# How long will the petroleum industry be profitable?

#### iwantcalculus

As we can see now, oil prices are falling pretty forcefully, and it seems like they are heading for $30. Now of course a lot of people ask: "when will petroleum collapse?" And they usually mean due to renewable, sustainable, and nuclear energy for electricity and cars. The "more knowledgeable" people tell them that petroleum is used for many things other than transportation and power such as plastics and petrochemicals and a bunch of other stuff I don't know about. Yes, that's true, but when petroleum becomes USELESS in terms of transportation/energy, won't the prices plummet really hard? I don't think an oil barrel will cost$20 if oil is no longer used by cars, factories, and huge ships that transport stuff around. It would most probably be like $15. And even if the petroleum industry continues, it will only be like in Saudi Arabia where the easy oil is and it won't even be THAT profitable. Another thing that worries me is that the oil barrel prices are "Artificial", that is, countries like Saudi Arabia need to artificially NOT sell their barrels so that the price stays high, and if they just continue their normal processes, the oil prices will go down to the mud in no time. Is aluminum like that? do aluminum companies artificially cut their production so that aluminum prices go down? I don't really think so, and this makes me pretty paranoid about how weak the bases of the oil industry are built on. So my question is, how long will the petroleum industry be PROFITABLE? And by profitable I mean oil barrel prices will be around$40-$60. How long will it take till the effects of renewable energy will be clearly seen in the prices of oil barrels? The reason I'm so paranoid is that I want to start a Bachelor's in an oil-industry related study after 1 year and work in the oil industry afterwards. I want to stay in the oil industry for around 10 years or so. Will the oil barrel prices be around$50+ at 2020-2030 ?

Scared to see the oil industry collapse right on my graduation day......

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#### phinds

Gold Member
So my question is, how long will the petroleum industry be PROFITABLE? And by profitable I mean oil barrel prices will be around $40-$60.
I'd guess at least another 20 to 30 years, probably more like 50

#### jack476

I'd say for quite a while, even long after it's no longer economical as fuel.

Petroleum products are still used quite a bit in the manufacturing and chemical industries. Plastics, for instance. So it's going to be useful for a long time, if maybe a bit smaller than it is now. Plus, even if the industry does collapse, there are other places you'd be able to use similar skills, chemical engineering and mining/extraction engineering for instance.

#### Bystander

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How long will it take till the effects of renewable energy will be clearly seen in the prices of oil barrels?
"Renewables?" Competitive with living in caves? Let alone oil, coal, gas? Never.

#### Doug Huffman

Gold Member
Think of the price of a barrel of oil as a valuation of the currency, rather than vice versa, and particularly when comparing the price of oil in diverse locations and currencies as a comparison of the value of those currencies.

#### RonL

Gold Member
I think you will be surprised at the small percentage of production that goes to transportation, :)

ps. Perhaps I'll be the one surprised I can't seem to find the context of what I remember seeing. I did find some things that I need to consider in regard to where the oil comes from and what happens with each barrel of production, it looks close to 50% fuel and 50% other use.

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#### mheslep

Gold Member
"Renewables?" Competitive with living in caves? Let alone oil, coal, gas? Never.
Pretty sure you mean intermittent renewables? Canada has been majority hydroelectric for years. Iceland electricity has been 96% hydro and geothermal for years.

Staff Emeritus
Yes, but the total population of Iceland is less than the population of St. Louis.

#### Bystander

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Geothermal and hydro? It's going to be a bit crowded jamming seven billion people around the half-dozen to dozen useful hot spots and along major rivers.

#### russ_watters

Mentor
... but when petroleum becomes USELESS in terms of transportation/energy, won't the prices plummet really hard? I don't think an oil barrel will cost $20 if oil is no longer used by cars, factories, and huge ships that transport stuff around. It would most probably be like$15...
Those forces are acting in opposite directions. Cheaper oil means it will be used more in cars, factories and ships, not less.

