The real value of oil

In an early 1990s British TV series called GBH, the main protagonist – a Machiavellian local council leader is seen at one point trying to shred large numbers of documents with a tiny paper shredder as the police close in… and famously says something like “Bloody typical… I always know the cost of everything and the value of nothing… agggahhh” – (and my apologies if that isn’t exact, or even attributed to the correct TV show.. all from memory).

The point is, we know the cost of oil, we know the price (even if we don’t know where it is heading…) but do we know the real value?

Oil is many things, but if we think of it as conveniently stored and condensed sunlight we can enjoy the irony that the current holy-grail of renewables is “Solar-Plus” – ie solar for power generation plus storage.  Crude oil has this technology challenge sorted in spades; condensed and easily transported sun-power.  Unfortunately it is not a process we can easily reproduce, although there are ideas out there trying to mimic photosynthesis.

More power to you, oil.

Crude oil is exceptional in its huge energy intensity.  One barrel of oil is equivalent to 5.7 million BTU or 1700 kwh of power, approximately 10 years of human labour (source).  I was about to redo the math, but assumed someone else would have already done it.  Turns out quite a few people have – and this is one of the best I saw.   So some variability around assumptions, but at or about an order of magnitude oil should be worth circa $164,000 USD/bbl if it is put head-to-head with human labour.  Yes, that is $164 thousand, not $164, per barrel.

Crude oil is incredibly energy-dense – indeed that is exactly why it replaced coal in the early part of the 20th Century: you got more bang for your buck.

So why the current fretting about $20-$120 oil?

Whilst oil is almost free (I know it doesn’t feel like that when you buy gas at the pump, but it is almost free when you consider what you are getting from it… and don’t forget how much of the cost is simply tax), we can afford to do many things.  Many of them stupid.  I live near(ish) to Evian; a bottle of Evian water will probably transit via a central facility someplace (likely near Paris) before being shipped back to my local supermarket.  The fact we have pristine Jura water literally coming out of the ground makes this even more of a nonsense than in say Paris or London where you might question tap water…  I am not picking on Evian in particular, as this is a curse of all bottled water – which is frankly a ridiculous trend in most developed countries, but I digress…  

Oh and by the way, a barrel of mineral water costs a lot more than a barrel of oil… but you knew that already..

You did freaking what?  You burned it?

As I said above, crude oil is an amazing resource – and I suspect our children and grand-children will look back in amazement at the stupidity of our generation in burning it all so we can drive air-con SUVs on the school run we used to walk as kids, or any one of the myriad examples that come to mind…  Talking of a ridiculous use of a valuable and finite resource; how about driving around to catch virtual Pokémon with virtual Pokéballs?… don’t deny it…  and its not just the petrol, but all the energy needed to have ‘always on’ internet… probably the subject of another post one day, but its way more than you think…

Indeed the overall wastefulness of energy in the modern technological-industrial society is mind boggling.   In fact if you turn that around, it is argued that the modern technological-industrial society requires abundant cheap high-intensity fuel.   There are many compelling arguments to suggest that

  1. this dependency is fragile (post-modern peak-oil)
  2. there is no alternative
  3. we had better wake up

And to be clear – this is not the famous (and mostly fictitious) “Oil Industry Lobby” sounding the alarm, but self-proclaimed eco-Jedi(s).   Nate Hagens has some very well argued posts and videos covering the perils of over-consumption and sounding the alarm that ‘business as usual’ may not be possible (even if it were desirable, which it isn’t).  This isn’t the simple climate-change argument that fossil fuels must stay in the ground to keep warming to below 2°C.  Rather a view that economic growth is like ancient alchemy and that the extra-ordinary progress over the last 200 years (accelerating with the adoption of oil in the early part of the 20th C) has been built on access to ultra cheap energy.  Money is simply a placeholder or proxy for access to energy and coupling that with the fact that peak oil will someday occur… Peak Prosperity may well already have happened.   Certainly we have seen Peak Cheap Oil.  In this scenario, global politicians, reserve bankers and economists are all heads-in the sand, desperately promising a brave new world: a world that may be not only utopic but actually contrary to the laws of physics.

