January 2015, Vol. 70, No. 1
Editor's Log
Ripples
Much of the country, indeed the world, is celebrating the fall of oil prices. The immediate and most obvious benefit is relief from high fuel prices.
For the short term, we all can marvel at being able to pull into the gas station and fill up our cars, SUVs and trucks without breaking the bank. But the ripple effect for prolonged, depressed energy prices will likely spread into economic impacts unforeseen and ignored. The American public tends to be largely ignorant of negative consequences – until their jobs become affected. Indeed, depending on where the price of oil finally settles, there will definitely be an impact on the pipeline construction market.
The United States has struggled through an agonizingly slow economic recovery from the recession that hit full stride in the 2008-9 timeframe. There has been limited recovery and unemployment rates have been declining, albeit in fits and starts. Still, we’re in a much better position than a large portion of the world.
It has also been observed by many economists that this U.S. recovery is running contrary to typical economic cycles and the typical growth cycle after a recession hasn’t materialized. The economic engine that has propped up the U.S. recovery has been brushed away by many in the public eye and especially the environmental and anti-big business lobbies, for that powerful economic driver has been none other than energy. The shale oil and gas boom and subsequent ripples throughout all facets of the oil and gas industry has driven our economy forward when “shovel-ready” stimulus, increased federal intervention and regulations, a log-jammed and inept Congress along with an ineffective president couldn’t begin to facilitate or grasp the root causes of our recession.
While all parts of our government have been busy pointing the accusatory finger at one another, energy found a way to prosper. From exploration to horizontal wells to fracking, to pipeline construction, it has all combined to propel the U.S. forward, essentially serving as a well-paying job and investment engine.
Silicon Valley and Dot.com companies were never able to generate that kind of economic activity. Energy has been a positive economic force of the U.S. – and even the world – for several years. There is no doubt that the underground construction market has been driven by energy growth.
But as soon as zealous prognosticators started projecting that the U.S. would become that world’s largest producer of oil – even a major exporter – international mystique came into play. Russia’s land grab and continued threat to the Ukraine has caused many ripple effects across the economies of Europe. Economic sanctions against Russia have a concerned Europe turning elsewhere for oil and gas supplies. Russia is trying to bolster its relationship with China to compensate. It is Russia’s oil revenue that makes Russian President Vladimir Putin’s political plays possible.
Enter Saudi Arabia who recently ignored other OPEC countries and refused to lower production quotas, effectively keeping the world flooded with oil. Saudi Arabia, with $750 billion in reserves, can live with lower prices for a while in order to accomplish its long-term goals. The countries that will suffer the most economic fallout from the Saudi’s actions are their political foes such as Iran and Russia. It’s ironic that at least in the short term, that aids U.S. interests as well.
But nonetheless, the U.S. economy gets a boost from lower energy prices and Average Joe will enjoy a limited economic renaissance as well. However, if the American oil and gas industry has to endure a prolonged period of depressed prices, inevitably there will be cutbacks and a throttling of expansion plans. Right now, there don’t appear any industries capable of fueling a healthy economy to the degree that energy has.
Odds are, it will be several years before we’ll see oil prices topping $100. Saudi Arabia has the resources to back-up this political play for some time. For the domestic oil and gas markets, their future is centered upon at what price can they continue to remain a healthy and viable industry? A healthy energy industry is essential to the future of the United States – and for the sake of a healthy pipeline and related infrastructure construction markets. Cheap gas prices provide wallet-relief right now, but bank accounts may suffer a much greater loss in the future.
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