Staff Emeritus
And, the idea that because oil prices have fallen over the last few months that this is somehow the new natural state of affairs, um, remains to be seen.

#### mheslep

Gold Member
Geothermal and hydro? It's going to be a bit crowded jamming seven billion people around the half-dozen to dozen useful hot spots and along major rivers.
Not everywhere clearly. I'm just making the point that where it's available, it does compete with hydrocarbons day and night.

#### Bystander

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it does compete
Beats fossil fuels hollow for fixed plants. And loses big time as far as portability. No one bothered to constrain the discussion to fixed sources versus sources at point of use. You saw one, and I was focused on the other.

#### Nikitin

Just for clarification: The current oil plunge has nothing to do with renewables. It's, probably, a result of the exploding supply vs shrinking demand situation.

#### SteamKing

Staff Emeritus
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I don't care how many windmills you build, you still need lubricants to run machinery, and, synthetics aside, petroleum-based lubricants are still pretty cost-effective.

The influence that OPEC had on the price of oil was due to the concentration of proven reserves under the control of the member countries. But petroleum production has changed markedly since OPEC played such a huge role in setting oil prices in the 1970s. When OPEC countries set their oil prices relatively high, it made economic sense to explore production in other areas, like offshore fields, which had been too costly hitherto to exploit. Also, newer technologies, like fracking, were developed to extract additional oil from already producing fields which was not recoverable by conventional means. Regions outside of the Middle East containing oil shale could until recently produce large quantities of oil cheaper than the price set by OPEC. With the collapse of the Soviet Union, Russian oil and gas began to be traded on the world market, as these resources brought hard currency which was needed to modernize the former Soviet bloc economies.

Some commodities, like aluminum and other minerals, are too widely dispersed around the globe for any one country or group of countries to set up a cartel to control production. Other minerals necessary for modern industry are found in only a few countries and thus are susceptible to cartelization.

#### Ryan_m_b

Staff Emeritus
The reasons for the big drop in oil price last year are still argued but the Economist hits the main points in this article:

Four things are now affecting the picture. Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libya—two big oil producers with nearly 4m barrels a day combined—has not affected their output. The market is more sanguine about geopolitical risk. Thirdly, America has become the world’s largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around$5-6 per barrel) to get out of the ground.
How long this trend will continue for is a matter of debate but I find it unlikely that oil will stay low for any significant (decades) length of time. In either case I don't think the question as it's phrased tackles the issue. A more interesting question for me is how long until increases in crude oil costs and increases in relevant technologies make synthetic oils more competitive than natural ones. There's a lot of interest heading towards projects like the EU SOLAR-JET and institutes like the US JCAP. Both of these aim to create a form of efficient artificial photosynthesis that would allow solar energy to be used to drive chemical reactions to produce oils from water and carbon dioxide. I once heard that synthetic oils nowadays using no fossil fuels are made for $200-$300 per barrel. I've looked around for a source but most of what I've found uses a bit of coal or natural gas in the process. In any case it would be interesting to find any research looking at cost estimates for this technology over time. It might never get as cheap as oil, but if it could get down to $100-$200 per barrel it could outcompete fossil fuels in the long term.

#### Bystander

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I once heard that synthetic oils nowadays using no fossil fuels are made for $200-$300 per barrel. I've looked around for a source but most of what I've found uses a bit of coal or natural gas in the process.
"A bit." The $200-$300 was in the days of $100 plus a barrel and reflected the oil, coal, or natural gas equivalent cost for the energy going into the process. The product has a natural carbon-14 signature, but involves burning more fossil fuel than it replaces. #### Ryan_m_b Staff Emeritus Science Advisor "A bit." The$200-$300 was in the days of$100 plus a barrel and reflected the oil, coal, or natural gas equivalent cost for the energy going into the process. The product has a natural carbon-14 signature, but involves burning more fossil fuel than it replaces.
Which product? I was under the impression that there were synthetic fuels that did not require any fossil fuels. I'd be interested in any links people have to these, particularly with economic predictions.

