How to make Arctic drilling irrelevant

shutterstock_25454920Recently, Exxon Mobil Corp. announced plans to drill off the coast of Newfoundland, Canada. What’s most interesting about this announcement is not necessarily the decision itself, but the fact that the oil extracted from the sensitive region will fetch Exxon Mobil about $111 per barrel based on current prices for Brent Oil, compared to the $57 per barrel that Western Canada Select (oil-sands crude) currently sells for.

A quote from a Bloomberg article about the oil company’s announcement puts this development into perspective – “The better pricing is definitely an issue.” This statement points out that the ability to sell oil at an increased price of $111 per barrel was likely the motivating factor that led Exxon Mobil 218 miles offshore to drill for oil. Conversely, if oil prices were lower, Exxon Mobil may not have enough incentive to drill in this remote arctic locale or in other similar areas.

Thus, high oil prices mean that more difficult, dangerous, expensive and environmentally sensitive sites will become ever more attractive for drilling. Incidents like the recent Shell oil rig that ran aground in Alaska and BP’s Deepwater Horizon oil spill may become more commonplace as a result.

How can we minimize the risk of such disastrous events? The most obvious solution is to reduce the incentive to drill for oil in these places by bringing down the price of oil. Doesn’t that sound like a win/win situation for all of us? Sensitive ecological areas will be protected and we would all pay less for gas at the pump due to the drop in oil prices.

Lower prices can be achieved by breaking our dependency on oil through the use of readily available alternative fuels. Making the switch is actually not such a tall assignment. Age-old technology utilized by pioneer carmakers, such as Henry Ford, can allow our cars to run on several fuels, as the bestselling Model T once did. Access to fuels other than gasoline will create competition for our fuel dollar, breaking oil’s monopoly on our engines and restoring the pricing power to the consumer.