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Clean Power oil was $500 a barrel at first

Published on November 1st, 2011 | by Susan Kraemer

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Think New Clean Energy Costs too Much? Oil Cost $500 a Barrel at Startup

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November 1st, 2011 by  

oil was $500 a barrel at first

It should be obvious that it costs more to develop ANY new energy sources, than to keep using the energy sources supplied by capital investments in energy infrastructure that has been already paid off, long ago.

We are only hearing one side of this story, as conservatives bemoan the “cost” of investing in new sources of energy like solar and wind, as if dirty energy didn’t cost anything to start up too.

But a contemporary account of startup costs in the the 19th century oil business is revelatory.

Derrick’s Handbook (1898) reported that Drake had no trouble selling all the oil his well could produce at $20 a  barrel in 1859. With the 24-fold increase in consumer prices since 1859 this translates into a bit under $500 a barrel in 2010 dollars.

Just as solar prices dropped by more than 70% in just the last few years, driven down partly by the demand created by the one-time Recovery Act investment by the Obama administration – and because the rest of the world (unhampered by Koch-funded plutocracy) has gotten serious about preventing climate change, and implemented much more sustained renewable energy policies – as more oil came on the market, the price of the new found “rock oil” from more wells dropped by about half, and then continued to drop as the industry established itself over the next fifty years.

“As other wells brought more of the product to the market, the price quickly fell, averaging $9.31/barrel for 1860. In 2010 prices, that corresponds to $232 a barrel, still far above anything seen subsequently. Even ignoring the initial half-century of the industry, the price of oil in real terms continued to drop from 1900 to 1970″.

When we discovered the apparent energy miracle of oil, we had no idea about what its true costs would be, in long-term climate catastrophe. There was no cheaper alternative at the time. There was no entrenched energy sector to compete with, no lobbyists and media moguls to represent their interests. So, in the 19th century, market forces alone, with no competition, were able to drive down the costs of oil.

But market forces alone won’t make us switch to renewable energy.

That is because, with oil (and coal) cheap and available and the infrastructure like refineries, drilling machinery and pipelines (and railroads and power stations) already paid for, and half the population lulled into complacency about climate change and peak oil – and a now entrenched oil and coal sector – there is no natural push to switch to renewable energy.

But we have inadvertently have gotten ourselves into a Faustian bargain – long term climate catastrophe that will impact our species caused by the carbon dioxide and other greenhouse gases emitted by fossil fuels. So, now, we need to artificially create a market force to drive down the costs of starting over, with renewable sources, that won’t impact our ability to continue our civilization. This is why the Obama administration backed VC loans to thousands of renewable energy companies around the country with loan guarantees – including Solyndra. 

This lack of market forces is why we need energy policy that drives demand for renewable energy, such as the Section 1705 loan guarantees backing private investment in renewable energy, that the Republican House conspired to let expire at the end of September – by trumping up a supposed scandal because just one of those loans (Solyndra was only 1.4% of them) guaranteed went bad.

Susan Kraemer@Twitter
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About the Author

writes at CleanTechnica, CSP-Today, PV-Insider , SmartGridUpdate, and GreenProphet. She has also been published at Ecoseed, NRDC OnEarth, MatterNetwork, Celsius, EnergyNow, and Scientific American. As a former serial entrepreneur in product design, Susan brings an innovator's perspective on inventing a carbon-constrained civilization: If necessity is the mother of invention, solving climate change is the mother of all necessities! As a lover of history and sci-fi, she enjoys chronicling the strange future we are creating in these interesting times.    Follow Susan on Twitter @dotcommodity.



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  • wahlink

    Very interesting article. To think people were fighting over of all things whale oil seems very amusing to me. Hopefully the fighting over oil will be aching of the past too.

  • Ed

    Great article Susan:
    They say that if one tells a lie often enough it gets to be believed. Lets hope that WE can tell the truth long enough so that they will believe. With all the deniers of climate change that say don’t worry we have lots of oil, I say…..your big fat lying (you fill in the expletives)…I can only wish that work like yours would be read by the same number of people who sit on their duffs and swallow the lies emanating from their tubes. God bless you.
    Ed

    • Susan Kraemer

      Thank you Ed. God bless you too.

  • funcheon

    Susan,
    I love the historical reference of oil prices and your article overall. For Reference, there were market forces at work in the 1850′s. One of less known facts of the Civil War is the Union Navy destroying Rebel Whaling ships and depriving the Southern States of an important energy source, Whale Oil. As whales died off, energy became much harder to get. There are accounts of Whaling ships being out at sea for three years, no wonder a barrel of Petroleum Oil could sell for $500/Barrel-2010 $$ Equivalent. Petroleum was plentiful in the United States the until the early 1970′s and tapered off, now Shale Oil and Nat Gas production rates have begun increasing, as well as the ability to produce energy through Renewable sources.
    Though it is mostly price, Market Forces comprise more than just price; there are companies that use Solar energy for deferential marketing, there are companies in the Solar industry leading companies to sustainable operational practices and increasing bottom lines. I know a casual observation of the Solar industry looks like we are all going the Solyndra route, but as someone fully invested in the Solar industry, I’ve never been so certain we’re going to see rapid increases in adoption in the next two years.

    Best regards,
    Funcheon

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