This week the price of oil reached US$92.00 a barrel, or $0.57 per liter.
A liter of oil has an energy content of 10.69 kwh, so crude oil now costs $0.054 per kwh.
The retail cost of electricity in British Columbia is approximately 6 cents Canadian per kwh or US$0.0624.
But you cannot compare the retail price of electicity with the well-head price of unrefined oil.
Here, in British Columbia, the retail price of oil in the form of gasoline is approximately 85 cents per liter Canadian (excluding all taxes), or 7.95 cents per kwh, which is equal to US$0.083 -- significantly more than the price of electricity.
Electricity prices throughout the world are generally higher than in British Columbia, thus robbing electricity of a direct price advantage over oil.
But as energy sources, you cannot compare the value of electricity and oil directly. Electricity is more versatile than oil and much cleaner, and where it can be directly substituted for oil, it provides more value per unit of energy consumed.
A gas-burning automobile, for example, has an efficiency of 15-20%, which can be boosted to around 30% with a complex hybrid drive train. An electric motor has an efficiency of up to 95%. Thus an electric automobile has an energy-use efficiency three to five times that of a car powered by gas.
The advantages of electricity over oil are not as great in all applications. However, even in space heating, electricity is more efficient than oil, because there is no heat loss with flue gases, which often amount to 30% of the energy consumed by an oil-fired home heating system.
Furthermore, an air-source heat pump yields two kilowatts of heat for every kilowatt of electricity consumed, making electricity significantly cheaper than oil for home heating. A ground-source heat pump yields three or more kilowatts of heat per kilowatt of electricity consumed.
The implication is clear. If the price of oil stays where it is or continues to rise, there will be massive substitution of electricity for oil in the coming years as technology development and capital investment enable the transition.
At some point, the change will impact oil demand and drive prices sharply lower. Oil producers may want to see that happen sooner rather than later to avoid serious erosion in the market for their product.
But the long-term trend notwithstanding, no limit can be set to the near-term price of oil, if the U.S. launches another Middle-East war.
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