Not a Myth: The Skyrocketing Cost of New Oil Supply

by Gregor MacDonald

Business Insider,

22 October, 2011

The next time you hear someone asserting that oil extraction “was always difficult and expensive”—as a way to refute the very high cost now of the marginal barrel—you’ll know they’re spinning a folk tale.  


A helpful chart from the just released EIA Annual Energy Review shows that the capital required to add an additional barrel of oil to reserves experienced a step change starting last decade. The chart uses the COE unit (crude oil equivalent) which is a way to measure the cost of adding 5.8 million btu regardless of whether the resource is oil, natural gas, or natural gas liquids.

Two points are relative here. Firstly, the spike is concurrent with the six year peak in global oil production, which began in 2005. This should be rather obvious, if not expected. Secondly, however, there is another “cost” associated with our attempt to obtain the next barrel of liquid fossil fuels in our new, resource-constrained era. These resources are difficult to access and extract precisely because a more aggressive disturbance of the earth must be undertaken to secure them. Ultra-deepwater, tar sands, shale-rock fracturing (fracking) are touted as technological miracles. 


But, as so often is the case, they produce wide-boundary environmental damage (negative externalities) whose “price” must be paid by society.