37. OIL IS NOT CHEAP EASY ENERGY
There is a common misconception that oil is the cheapest, easiest-to-produce form of energy available, and that other hydrocarbons like coal and gas are more expensive and more difficult to produce. Sometimes this is expressed by saying: "Oil easily flows out of the ground like liquid up a straw. Coal, on the other hand requires you to move mountains out of the way, and do massive intensive digging." A simple calculation shows that this is not the case. Here are the prices per million-btu (MMbtu), cheapest energy first:
Coal (Powder River Basin) = $0.45/MMbtu
Coal (Central Appalachia) = $2.60/MMbtu
Natural gas = $6.97/MMbtu
Oil = $9.14/MMbtu
As you can see, oil is actually the most expensive form of hydrocarbon energy. In fact, the energy in crude oil is 20 times more expensive than the energy in coal from the Powder River Basin.
Now, the doomers would obviously like to claim that oil is the cheapest liquid energy which can be used to fuel vehicles, but that isn't true either:
Brazilian sugar cane ethanol = $7.81/MMbtu
====== CALCULATION DETAILS =======
Coal (Powder River Basin)
8,800 btu/pound x 2000 pound/short-ton = 17.6 MMbtu/short-ton
$8/short-ton (5/2005, spot price) Source
$8/17.6MMbtu = $0.45 MMbtu
Coal (Central Appalachia)
12,500 btu/pound x 2000 pound/short-ton = 25 MMbtu/short-ton
$65/short-ton (5/2005, spot price) Source
$65/25 MMbtu = $2.60
Natural gas:
1000 cubic-feet = 1.03 MMbtu
$7.18/1000 cubic-feet (12/2004, LNG import price) Source
$7.18/1.03 MMbtu = $6.97
Oil:
1 barrel = 5.8 MMbtu
$53/barrel (4/2005, WTI-Cushing) Source
$53/5.8 MMbtu = $9.14
Ethanol:
1 barrel = 3.2 MMbtu Source
$25/barrel (Brazilian sugar cane ethanol, 8/05, Source: Newsweek, Aug. 8 2005, P. 47)
$25/3.2 MMbtu = $7.81
posted by JD @ 9:34 PM
5 comments
5 Comments:
This is one of the most misleading entries on this blog.
Saudi Arabia pumps oil for $1.50/barrel. The most expensive oil comes from the North Sea at $5.00/barrel.
What your numbers show is that the production to demand ratio is very narrow for oil.
Why do you think North American methane has gone from $1/MBtu to $8/MBtu over the last 6 years?
Price is not about the cost of production; it is about supply and demand just like it has always been.
Best, Dan.
Ditto what Mr. Bloomquist wrote. You're looking at end-user prices which are the result of supply and demand forces, not costs of production. You need to be looking at the costs producers pay, not the prices they receive.
You don't need to look just at costs, but at the energy involved in mining it. When we talk about 'easy oil' we are often talking about the fact that it is a source of energy that is far more easily obtained than certain other sources of energy.
It's in a liquid form under pressure in a new well, and gushes out. It almost mines itself at first!
The fact that it then costs $20 dollars per barrel or $420 per barrel is irrelevant — that's the good old demand and supply.
We have to think energetically, not just economically.
The author makes a valid case for substitution. In particular, if it costs less to use other forms of energy, then I will.
The factors of production are reflected in the market price, so the author's comparison makes sense here.
No mention of Energy Density. We didn't stop using coal for transportation because oil was cheaper we stopped using it because oil has a far higher energy density. (energy per pound)
The high energy density of oil is why we use it for 98% of the automobiles in the world. Regardless of cost peak oil is very very big problem for transporting goods.
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