Photo: What's a barrel of oil really worth?

Credit: Renjith Krishnan via

By Ralph Torrie, Managing Director-Trottier Energy Futures Project

What is a barrel of oil really worth?

The answer starts out sounding like a joke that begins, "An oil producer, an economist, a consumer and an ethicist walk into a bar..."

The oil producer would say the value of the barrel is the cost of getting it out of the ground and cleaning it up for further production, plus a reasonable return on investment and risk.

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The economist would reply that it's worth whatever the producer can get for it.

The consumer might conclude that the barrel of oil is worth nothing in itself. The value it holds is in its contribution to delivering the end-use services like comfort and mobility that people need and want.

The ethicist would say the answer depends on how our appropriation of the oil will affect future generations.

But if a scientist pulled up a chair and joined our little group, she just might conclude that a barrel of oil is priceless, considering the once-in-a-civilization combination of resources and coincidence that made it possible. Each event was unlikely enough in its own right. The sequence is never likely to repeat. And for all of humanity's formidable technological prowess, we could never in a billion years replace the world's reservoirs of crude oil.

• Crude oil originated as organic matter, mainly plankton and algae from ancient marine environments that existed tens or hundreds of millions of years ago. It took 3,000 tonnes of organic matter, mostly dead plankton, to produce one barrel of oil.
• An unlikely mix of conditions transformed the plankton into petroleum. As the plankton died and settled, about two percent converted to kerogen, a carbon-rich petroleum precursor. After a million to 10 million years, the kerogen became buried deep enough, but not too deep, at the pressure and temperatures necessary for petroleum to form. Then, over thousands of years, some fraction of the carbon in the kerogen converted to petroleum.
• In the final stage, when conditions were right, the petroleum began to migrate ever so slowly, until some small fraction encountered an impermeable cap rock or trap that caused it to accumulate in what we call a petroleum reservoir.

Petroleum is a cornerstone of Canada's economy, and it will still be a factor through 2050, the target date for an 80 per cent reduction in Canada's greenhouse gas (GHG) emissions. In the Trottier Project's modelling and analysis so far, fossil fuel production doesn't disappear. However, by 2050, a large share of today's market for oil and gas could be offset by a steady increase in energy productivity that has already begun reshaping our energy economy over the last 40 years. Much of the remaining demand could then be met by distributed, renewable sources that are either low-carbon or carbon-free.

Will oil lose its value in such a future? Not in a million years. It may be the end of the industry as we know it. But it's interesting to think about which business opportunities would be foreclosed, and which ones would open up, if we simply asked ourselves what a barrel of oil is really worth.

It took exacting conditions and physical geology to refine trillions of tonnes of organic matter over millions of years, just to make the petroleum era possible. If we kept that in mind when we prepared to drill a well or dig a hole to get at the stuff, we might be more inclined to save it for its very best, most irreplaceable uses. The result would be a very different fossil fuel industry operating in a transformed, largely decarbonized energy economy. But there would still be business opportunities galore, in fossil fuels and in the wider energy sector.

February 28, 2013

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Aug 09, 2013
8:40 PM

It is quite a tragedy that our world relies so heavily on a non-renewable source of energy. There are definitely advantages, such as relatively high energy content (when compared to alternative fuels such as bio-diesel) and having the convenience of currently existing infrastructure, products, and services that are capable of supporting fossil fuel consumption and processing. However, the down sides are even more obvious. GHG emissions and other forms of pollution are only the tip of the ice berg. The fact that mankind kill each other over this resource and the fact that we’ll eventually have to find alternatives after we deplete the available fossil fuel reserves still remains true.

Personally, I don’t think anybody currently alive can provide a true actual price for a barrel of oil. There are simply too many variables. This whole concept of trying to assign monetary value for a resource that took millions of years to accumulate, along with the fact that we are rapidly burning this resource thus causing contamination and pollution for our environment seems ridiculously absurd.

