Op-Ed: Just as oil starts to lose its grip, the Saudis’ low prices pull us back
To maintain their dominance of energy markets, suppliers of traditional carbon-based energy have never been afraid to play hardball. Massive advertising campaigns and intense congressional lobbying, built on huge levels of campaign finance, are routine in the United States. Now speculation is growing that Saudi Arabia’s downward forcing of oil prices is a new tactic in the climate game.
The conventional explanation for why the Saudis have not cut production is that their oil ministry’s managers, led by veteran minister Ali Naimi, hope to disadvantage low-cost energy produced through fracking, a worrying source of competition. Forbes magazine has asked whether the dropping price of oil is “game over” for the fracking industry. Others see it as a move to shut down Russia, the oil cartel’s biggest rival, or to damage regional rival Iran.
But the Saudis understand that they need consumers as much as consumers need them. Their goal is to profit, but not so much that it drives away customers. Just as successful parasites do not kill their host, feeding the addiction is definitely part of their survival plan.
The decade of historically high oil prices before the recent crash produced some worrying trends for big producers. From 2004 to 2014, the fuel efficiency of cars sold in the U.S. rose 25%. Electric cars make up a tiny proportion, but their sales have more than doubled in the last two years.
With oil demand flat and technology constantly improving, one does not have to be a gloomy Saudi oilman to imagine a future tipping point, when investment in the broader infrastructure around electric vehicles — from manufacturing to sales and servicing — overtakes gasoline-powered spending.
There is also the possibility that negotiations conducted in the United Nations Framework Convention on Climate Change might actually conclude in December with a series of national commitments to cut back greenhouse gas emissions. That, buttressed by the recent U.S. deal with China to cut net greenhouse gas emissions 26% to 28% below 2005 levels by 2025, and other efforts to advance renewables in India, suggests a level of movement on containing greenhouse gas emissions not seen in the two decades since negotiations began.
The Saudis can continue to block serious action in the U.N. climate change negotiations. That is to be expected, and they have done that very adeptly over the years. They can express skepticism toward the full implications of the science or use their muscle to water down reports from the scientists who advise the UNFCCC.
But why not circumvent that cumbersome process and lock down the addiction to oil that has served them so well? Anyone who follows the climate knows how facts on the ground — the way that energy consumption is intertwined into all human life — trumps planning for future disaster.
The deliberations of the Saudi oil managers are a closely held secret, so we don’t know if this is their thinking.
But American vehicle-buying patterns show that as gas prices at the pump drop, sales of gas guzzlers rise. We don’t know if demand for inefficient vehicles will continue, but the director of market analysis at NextEnergy, a Detroit nonprofit that develops clean-energy technologies, nailed the core concern, saying, “Americans tend to have fairly short attention spans for these types of things.” University of Michigan tracking shows that after a steady trend toward increased miles per gallon when monitoring began in 2007, culminating in record highs in August 2014, car purchasers’ interest in fuel economy is now slipping.
Experts debate whether demand for electric vehicles is a function of gas prices or cultural factors. We don’t yet know if lower gas prices will discourage sales once manufacturers try to reach beyond niche consumers interested in statement cars such as Teslas.
But one thing is certain: High oil prices keep alive activities that ultimately can undermine Saudi interests. The future of electric cars is wrapped up in improved batteries and storage capacity. Consumers want their cars to be able to drive long distances; battery development is key to extending the range of electric cars. Will battery innovation survive in a new environment of cheap gas or will it suffer from the same inconsistent signals and stop-and-go motion that has undermined research and testing of, for example, carbon capture and storage to sequester power-plant emissions?
Given what is at stake for humanity with an already changing climate, the Saudis and their allies should not be the only ones to play hardball with an eye on the long game. Although it will not be easy, the Obama administration must also play tough and resolutely press on to turn the tide on energy efficiency.
Ruth Greenspan Bell is a public policy scholar at the Woodrow Wilson International Center for Scholars; Max Rodenbeck, Middle East bureau chief for the Economist, is a fellow at the center.
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