subsidies and, until recently, high gas prices. Cheap oil could set the mainstreaming of electric cars back even further.