04 February 2016

Modeling the Future -- Oil

I stumbled across an entertaining piece of science fiction on the net at http://www.wolfatthedoor.org.uk/ . WolfAtTheDoor stakes out an extreme version of the future propagated by www.peakoil.net . To paraphrase "Oil prices will rise dramatically and civilization as we know it will end. We will return to living a medieval life." Fortunately, however, both of these web sites clearly have no understanding of economics and thus can be enjoyed as classic horror.

The United States in the 1980s provided a good example as to what will happen when oil demand exceeds supply. Production of oil in the United States started to rise as the economics made older oil fields cost effective. And alternate, more cost effective, energy sources were substituted for oil.

The EIA points out that about 1/3rd of the oil used in the US today is used for stationary (non-transportation) uses such as space heating or power generation. In most of the world, more than half of oil is used for stationary applications. This means that if the price of oil rises high enough, it is relatively easy to substitute natural gas for oil in many applications.

A barrel of oil contains about 6.2 million BTU. At a price of $55.80 per barrel, that's $9 per million BTU. Natural Gas in the US is currently around $6 per million BTU. (And, since natural gas burns cleaner than oil, there is a tendency for consumers to pay more for natural gas than oil in stationary applications.)

[Originally published 4/11/05.  I screwed up the timestamps trying to fix a couple of minor typos.]


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