We won’t know what the cost is, it is still way too early. I believe that only our future generations, the ones who will live in a world with exhausted fossil fuel supplies and first-hand experience of the environmental and climatic after-effects, will be able to appropriately judge the price of a barrel of oil. And you know what? Our future generations will most likely hate us for being selfish, ignorant fools.

We all expect consequences from this unsustainable abuse of a natural resource, but I don’t think we all sense the devastating compounding impacts this may have on the future. We are making progress with improving technological efficiency (e.g. increase the mileage in auto-mobiles) and increasing on the development and use of green renewable energy, but we are still no where close to where we need to be.

Until our way of life becomes sustainable (i.e. seizes to compromise the needs of future generations), the need to reduce the usage of non-renewable resources will always persist. The question is, can we make the necessary changes and adjustments to divert from environmental catastrophe before it’s too late?

Aug 09, 2013
3:04 PM

Although the price of oil in real life fluctuate day by the day, there is no correct way of judging the price of a barrel of oil. Like what is being said here, different people in different position view the price differently.

Due to uneven oil reserves on earth, governments of different countries have their own ways of seeing their priorities.For an economy that is powered by extracting oil, and the reserve is still high, the price of oil can be significantly lower than those required energy import. This is the concerns brought out by peak oil. While countries like Canada will not peak until the next 20 to 30 years, many other counties are fighting for oil controls, causing fluctuation in the price.

However, there will never be just one priority in a county. For example, the government of Canada promised a reduction 80 percent greenhouse emission by the year 2050, and it won’t be an easy task if the government does not act now on low-carbon energy. Therefore, the environmental department of Canada would view the cost as the research and labor that required to replace the oil by greener energy.

In my opinion, the price of oil is like a wicked problem. If we force the price to go up, the people suffers from it will be normal oil users like us. If the price gone too low, economy body like Canada will get a real hit from it. In fact, i will say there is no right way and wrong way of judging the price of a barrel of oil.

Jul 05, 2013
2:15 PM

The truth of the matter is that there is no correct answer to what a barrel of oil is worth. Personally, I feel that the correct answer is a cross between that of the economist and the consumer. The consumer values the barrel based on the convenience it provides. Inadvertently, so does the economist. The economist rates the cost to be “whatever the producer can get for it.” This is synonymous with the cost deemed fit by the convenience it provides. The cost can continue to rise based on the dependence that society has on it.

Due to peak oil, countries such as Canada and the USA will eventually realise the error in their ways and slowly the demand will decrease. With the decrease in demand, prices will level out and reach an equilibrium point. This may coincide with the stated goals in Canada to reduce GHG by 80%. I don’t believe this goal will be met due to the dependence of society and the current power system not being nearly as accessible with renewable power sources. In order to see this goal met, the economy will be jeopardized in an effort to recreate the Canadian power grid. This will cause large instability in the economy as well as upsetting the common taxpayer. Although I acknowledge that something must be done to reduce GHG production and curb oil exhaustion, I do not believe it should be done at the cost of a recently stabilized economy.

Although this objective will help the environment by reducing GHG emissions, it could cause harm to the economy and due to the fact that society relies heavily on oil, I feel that the objective will be met with heavy societal resistance.

Feb 28, 2013
8:15 AM

A barrel of oil has never been worth more than the consumer has been willing (and able) to pay for it. Using fossil fuels has always been a choice and never a necessity. The movement toward it’s use began when capitalists figured out how to maximize their own capture of the earths resources including the labor of others by maximizing their profit potential from marketing technological developments fed by cheap energy.

It’s noteworthy that the capitalist forces that encouraged our fossil fuel habits have evolved to the point were financial engineering has largely replaced technological engineering as the route to profit maximization (helped along by a flawed economic theory).

Continued use of environmentally significant amounts of oil in our daily lives remains a choice for the consumer. There are people who have figured out ingenious ways to live happily, largely without oil, and the slavish lifestyle that living with it entails.

The economy of the globe does not depend on oil unless we make that choice collectively as a society. We decide what a barrel of oil is worth!

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