President Obama graciously thanked himself for cheap gasoline at a rally in Philadelphia for Hillary Clinton on Tuesday.
To hear him tell it, “Let’s face it; Republicans don’t like to hear good news right now.” And while cheap fuel is indeed something that millions of households and businesses are happy about, including Republicans, many would doubt that Obama is to thank. Meanwhile, businesses in the oil and gas sector and those employed (or unemployed, as the case may be) in the oil and gas sector, along with those in the real estate sector and others who have been struck by low oil prices, may be less than thankful, regardless of their politics.
To be fair, Obama probably didn’t plan to take credit for low prices at the pump that day—it was shouted out from someone in the crowd, and he was quick to accept the credit, saying “Thanks, Obama!”
And while unplanned, Obama was smart to capitalize on the preoccupation that many Americans have with low prices at the pump, without much thought of the bigger picture. Smart, but definitely only part of the picture.
The shale boom that coincided with Obama’s first term unquestionably did a lot for the energy independence of the U.S., but if you take credit for low prices at the pump, you’re inadvertently taking credit for the global supply glut as well—a global glut that has forced prices ever downward, resulting in the comfortable $2.00-ish per gallon Americans are now enjoying at the pump.
The oil and gas industry thrived at the start of the shale boom, and so did everyone in it. Prices at the pump started going down, but the price of crude oil was still comfortably high—for a while. Then, two years ago, as crude oil prices started sinking, the happiness for some began to wane.
According to law firm Haynes and Boone, between January 2015 and July 2016 there were 90 bankruptcies in the U.S. oil and gas sector. A recent report from Debtwire warned that another 135 energy companies are at risk of going under, with their debt load in some cases reaching as much as $14 billion.
The shale boomers borrowed heavily to sustain the boom. Banks were happy to lend, until last year, when it became obvious even for the most incurable optimists that low oil prices would be staying down for a long time. That’s when banks started tightening their credit requirements and most independent energy industry players discovered that the game is no longer about growth, but about survival.
For Big Oil, it hasn’t yet come to survival, but injuries have been sustained—some of them serious such as giving up projects worth billions of dollars, slashing jobs and cutting investments. In short, Big Oil has spent the last 16 months circling the wagons, trying to outwait this slump.
Employment in the energy industry was highly sought after at the height of the boom that pulled prices at the pump down to $2 a gallon. Now, an estimated 350,000 people have been laid off globally. Of these, 99,000 were fired in Texas alone. These are people who, like their bosses, are highly unlikely to be in the mood to give thanks to the President, whose administration has nurtured the fracking that made the shale revolution possible.
Environmentalists, who do have reasons to be grateful to Obama (for instance, for the suspension of the Keystone XL pipeline project) are not that happy with the outgoing President when it comes to fracking, which many have linked to an increase in seismic activity and underground water pollution from chemicals-rich fracking wastewater dumped into wells in the ground.
Electric vehicle makers are probably not too thankful either, nor is the renewable energy industry in general. Tesla, for instance, is going against the grain to get a more widely affordable car to the market to incite more people to switch from gas to electricity, but this takes time and money, which, it seems, Tesla doesn’t have. A couple of months ago, the company announced that it would no longer offer to buy back their cars at no less than half the original price, should they decide to sell it. This came amid missed sales targets and delayed production. And why should drivers throw money at an electric car (despite rebates and all) when gas is only $2 a gallon?
Cheap gasoline has truly been a boon for millions of people still coping with the fallout of the 2008 financial crisis. But like every boon, it has become a curse for many others, from Big Oil executives to environmentalists, from former oilfield maintenance workers to the real estate industry. These people won’t be joining in the “Thanks, Obama” refrain anytime soon.
By Irina Slav for Oilprice.com