Energy Demand: Devaluing Oil

Take a look at all the “junk” you have lying around in your garage, basement, attic, closet, etc. Are you doing anything with it? Are you trying to sell it? Have you ever had a yard sale and realized that all that old junk isn’t really worth that much? That maybe for the meager amount of money you earned you would have been better off enjoying your weekend as opposed to organizing and managing the sale? Well, you’re not alone; unless you have enough items of value, selling your old belongings may not be worth your time and effort.

What if all that old stuff you no longer have a need for suddenly becomes very valuable, and you could actually make a great deal of money by selling it? Not only would holding a yard sale be worth your time and effort, but you may even put in extra effort to collect more old things to sell to increase your potential profit. You may even spend some of your own money in getting all this together so that you’ll have more to sell and could make even more money.

That’s a lot like what’s going on in the oil market. In recent years, the price per barrel of oil has skyrocketed and now, we’re looking at extracting and selling oil that once wasn’t worth our time or effort. Arctic drilling, deep-sea drilling, tar sands, shale oil, etc., are all coming online in greater numbers because they are now worth the time, effort and expense to bring them to market. If the price of oil keeps rising, who knows what other oil, or oil-like reserves, may be extracted.

This whole notion may run contrary to what most people believe. On a simple supply and demand curve, usually if the price of a good goes up, demand goes down. However, as the price goes up, supply also goes up, much like in the illustration below. And since we all still need to drive, for the most part, the demand curve for oil is relatively inelastic, meaning prices don’t affect our demand that much (sorry for reverting to all these “Econ 101” terms).

In short, the higher the cost of oil, the more oil there is. After all, if you had a product that kept selling even after you tripled or quadrupled the price, wouldn’t you want to try and sell more of it?

This doesn’t mean that for oil consumers (i.e., the average driver) hope is lost. Just as oil became more valuable, more of it became available for sale, the same could happen for other fuels.

Take, for example, “gas flaring” in oil wells, a particularly acute problem in North Dakota. A common byproduct of oil drilling is that gas, embedded deep in the ground alongside the oil we extract, also rises to the surface. This gas is often flared because harnessing it and bringing it to market may not yield a profit for oil companies since there is less demand and less value for it. Essentially, we’re wasting a non-renewable resource because it’s not profitable.

So what if we were able to give it value? What if we made it so that our cars could have the option to use that wasted gas? One way to do this would be to convert that flared gas into methanol. This would have the many benefits of giving us a choice of what to fuel our cars with (back to our “Econ 101” thinking, choice means more competition which helps drive down prices), not wasting a finite resource, and reducing emissions including significantly reduced drill-site emissions of methane, which is a much more potent greenhouse gas than CO2.

Why should we give so much value to oil when we have the proven technology to use other fuels that we are currently wasting? By giving value to other fuels we would reduce the value of oil, lower prices and even out the playing field in a true open market.

fuel freedom

7 Comments on "Energy Demand: Devaluing Oil"

Matt on Sat, 11th May 2013 3:06 pm 



The issue is that there is a sticking point when your average consumer can no longer afford the fuel.

With developed economies running at a measly 2-3% and unemployment and under-employment being serious (sometimes worsening) issues people’s spending power is not keeping pace with fuel prices.

As fuel prices go up all it will do is mean people consume less fuel, the reason the prices stay high is that the demand they do not utilise gets taken up by the developing nations.

For people to switch to alternative fuels their prices have to be competitive which suggests the prices aren’t yet competitive. For them to become competitive either alternative fuel prices have to come down or conventional fuel prices have to go up or a little of both.

It’s wrong to waste our resources like we do but people do so for a reason – their money is seen better invested in what are currently cheaper supplies.

econ101 on Sat, 11th May 2013 3:33 pm 



Im sure if you demonstrated you could convert all that gas to methenol you could easily sell your process. Otherwise the most economical way to get the gas is to continue developing infrastructure and uses for that gas both industrial, residential and export. Because of that more and more gas comes on line every day.

In the meantime there are people trying to use natural gas to fuel transportation. Its a phenominal change going on right now especially among fleets serving a market where they can return regularly to the supply center at the main yard. Its a large part of the demand fall for crude. Its also helping to support gas.

Its nice to know that all these end results the author has mentioned are already unfolding before our very eyes.

shortonoil on Sat, 11th May 2013 6:44 pm 



“The issue is that there is a sticking point when your average consumer can no longer afford the fuel.”

Depletion insures that the cost of extracting any mineral will increase as the process goes forward. This increase always follows an exponential curve. In the case of petroleum it is a logistic curve (which is an exponential curve multiplied by its inverse). Because petroleum is primarily used as an energy source its depletion will reach a point when the energy provided to the end user is no longer sufficient to support the economic activity needed to procure it. This is a calculable quantity, and because it is an exponential function it occurs rapidly once it begins. The fact that petroleum has increase in price by more than 450% in a decade is an indicator of where it is on the curve.

others on Sat, 11th May 2013 7:01 pm 



If we convert our vehicles to natgas, we can run it with the gas that would have otherwise been flared.

Flared natgas is almost like a free fuel. Just build a gas storage everywhere and take the flared gas and dump it there. From there it can be used to fuel vehicles.

Harquebus on Sun, 12th May 2013 3:24 am 



High fuel prices have stifled the world’s economy and created a debt problem which, higher prices ain’t gonna help. The world can not afford today’s prices let alone any increases.
EROEI mates, EROEI.

BillT on Sun, 12th May 2013 6:08 am 



The petroholics and peak energy deniers are out in force…lol. Dream on people. You can cherry pick whatever facts and moronic prognostications you want from soothsayers and readers of chicken bones with important sounding degrees, but reality says we are done. The party is over. The end is in sight. Fight it if you must, but you will lose in the end. There are natural laws that cannot be ignored for long.

Gal Sitty on Mon, 13th May 2013 10:04 pm 



Matt, first off, I am the author (not sure why Peak Oil doesn’t credit that besides the tiny link at the bottom to my original post). Second, thank you for your comment. In response to your point “For people to switch to alternative fuels their prices have to be competitive which suggests the prices aren’t yet competitive” I would agree with you if we were talking about an open-market with true choice and competition. However, most people have no choice but to fill up with oil derived gasoline or diesel. Just think, if natural gas was completely free would the over 90% of drivers on the road who don’t drive CNG vehicles be able to benefit from that? If ethanol were at $0.02/gallon would all the non-flex fuel cars be able to fill cheaply? The facts is, many alternative fuels are cheaper. The unsubsidized ethanol the US exported is priced at about $2/gallon, far cheaper than gasoline. Meaning that it could be brought to market at a price that would beat gasoline. Of course, my car wouldn’t take it, so I, and many other people, wouldn’t benefit from that. Methanol could be produced cheaply as well. All this goes back to the original point in the aticle- we’re wasting it because we don’t have the ability to use, even though we technically could have that ability.