[SugarSeam]

Hello all..

I'm in an exchange with an aggressive cornucopian who insists global oil production cost is somehow a microscopic percentage of global economic output. While I know that's nonsense, I'm trying to find a reliable estimate of that total so I am on firm footing. Best I have found is that the industry spends somewhere between $1.5 trillion and $2 trillion per year, excluding subsidies and other indirect costs. Links?

Additionally, would nominal GDP (some $77 trillion) be a good denominator for his reference of global economic output? Or PPP? Or something else?

In any event, I don't think I'm off base in challenging his assertion that global oil production cost is some 1-2% of global economic output.

Thanks for any input.

[Apneaman]

aggressive cornucopian? is there another kind? Sorry I don't have the answer, but I could swear I read one of Short's posts that did. Try him or that new guy BC he's another one of those numbers wizards. I'm sure some others will know as well.

[Keith_McClary]

(world production = 30 billion barrels/year)x(price/barrel)

It would also be interesting to know the corresponding numbers for all forms of energy.

[sparky]

.
As far as I know the world extraction is around 95M/ barrel a day
the total cost of crude extraction , transport , processing and distribution are indicated below
a very rough estimate , converting a barrel into liter ( 159 )multiplying by 365 days would put the business at around
.........5.5 trillions US dollar a year ,
that would include normal companies taxes but not the producers levies or the consumer country excise
it should be noted that oil is , in most OECD countries , a massive source of tax income for the governments

from the OPEC site
http://www.opec.org/opec_web/en/data_graphs/333.htm

[Keith_McClary]

.
... total cost of crude extraction , transport , processing and distribution ...

Right.
If we are considering the oil industry as a % of the economy we should treat it the same way as other industries (which add up to the total GDP). Apples to apples. For example, the cost of producing an apple at the orchard gate is much less than you pay in the store after transport , processing and distribution.

[ralfy]

My understanding is that much of the global economy consists of numbers in hard drives. A fraction involves the value of material resources, etc.

[ROCKMAN]

Sugar - No answer. But some advice. First, be careful with the nomenclature. The "cost to produce oil" has no set definition. The cost to produce a well is not the cost to drill a producing well. It might only cost a few $'s per bbl to produce an existing well. To "produce" an existing well oulf take many thousands of $'s per new bbl of production. And $billions are spent on overhead (such as seismic data) and dry holes. Impossible to assign such cost to successcul projects.

Also hou have to take into a count the time lag: a company might have spent $5 Billion in 2014 and all projects were financial successes. But it could be 18 to 36 months before 100% of the capex is recovered and profits begin to flow. And as others have mentioned a very significant portion of the value of the oil/NG goes into the economy but not from the companies

[StarvingLion]

So basically his opinion is that fake money is all that matters.

Okay.

I'll end up talking with him in a gulag with all the rest of ya.

[ROCKMAN]

Hmm...kitty hitting the catnip again?

[StarvingLion]

The Oil industry is dead. In 20 years there will only be EV's on the road. There won't be very many on the road...just the 1%ers and some delivery vans. The rest of the cattle will be in the various work camps (prison).

All there really is left for the upper middle class is the applications of linear algebra.

Capitalism disappeared in the early 1980's.

Fools abound, Rockman believes Facebook's valuation is an example of capitalism....LOL. And, oh noes, look at the "prices"!!! Central Banks = Capitalism? LOL. A few corporations controlling a tiny market = Free Markets? LOL again. Rockman believes it...he believes any ol shit the establishment tells him.

Scamerica is bankrupt. Manufacturing is long gone and now so is the oil industry. All Scamerica is is a fake money printer for the elite: Print lots of fake money, give to self. (Quantitative easing) Thats it. The rest of the "citizens" are debt surfs, they get to pay for the elites toys like solar panels and Ev's.

The google matrix is it. The zombies will get their instructions from the computers and will pretend to do something while on the way to the great big dumpster of redundancy.

[MD]

The Oil industry is dead. In 20 years there will only be EV's on the road. There won't be very many on the road...just the 1%ers and some delivery vans. The rest of the cattle will be in the various work camps (prison).

All there really is left for the upper middle class is the applications of linear algebra.

Capitalism disappeared in the early 1980's.

Fools abound, Rockman believes Facebook's valuation is an example of capitalism....LOL. And, oh noes, look at the "prices"!!! Central Banks = Capitalism? LOL. A few corporations controlling a tiny market = Free Markets? LOL again. Rockman believes it...he believes any ol shit the establishment tells him.

