free html hit counter Peak Oil Debunked: 23. OIL INTENSITY OF A $10 BILL

Wednesday, August 17, 2005


Oil intensity is defined as the number of barrels of oil required to generate $1000 of GDP. From 1950 to around 1977 U.S. oil intensity wavered around 1.5, and after 1977 it began a steady drop to 0.8 (as of 2000). Source(pdf, Table 2)

So suppose I purchase a consumer product like a quantity of bread for $10. How much oil, total, was required to create that bread? The answer is (speaking roughly, and on the average): 1.27 liters of crude oil (0.8 barrels = 127 liters). This includes all the oil needed to grow the wheat, harvest it, transport it to the mill, mill it into flour, transport the flour to the bakery, bake the bread, and transport the bread to the retailer*.

It's a mind-boggling image if you think about it. Pull $10 out of your wallet, and go spend it on something. On the average it took 1.27 liters of crude oil to produce whatever you bought. Picture yourself with a backpack full of liter bottles containing crude oil. That's your wallet. Every time you pull out $10 and spend it, a liter of crude is going up in smoke somewhere.

A strange paradox about this is that, at current U.S. prices, you can buy about 26 liters of crude oil for $10.

*The technical reason why this is so is because of the way GDP is calculated. GDP only counts final products, not intermediate, lower-level products which serve as inputs (like wheat and flour). Therefore, when calculating oil intensity, we are essentially alloting total oil consumption to final products in proportion to their value. There is no oil left over which might serve as the "indirect oil" used (for example) in mining/growing/processing raw materials. All oil consumption has been alloted to some final product, and the consumption alloted to that product can be taken to indicate (albeit roughly) all indirect, lower level oil inputs.
Granted, this produces some severe deviation in specific cases: i.e. where a product has high monetary value but requires little oil to produce (legal services), or where a product has low monetary value but requires a lot of oil to produce (gasoline). The former takes less oil than the average to produce, and the latter take more oil than the average to produce. Nevertheless, on the average it is true. It takes 1.27 liters of crude oil to produce $10 worth of final consumer goods/services.


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