Economics and Oil

Modern man uses petroleum, commonly known as oil, for a lot of stuff like powering our cars or helping us make plastic. Unfortunately, the extraction and use of oil comes with a price - air pollution from refining and combustion, potential water and soil pollution from extraction, and some of the elements and compounds naturally found in oil are not the most friendly to life. But as long as there is a market for oil, humans will continue to extract it from the earth.

The Price is Right?

A few years back, the price of oil was rising fast - it broke the $100 per barrel mark and many environmentalists cheered. Higher oil prices means higher gasoline prices, which in theory would push people to adopt more fuel efficient vehicles, or vehicles using alternatives to gasoline, or even to give up their cars for mass transit or walking/biking. This would, of course, reduce the impact of oil in our lives - right?


Well, maybe not...

While there were some impacts in car buying and other transportation habits, we also started to see increased production of alternative sources of oil. Most oil exists in large pools under the earth's crust - bore a hole into this reservoir and the oil can be pumped out. Oil exists in other places as well, in places known as oil shales and tar sands, where the oil is contained in either rocks or sand rather than in a pool of liquid. Getting that oil into a usable form requires much more effort and cost.

There is also a concern that tapping into these alternative sources of oil is worse in environmental terms than standard oil production. Energy is required to extract the oil out of the material it is trapped in; there is also concern about the large amount of waste produced (called tailings) and whether this waste is contributing to soil and water pollution. There is also an increase in water use at these sites. The Canadian province of Alberta has a large oil sands operation that has been the source of frequent criticism - some of which was probably correct, though some not. (If you want to read an independent report on the Alberta Tar Sands, you can find it here - warning, it is a very large file)

In light of the issues with tar sands and the like, there is a small group of environmentally minded folks that hope for oil prices to stay low so that these sources won't be tapped because it would be too expensive. And oddly enough, OPEC is on their side...

That's right - the oil cartel based primarily in the Middle East is, at least for now, hoping for oil prices to stay low. The Atlantic published an interesting piece on the argument, which essentially states that OPEC hopes to keep alternative technologies, like plug-in hybrids, on the sidelines for as long as possible. If OPEC can kill other technologies in the short-term, then oil will remain king and their future is safe - at least until the oil runs out.

So Now What?

So where do we go from here? Do environmentalists hope for high oil prices to encourage the average consumer to move away from oil and its related impacts? Or do they instead hope for low oil prices in order to keep things like tar sands (and its impacts) from being developed? As you can see, it's complicated...

In the long run, it likely won't matter. Unless our current economy moves away from petroleum products, there will always be a profit to be had extracting and refining oil. And as oil supplies decrease over time (and demand increases) the prices will go up and every last source of oil will likely be developed, regardless of the environmental or human cost. That is, unless we move our economy away from petroleum and other non-renewable resources and towards energy that is renewable. If demand for oil drops, so will its price and its impact on the environment - simple economics, right?