Oil and Electricity

Oil provides 31% of global primary energy but generates only 3% of electricity. This is not a historical accident. Oil is simply too expensive to burn for power when natural gas and coal do the same job at one-half to one-quarter the cost per BTU.

The economics are straightforward. In 2024, natural gas costs roughly $2-4 per million BTU in the US. Coal runs $2-3/MMBtu. Oil-equivalent fuel costs $12-20/MMBtu. A gas plant producing electricity at $30-50/MWh competes against an oil plant at $150-250/MWh. Oil loses on fuel cost alone, before considering that oil-fired steam plants also have lower thermal efficiency (33-35%) than modern gas CCGTs (55-63%).

Calculate the cost gap. At $15/MMBtu oil and 10,000 BTU/kWh heat rate: fuel cost = $150/MWh. At $3/MMBtu gas and 6,000 BTU/kWh CCGT heat rate: fuel cost = $18/MWh. Oil's fuel cost is 8x higher.

If oil is so expensive for electricity, where does the 3% come from?

The exceptions. Island nations and remote grids without gas pipelines or coal ports (Caribbean, Pacific islands). Oil-rich Middle Eastern countries that burn crude domestically at below-market internal prices. Emergency backup generators. These niches persist because alternatives require infrastructure that does not exist, not because oil is competitive.

Oil dominates transportation because no other fuel matches liquid hydrocarbons' energy density for mobile applications. Electricity generation is stationary, so that advantage is irrelevant.

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