Peak oil and energy costs

Our civilization has been built upon energy stored in the earth’s crust and which has been easily extracted.  The continuation of the lifestye we know depends upon a continuing supply of cheap energy.

Therefore this article on peak oil on the Scientific American website is of particular interest.  It appears we are relying more and more on oil which is expensive to extract.

In evaluating energy sources the key question is how many units of energy does it take to acquire 100 units of energy.  Clearly for new sources of oil this figure is increasing.

The next question is what proportion of the energy comes at the higher cost and what is happening to this figure.  As the proportion goes up there will be less energy with which to maintain our lifestyle.

A further complication is that price is equal to the marginal cost, i.e. the cost of producing the last unit.  As the price goes up to pay for the latest discoveries the owners of the remaining  easily extracted energy will receive windfall profits.  This will be a transfer of purchasing power from consumers to the original owners.


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