The price drop in oil has been attributed to a variety of factors. First, there was an oversupply of oil related to the rise in domestic production from the U.S. and continued high production in the Middle East. The low price of oil is also having a major influence on the appetite for oil companies to invest in expensive new drilling operations, and even in existing oil fields, in areas that require a high oil price to make a profit. This includes the oil sands region of Alberta, where companies have been laying off workers and idling drilling equipment in recent months, as well as the Arctic. The temporary drop in oil sands drilling has climate benefits, since recovering oil from that region requires more energy than drilling in North Dakota or Saudi Arabia. The irony, though, is that this work is uneconomic with oil at such a low price. Shell may be banking on a price recovery in the near term, but that’s looking increasingly less likely given the market concerns about lower than expected economic growth in major emerging economies like China.
Oil is also not widly used for generating electricity in most of the world, so the ramifications on electricity generation are more indirect, since low oil prices also tend to mean lower natural gas prices. In recent years, natural gas has replaced coal as the top electricity-generating fuel in the U.S., and it results in fewer planet-warming greenhouse gas emissions than coal does. To the extent that solar and wind power have been approaching cost parity with natural gas. But now a new factor is influencing oil prices, and may constitute a more significant threat perception that there will be a global decrease in energy demand or at least a slowdown in its growth, particularly in China, which would in theory, at least, reduce demand for both petroleum and non-petroleum energy sources. If there is less demand for energy, that is bad for every source,” according to Michael Levi, an energy expert at the Council on Foreign Relations in New York.
Historically high oil prices in the 1970s led to the first modern electric vehicles and tighter fuel economy standards, followed by lower oil prices in the 1980s, which coincided with reduced incentives for more fuel-efficient cars. Under the Obama administration, fuel economy standards were tightened once again, but they are up for review in 2017 and 2018.
On the whole, low oil prices may initially edge down appetite for wind and solar compared to what it would otherwise be but I think public opinion is changing and policies and purchases are now being driven towards an unpromising future of the energy sector based on oil. Question is when will this happen and how will the new future look like.