Scamerica is bankrupt. Manufacturing is long gone and now so is the oil industry. All Scamerica is is a fake money printer for the elite: Print lots of fake money, give to self. (Quantitative easing) Thats it. The rest of the "citizens" are debt surfs, they get to pay for the elites toys like solar panels and Ev's.

The google matrix is it. The zombies will get their instructions from the computers and will pretend to do something while on the way to the great big dumpster of redundancy.

You've managed to transform insight into an incite in one easy internet lesson. Well done!

[kublikhan]

Oil expenditures are about 5% of GDP. Total energy expenditures is double this at about 10% of GDP.

More than US$6,000bn -10% of the world Gross Domestic Product (GDP)- is spent each year in the world for energy purposes. This places energy second to health care expenditures in many countries; and in some cases first. It is about 10% for almost all regions except India and China for which it accounts to 12-13% and Africa where it is below 6%. oil has the biggest impact on consumers’ energy bill with about half of the energy expenditures for almost all regions, whereas electricity ranks second with about one third of the spending.

World Energy Expenditures

Those figures were from 2011 so it probably dropped a percent or two since then. Energy expenditures fluctuate year to year with energy prices. Here's some historic data showing yearly fluctuations in the US. During the energy crisis in the late 70s early 80s, energy costs skyrocketed to nearly 14% of GDP with oil at 8%. However ever since the mid 80s energy costs fell to around 8%. Cheap oil in the 90s saw energy costs fall as low as 6% of GDP(oil was probably half that at around 3%). The recent oil spike saw them rise again to 9%.

Prior to the embargo of 1973-74, total energy expenditures constituted 8 percent of U.S. gross domestic product (GDP), the share of petroleum expenditures was just under 5 percent and natural gas expenditures accounted for 1 percent. The price shocks of the 1970s and early 1980s resulted in these shares rising dramatically to almost 14 percent, 8 percent, and 2 percent respectively, by 1981. Since that time, the shares have fallen until the early part of this decade when they began to rise again. The energy component still remains a major share of GDP in 2006 at 8.8 percent.

Another reason for energy’s lower share of GDP since 1981 is that energy intensity has been declining. Energy intensity is energy consumption (measured in physical terms, such as BTUs) per dollar of GDP. Its decline means that the American economy uses less physical energy to produce a dollar of output (GDP) because of efficiency improvements in energy consuming technologies and structural shifts in the U.S. economy. The U.S. economy has become more service oriented, requiring less energy than many manufacturing industries.

A Primer on Energy and the Economy: Energy’s Large Share of the Economy Requires Caution in Determining Policies That Affect It

[Outcast_Searcher]

Oil expenditures are about 5% of GDP. Total energy expenditures is double this at about 10% of GDP.

Good post. Thanks much for the ballpark figures and the supporting links.

So, it would seem to me that if we want a realistic picture of whether long term energy prices will be sustainable, there are two competing forces at bay with fossil fuels:

1). The real world cost of such fuels, as they get harder to obtain (the "easy" sources are depleted). Real world cost, IMO, includes pollution, climate damage, military costs, etc. which are generally ignored in terms of the actual purchase price of fossil fuels.

2). The globe (potentially) moves toward less energy intensity from fossil fuel consumption (via green energy, conservation, doing without (including a lower standard of living), substitution, etc).

Since industry will pass costs along to consumers and governments over time, the real question, it seems to me, is whether the global middle class can afford fossil fuel use at the rate the system demands without destroying the system.

Given the results so far, we've cheated by dumping on the planet. Now that the jig is up on that, the game looks tough indeed -- especially since humans are so prone to plan very poorly, especially for the longer term.

(And yeah, I know, in 3 to 10 decades we can have a LOT more green energy, given the will to invest in it -- but anyone who thinks fossil fuels can just be abandoned within several decades short of "Mr. Fusion" magic while meeting planetary energy demand is just deluding themselves. Just Chindia demand growth seals that deal, and that's only part of the problem).

[ROCKMAN]

You guys with all your f*cking numbers and facts are boringggggggggg. I look forward to the much more interesting thoughts of our house kitty.

[ralfy]

Related:

"Charts showing the long-term GDP-energy tie (Part 2 – A New Theory of Energy and the Economy)"

http://ourfiniteworld.com/2015/02/05/ch ... e-economy/