Graph of the Day: The Cost of Production Of Oil

TreeHugger points to a TOD post looking at the cost of production for oil from various sources – Does Peak Oil Even Matter?. The summary – “Peak Oilers have always pointed out that we will never run out of oil, it will just get a lot more expensive. And when it does, it will crush the economy” – might well be the view of a lot of peak oilers, but is entirely wrong – it should be rephrased as “And when it does, we will become both more efficient in our use of oil and replace it with alternatives (aka. convert our transport systems to use electricity and source this from renewable energy sources)”

Whenever we speak of Peak Oil, the optimists point out that the technology for finding replacements will turn up as the prices rise; look at what has happened with the oil sands and with shale gas. But as this graph shows, each alternative just gets more expensive.

A fascinating article by David Murphy in The Oil Drum questions the logic that these expensive options prove that peak oil is not a problem. But Peak Oilers have always pointed out that we will never run out of oil, it will just get a lot more expensive. And when it does, it will crush the economy. Murphy writes:

Oil infiltrates almost every facet of an industrial economy, from personal disposable income, to manufacturing, to service sectors. Therefore higher oil prices restrain growth via declining discretionary consumption as individuals allocate more money towards gasoline and home heating, or as the cost of producing a good increases, etc. Chris Nelder described this situation succinctly, writing: “The true import of peak oil, therefore, may not be sustained high prices, but economic shrinkage. Demand will be destroyed long before oil gets to $200 a barrel.