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The Future of Oil

Nov 8, 2011 • 194 Views

When will we run out of oil? A room full of pistachios might have the answer.

In the first several pages of The Invisible Heart: An Economic Romance, a teacher says you have been given a room filled 5 feet high with pistachio nuts. The nuts are free, you are a nut lover, and you have only one rule to follow. The empty shells have to remain in the room. At first, you dive in. Eventually though, you are searching for uneaten nuts through mounds of empty shells. Finally, you stop looking. Why? It costs you too much time, energy, effort. It is “cheaper” to switch to cashews.

Reading “Could Shale Gas Ignite the U.S. Economy” reminded me of pistachio nuts. The U.S. currently gets almost half of its electricity from coal, one-quarter from natural gas, one-fifth from nuclear, and the rest from hydro and wind. Saying, “The United States has the capacity to become the Saudi Arabia of natural gas,” the CEO of an energy company explains why shale rock could represent the future of electricity and “reduced oil dependence for transportation.”

This takes us to George Mitchell, the son of an immigrant Greek goat herder and the “kitchen” in which hydrocarbons “cook.” Mitchell, now 92, discovered how to get the gas in the “kitchen,” the shale rock, to flow up and out through a well. Others honed the process, massive U.S. shale rock formations have been identified, and the rest is history…or probably will be.

Here is a past econlife post that also connects innovation to natural gas.

The Economic Lesson

With coal environmentally problematic and foreign petroleum dependency undesirable, the opportunity cost of acquiring energy in the U.S. is becoming unacceptably high.

Just like with pistachio nuts, when you have a high opportunity cost for your current energy sources, you look for alternatives. Or, as with natural gas, you innovate until you create a lower opportunity cost.

An Economic Question: Starting with questions about techniques used to access natural gas, an environmental opportunity cost has been cited. Looking at the 8 page Bloomberg Business Week article and this MIT study, how would you assess the cost and benefit of shale sourced natural gas?

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