Wednesday, May 7, 2008

How Much is Oil Really Worth?

Let's do a little comparison.

How much is a cup of coffee these days?
Hmmm ... let's see, do I feel like Starbucks or Tim
Hortons? Ahh fuckit. Let's call it $1.50 a cup for coffee.

How much is a cup of water going for? Tap water, eew. Give me the good stuff. A 500 ml bottle of Canadian Springs bottled water extracted and bottled in Hope, B.C. available in non-biodegradable plastic container, trucked here by our friends at the Nestle corporation costs .... approximately $1.30. At that price, 1 litre works out to $2.60 per litre.

1 litre = 4.23 Cups

$2.60 divided by 4.23 gives us: $0.61 a cup for bottled water.

Now lets take a look at gas prices (a derivative of crude oil). At the time of writing this, gas in vancouver is about $1.30 per litre (see

$1.30 divided by 4.23 cups per litre works out to $0.31 a cup.

Gas is 31 cents a cup.

Hmm ... so let's review:

Coffee is $1.50 a cup.
Water is $0.61 a cup.
Gas is $0.31 a cup.

Maybe gas is not so expensive after all.

Okay now for the fun stuff.

Let's take this a step further. Money aside, how VALUABLE are these three liquids? How much are they actually worth?

That's a bit of a tricky question I know. What does it mean for something to be valuable?

Well, we value things that taste good. From that standpoint, coffee is probably the most valuable of the three, with fresh glacier water coming in second and gas coming in a toxic last place.

We also value things that contain energy too. What do I mean by energy? Energy is what we use to get work done. The energy in coffee and water are really negligible. But oil. Oil just so happens to be the most concentrated form of energy on the planet.

Have you ever thought how much energy it takes to take you and your 5 friends in your 2000 lb car a couple miles to go camping? Try pushing your car just 5 feet and you'll begin to find out.

Get this: 1 barrel of oil contains the equivalent of 25,000 man/hours of labour (which is one way to measure energy).

1 barrel of oil contains 672.49 cups.

25,000 man/hours divided by 672.49 cups is 37.17 man/hours of labour per cup.

How much do we pay for gas again? Oh yeah. $0.31 a cup.

How far would you be able to convince a guy with a rickshaw to take you and your 5 friends 20 miles for $0.31? Starting to see the picture?

So let's be really clear. If we simply multiply 37.17 man hours of labor by a poverty wage of $1 per hour. (It is only manual labor after all.)

Making a cup of oil worth $37.17.

I hope this is starting to blow your mind a little.

So why have we enjoyed such cheap gas prices for so long? Because the supply of oil was always increasing and along with it economic growth. No one ever thought we would run out of oil. And look at how productive we became. Just look.

Now what?
Now that we are headed into an era of waning oil supply, the price will start to approach its real value.

And we will all start paying the real price.

Ding ding!

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