#### Bystander

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Which product?
Sec. of Navy "signed" agreement to buy "synthetic" kerosene/JP at 21\$/gal (or 17, or 23) for x years a couple years ago. Fischer-Tropsch was patented 80 years ago. Pyrolysis of plant material yields the same CO-H2 "feedstock" as the water-gas shift going into the front end of the Fischer-Tropsch process plus odd hydrocarbons depending on lignins and other oils available in the raw plant material being used. Bottom line on Fischer-Tropsch to date is that you burn two to three barrel of oil equivalents in whatever fuel you use to fire the plant for every barrel of liquid hydrocarbon produced. This is not stating absolutely that there is NOT a "sweet spot" somewhere in P, T, X space that has not been found for the process, but in 80 years the only application pursued on a major scale was during WWII when the Luftwaffe and Wehrmacht were unable to develop coal-fired aircraft and tank engines. Yes, agricultural waste, or switch grass, or miscanthus, or pulp forest "slash" can be converted to liquid hydrocarbons; the conversion efficiency energy wise is that 10-20% of the heating value from direct burning of the organic feedstock is recovered as a liquid fuel heating value.

#### Ryan_m_b

Staff Emeritus
Bottom line on Fischer-Tropsch to date is that you burn two to three barrel of oil equivalents in whatever fuel you use to fire the plant for every barrel of liquid hydrocarbon produced.
When you say "fire the plant" do you mean provide power or a carbon monoxide source? In the case of power as I understand it studies into developing artificial photosynthesis are looking to use solar power to generate synthetic hydrocarbons. As the price of solar is plummeting I'm very interested to see if something along the lines of solar farms powering Fischer-Tropsch reactions or similar could be commercially competitive.

#### Bystander

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"fire the plant"
Whatever energy source is being used to "push" cellulose up the energetic hill from 15 MJ/kg heating value to the 30-40 MJ/kg heating value of useful liquid fuels.
"Artificial photosynthesis?" Have not been keeping up to date at all on the topic. As of 20-25 years ago, it was looking about as promising as controlled fusion, and I quit holding my breath. Energy requirements for materials handling could be the limiting factor on such efforts, but I haven't really looked at it all that much.

#### MathAmateur

"Renewables?" Competitive with living in caves? Let alone oil, coal, gas? Never.
Never? You are assuming that fossil fuels will never run out. Not a very good assumption for a non-renewable resource. The reality is that Texas already is generating about 10 percent of its electricity from wind. This is a red, fossil fuel state. They are not doing it because of political reasons. They are doing it because it is cheap.

#### Bystander

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They are doing it because it is cheap.
People who are less than honest are doing it for the subsidy money.

#### MathAmateur

People who are less than honest are doing it for the subsidy money.
Fossil fuels have pretty good subsidies also. They are actually quite a bit higher than for renewable energy sources (with the exception of the silly corn ethanol subsidy, which is ridiculously high). If you look here: http://en.wikipedia.org/wiki/Cost_of_electricity_by_source, wind does fairly well compared to everything except Natural Gas. With the advent of cheap organic flow batteries: http://www.seas.harvard.edu/news/2014/01/organic-mega-flow-battery-promises-breakthrough-for-renewable-energy, wind will become much more reliable and useable in the electric network.

The real advantage of wind is that it will not go up in the future. Instead, after 20 years (assuming that length of capital payoff), it becomes really cheap (just the cost of maintenance). With natural gas or coal, you keep on paying and you really don't know how the price will go.

#### russ_watters

Mentor
People who are less than honest are doing it for the subsidy money.
I'm not really sure what you mean by that, but subsidies exist for the purpose of making the thing that is being subsidized more attractive. So I don't see how it can be dishonest to do the thing for the subsidy that the subsidy was designed to get people to do.

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