Adam Smith Institute

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Facepalm

It worries me sometimes, the things people say:

You know that domestic oil-and-gas boom that’s been sweeping the country for the past few years, turning places like Williston, N.D., into Sin City? Well, the party’s winding down — or maybe it was never that ragin’ in the first place. Oil and gas shale assets, possibly overvalued to begin with, are plunging in price thanks to an oversaturated market and wells whose production hasn’t always lived up to expectations.

The first and most obvious contradiction here is how we can have an oversaturated market and also production that hasn't lived up to expectations. One rather precludes the other really.

But a much greater worry is that they're assuming that a falling price for oil and gas assets is a bad thing. When of course the reality is entirely the opposite: it's just absolutely great. An oversupplied market leading to falling prices for the productive assets means that, well, it means that the market is being oversupplied. Which in turn must mean that consumers are getting their fuel more cheaply: very much the point of the exercise, that we can make things cheaper for consumers.

It's also true that if our new technology, applied to these new assets, led to a rise in the price of those assets then we thought that we would need lots of those assets to apply the technology to. A falling price shows that we now realise that we need fewer assets to supply market demand. That is, that fracking is even more successful and wondrous than we at first thought. Which really isn't a sign that the party's over. Rather, given that consumer welfare is our concern, it's a sign that it's only going to get better.