And surprisingly, these same thinkers do not believe that the renewables revolution will be able to replace let alone surpass oil.

There will be NO combination of alternative energy solutions that might enable the long term continuation of economic growth, or of industrial societies in their present form and scale. (postcarbon.org)

The above quote is from a detailed study of all energy forms and (along with much else in this post) focuses on the “Net Energy” – i.e. how much energy you get from a given source, when you subtract its entire energy footprint.  It was published in 2009 at the height of the Peak Oil scare… so looks a bit dated.  but even with the advent of LTO, the problem is only kicked down the road a few years if at all…  because guess what, to a large extent LTO fails the Net-Energy test.

Some interesting reading – quite sobering and thought provoking to provide an alternate view to the mindless, headlong rush for progress and growth so beloved of talking heads on CNBC and the like, which may just be coming unhinged. 

  • This post by Art Berman helped coalesce my thoughts on this wide ranging subject. I’d recommend reading the comments below his post also…
  • Jeff Rubin – Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalisation
  • JK Galbraith “The end of Normal” 2014 – which I have not yet read… but is next on the list.
  • Nate Hagens posts and videos (linked above)
  • Searching for a Miracle – the PostCarbon.org

I came across several of these sources in the space of a couple of weeks – all with the same basic idea – that the end of oil is bigger than just our careers.  Indeed it is the totally apocalyptic idea that the current industrial-technical life is predicated on cheap energy, and that we are entering the end-game of that epoch… 

Whilst we are unlikely to see another Gwahar sized field, the resource plays will work somehow, given the extreme value of oil (as noted at the top of this post).   Likewise for renewables I find it hard to imagine that current technology uses more energy to build (transport, install) than it will generate in its lifetime (ie a positive return on energy investment, which would seem to undermine the argument a bit)…  However, the blind spot here is that the entire industrial society is based on cheap oil, so to mine the materials needed, transport them, transform them with cheap chemicals (that are cheap because cheap energy is available), construct the products, transport, install and maintain these – at every step the ‘cost competitiveness’ is ironically a function of the available cheap energy that these are “displacing”.  Remove that lubricant and the Net Energy monster will rear its ugly head.

Secondly – don’t underestimate the ability of 7bn humans to innovate and adapt…  as much as over-population is part of the problem, so it may well be the solution…

I also think that much of the discussion seems to be envisaging a fairly binary future, with no cheap oil and a civilization slipping back into the energy void.  As with projections of LTO having a single ‘break-even’ price, the reality is that it is a continuum and a continuum that can change over time.  Thus, we should be aiming to transition from oil as fast as possible, not necessarily from a climate perspective, but to ensure Business as Usual for the economies of the world, using the tail-end of cheap oil to build the infrastructure necessary to survive the next energy gap, now.  Not sure what the average lifespan of PV panel, a wind turbine, or a battery would be, but probably not much grounds for optimism there. So again we come back to the question of just how sustainable current economies are if energy costs increase whether gradually or suddenly.

“How did you go bankrupt?”   Two ways. Gradually, then suddenly.”

Ernest Hemmingway, The Sun Also Rises


On wider philosophical point, this equation of energy and money reminded me of the JET project – I visited when I was a schoolboy (mid-Jurassic period according to my kids).  This was an early attempt at nuclear fusion – “limitless, clean power”… and no it’s not been solved yet, but what if it is one day?  Limitless power?  That would alter the balance considerably and make

  1. over population be easily sustainable – with all the catastrophic consequences for the rest of the planet – ie species extinctions and,
  2. would apparently cause hyper-inflation worldwide as money would have no base-line… 

better put those cold fusion test-tubes away and focus on consuming less and start getting used to it.

If you have read this far – I have one last glass-half empty observation to share.  At a recent Innovation Forum from a respected Engineering University – I saw “drone delivery of pizza” as one headlining presentation. 

Really…? if that is innovation, we are doomed.