Lower oil prices and creative destruction


The shelving of this $11 billion investment is just one example of the negative effects from lower oil prices on the energy industry. The trade press has been replete with notices of reduced spending, staff reductions and other negative fallouts from the downturn in oil prices.

In previous columns, I have discussed the ongoing energy revolution in the U.S. natural gas and crude oil sectors. 

But there is another side to plunging energy prices that reflects a “creative destruction.” The expression refers to innovations that allow new production processes and products to replace old processes and products. The new processes and products create wealth and value along with economic growth through investment. However, the old methods and products reflect a loss of wealth and value and economic decline through disinvestment.  

Creative destruction is ongoing and creates winners and losers in developing sectors such as information technology and energy. The same exists in the barge industry, reflected by the passage of steamboats into history and the gradual standardization of the 1,500-ton-capacity dry cargo river barge which replaced smaller 800- to 1,250-ton-capacity barges.

The freight transport sectors are big winners in the creative destruction of the old high prices of natural gas and crude oil. Witness the shift from liquid natural gas imports when domestic natural gas was about $9 per mcf to the potential conversion of these facilities to export terminals when gas is at $3 to $4 per mcf. What a difference fracking technology has made with domestic gas prices and markets in less than a decade.

Low energy prices are not only a game changer for fuel costs, but also provide freight transport sectors with new cargo opportunities. The best examples are rail and barge movements of domestic crude that have replaced imported crude. These represent new transportation movements and markets that did not exist a few years ago.

On the down side, however, steam coal movements for barge and rail have been victims of this same “creative destruction.”            


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