An Energy Overview - Fossil Fuel Production Prices

Production prices are the value of fuel produced. The combined production prices of fossil fuels (crude oil, natural gas, and coal) slowly declined from 1949 through 1972. (See Figure 1.8 and Table 1.3.) These prices then increased dramatically from 1973 through 1981, and fell through 1998. To indicate how marked this decline in fossil fuel prices was, the composite value of all fossil fuel prices (in real dollars, which account for inflation) dropped by more than two-thirds from 1981 to 1998, from $4.64 per million Btu to $1.46 per million Btu. These huge

FIGURE 1.5

drops meant economic problems in fuel-producing American states such as Texas, Louisiana, Oklahoma, Montana, West Virginia, and Ohio, and in energy-exporting countries such as many Middle Eastern nations, Nigeria, Indonesia, Venezuela, and Trinidad. On the other hand, they were a windfall for industries that used a lot of energy, such as airlines, trucking companies, steel mills, and electric utilities. Since 1998 fossil fuel production prices have been rising, reaching $2.95 (in real dollars) per million Btu in 2003.

The production prices of both crude oil (the most expensive of the fossil fuels) and natural gas followed a pattern of rising and falling similar to that of the fossil fuel composite price from 1949 to 2000. (See Figure 1.8 and Table 1.3.) After slowly declining from 1949 through 1972, crude oil production prices rose the most dramatically of all the fossil fuels from 1973 to 1981, topping out at $9.27 per million Btu in 1981. The price then tumbled to $1.94 in 1998. But it then rose sharply during the next two years, reaching $4.61 in 2000. After a bit of a decline in 2001 and 2002, the crude oil production price rose to $4.50 in 2003. For natural gas, the price sank from $3.56 per million Btu in 1983 to $1.83 in 1998. It jumped up to an all-time high of $4.26 by 2003.

The story of coal prices is a bit different from that of the other fossil fuels. Coal production prices rose from 1970 to 1975, but then declined steadily through 2000 (not rising from 1975 to 1981 as did natural gas and crude oil production prices) and leveled out through 2003. (See Figure 1.8 and Table 1.3.) Its peak price in 1975 was $2.22 per million Btu in real dollars, and by 2000 it dropped to an all-time low of 80 cents per million Btu. In 2003 coal production prices were 82 cents per million Btu in real dollars.

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