A drop in oil prices to $90 a barrel has forced the price of gasoline down from $4.50 a gallon to the mid-$3 range, providing some relief to resentful motorists.
Prices, of course, ebb and flow. But two recent headlines point to bigger factors at play that not only are providing price relief to consumers but lay the groundwork for big changes in international politics.
The Times of London reports that "American Shale Revolution Ends Saudi Arabia's Reign as Oil King." At the same time, the Wall Street Journal is reporting that "OPEC Members' Rift Deepens Amid Falling Oil Prices."
One headline, of course, is the cause of the other.
The "fracking" revolution is turning the world market for energy upside down. Fracking — a combination of the words "hydraulic fracturing" — so far is a phenomenon limited largely to the United States, although many other countries including China, Australia and Mexico have similar energy exploration potential.
It's a deep-drilling technique that allows producers to obtain access to oil and gas resources, much of it contained in shale rock formations, that previously were unreachable.
That's no longer the case, allowing U.S. producers to take the lead in energy production from Saudi Arabia for the first time in more than 30 years.
U.S. oil production has increased almost 50 percent — from 8 million to nearly 12 million barrels a day — since 2011. Shale gas production provided just 1 percent of the U.S. natural gas supply in 2006; now it's producing 40 percent and expected to increase for at least the next 20 years.
When supply is greater, prices go down. That's why the members of the world's Middle East-based oil cartel — the Organization of Petroleum Exporting Countries — are having a hard time fixing oil prices and have started to feud among themselves.
OPEC has discussed reducing production in order to reduce supply and raise prices. But that approach is problematic because its member countries have different production costs.
The Journal reports that Kuwait, Saudi Arabia and the United Arab Emirates don't need prices as high as countries like Venezuela and Iran. Hence, Saudi Arabia and Co. will continue to sell at lower prices, raising the hackles of fellow OPEC countries that want to lower production.
The bottom line, of course, is that this conflict generates further chaos and distrust among a group of countries that already distrust each other.
How low will prices go as world production continues to increase? The oil minister of Kuwait suggests the floor is around $77 a barrel, characterizing that price as the average production cost in both the U.S. and Russia.
That, of course, presumes that the energy supply situation remains static, which it has not been for the past 5 to 10 years. The U.S. fracking boom has changed the face of the international oil market while at the same time turning a number of states, most particularly North Dakota, into the equivalent of boom towns.
Fracking has generated thousands of jobs directly and thousands more indirectly. People who need good jobs are finding them, boosting their ability to earn a living, support their families and pay taxes to state and local governments that need the revenue. The demand for labor has created a shortage of workers that has driven up the wages paid to everyone.
So, one might ask, why is Illinois sitting on the sidelines and electing not to pursue this economic development tool?
Here's the short answer — well, because it's Illinois.
The long answer is that the Land of Lincoln has become a state where our elected officials talk a lot about creating an environment that encourages job creation while taking action that slows the process down. Two years ago, the Illinois General Assembly passed legislation authorizing fracking while establishing strict regulatory safeguards.
Since then, the bureaucrats at the Illinois Department of Natural Resources have been engaged in what looks like an endless rule-writing process.
Last month, they finally came up with a set of rules that producers said are unworkable and that angry legislators found disappointing. The legislative committee overseeing the process sent the bureaucrats back to the drawing board and told them to try harder.
In the meantime, nothing is happening in southern Illinois, where people need jobs and the New Albany shale formation is ripe for energy exploration.
Whether Illinois ultimately chooses to participate — and it should — this new energy revolution will remain strong. If they're not welcome here, producers simply will go elsewhere. But we're missing a good bet — people need jobs, governments need tax revenues, the world needs more and cheaper energy. Illinois needs the fracking industry much more than the fracking industry needs Illinois.
