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The IEA WEO 2008 from the Perspective of Biophysical Economics
Posted by David Murphy on November 14, 2008 - 10:26am in The Oil Drum: Net Energy
Editor's note: the following post is by Dr. Charles Hall and his Phd student David Murphy (EROI Guy), and is part of our on-going series reviewing the World Energy Outlook 2008, recently published by the IEA. It is also the first post of a new 'channel' on The Oil Drum: TOD:EROI, where we will be posting essays, papers, and analysis on the biophysical aspects of energy. Our intent is to be a real time central clearinghouse for biophysical/net energy research and ideas. We have debated on calling it EROEI - Energy Return on Energy Invested, but have decided to keep it consistent with the acronym from the energy literature. The post below critiques the neoclassical economic assumptions underpinning the IEA report and proposes future 'energy watchdog' reports utilize an alternative approach grounded in biophysical concepts.
This week's IEA report, predicting 106 mbpd of oil production in the year 2030, and various price forecasts along the way, gives us more of the same from our international energy institutions whose fundamental assumptions remain broadly unquestioned. It is an open but critical question why anyone would continue to take conventional (neoclassical) economic theory seriously given the events of the last month, not to mention the repudiation of the “Washington consensus” by just about all Latin American countries and the many articles that have been written recently (and not so recently) that debunk some or all of the basic neoclassical assumptions (e.g. Leontief, 1982; Hall et al., 200l; Gowdy and Erickson, 2005; Bouchard, 2008; Galbraith, 2008; Nadeau, 2008 - - from many others). Nevertheless in this report we see the IEA, after making a good initial statement about the reality and importance of peak oil, revert back to predicting future oil supplies based on the same unproven neoclassical economic theories, including, most basically, an assumption of intrinsic growth of demand for oil at 1.6 percent per year indefinitely (click here for a review of the modeling in the WEO). This economic theory has allowed for the continued abuse of the words ‘proven’ and ‘probable’ when predicting reserve quantities, and in this case, has led the IEA to report that ultimate recoverable reserves from conventional sources total 3.5 trillion barrels, and from unconventional sources upwards of 6.5 trillion barrels. This report, and economics more generally, completely lacks the understanding that those numbers are not only quite unproven but irrelevant and useless by themselves, for the important number is not “how many barrels are in the ground” but “how many of those barrels will be gained at a significant energy profit for society.” In effect, the notional figure of 106 mbpd gives the impression that oil's net benefit to society will continue and even grow into the future.
The analyses presented by the IEA assume that only dollars will need to be invested (and $24 trillion at that). But oil, like anything else, requires real resources to procure, and it will be obtained only in proportion to how much real resource (energy, steel etc) is spent in getting it. The main problem is that geology, not the market, holds the key, and the geology of earth is getting more and more parsimonious in two ways: quantity and quality. Both of these concepts impact the energy return on investment (EROI) of national and global oil and gas supplies. First, the IEA is almost certainly correct in stating that as time progresses an increasing proportion of global oil supplies will have to come from fewer supergiant and giant fields within OPEC, as efforts to expand production worldwide has failed to keep pace with the depletion of non-OPEC fields in e.g. the U.S, Great Britain, Norway and elsewhere. This will influence EROI because these existing huge, old OPEC “elephants” are seriously aging and require more and more energy to maintain pressure through injection of, for example, seawater into the lower parts of these fields. Second, as time progresses and the best oil has been found and produced (for example North Ghawar vs. South Ghawar) an increasing proportion of new fields brought into production yield oil that is more difficult to access as well as heavier and more sulfur-laden, requiring more energy to produce, refine, transport (for example, Stuart Staniford reported how the oil in Saudi Arabia is becoming harder to access). The combination of quantity and quality reductions has led to decreasing Energy Return on Investment (EROI) which has not in any way been compensated for by technology or increased drilling rates. These ideas have been well understood since at least Hall and Cleveland (1981), whose results were published on the first page of the Wall Street Journal but quickly forgotten by the financial community and most of the scientific community.
Just to give you a rough idea as to where we are at present with respect to EROI, “according to legendary oilman Charles Maxwell” on The Money Show, most countries report that it costs from $55 (Saudi Arabia) to $70-90 (Russia and most of OPEC) to $90 (Iran and Venezuela) to produce a barrel of oil. That is a lot of money but underneath the surface also represents a lot of energy. Recent work in our lab suggests that when you divide the energy produced by the energy used by oil and gas industries (data is available for only a few countries such as the US and UK) that these industries use about 17 MegaJoules (MJ) per dollar spent in 2006. This is the energy intensity per dollar spent for seeking and producing oil. This compares to about 14 MJ per dollar for heavy construction and about 8-9 MJ per dollar as a societal average, so it seems to be in the right ballpark. If we assume 5 percent inflation since 2006 we might expect there to be used about 16 MJ per dollar spent by the oil and gas industries in 2008. So if it takes Saudi Arabia $55 to produce a barrel then $55 times 16 MJ/$ equals about 880 MJ required per barrel. For Venezuela, which requires $90 a barrel, this number would be 1440 MJ required per barrel. Since a barrel of oil contains about 6164 MJ of energy, the EROI would be about 7:1 for Saudi Arabia to 4.3 for Venezuela or Iran. These estimates, although crude, indicate the seriousness of the problem and sound a clarion call for opening up data banks all around the world to greater scientific scrutiny while also calling for companies to make their energy, as well as dollar, costs explicit and public.
It is important to remember that this is a rough estimate of the EROI for total “upstream” costs, i.e. exploration, development, and production of new wells, and so a calculation of the EROI for simply producing wells within Saudi Arabia would be considerably higher. (I.e., it is possible that seemingly high EROI is only 'at the margin', (on wells and infrastructure put in place long ago), and is masking a deterioration in the EROI of 'new' oil and gas requiring new energy and resources to harness). Nonetheless, the cost of getting energy has been increasing greatly of late which implies that the world is approaching a point at which the energy required to get new oil will be a substantial part of, and eventually all of, the energy found within the barrel. At this point the oil age will be over, regardless of the amount of oil left in the ground or the price that the oil commands. This concept exists partially and inadequately in economics as diminishing returns, but an advantage of EROI over diminishing returns is that with a good historical data set, EROI allows the calculation of a rough cut off point. This suggests that the IEA's prediction of 106 mbpd in 2030, whether true or not, will not have equivalent impact on society as the readers of the WEO 2008 report might infer.
Many economists will say that EROI undervalues the role that technology will play in accessing deeper and poorer quality reserves. But as we have stated, EROI in the US obtained at least 100 barrels of oil from each barrel invested in going after it in the 1930’s but only about 10 for one in about 2000, despite the tremendous increases in technology (Cleveland et al., 1984, Cleveland 2005). Therefore, in the US, and subsequently the world, geologic limits have trumped technological advances, and so we reiterate: the arguments about how much oil is left in the ground misses the point - what is important is not the total oil remaining but how much we can get out at a significant energy profit. Unfortunately this amount is likely not large, and this increasing differential between gross and net will only exacerbate Peak Oil. Economics will eventually reflect decreasing energy profits, and even though the price of oil has dropped below what it costs to produce a barrel in many oil-producing countries this will only guarantee larger oil production problems in the (not far off) future. Fancy economic theory will have no ability to change these physics (Hall et al., 2008). As usual, in the long run Mother Nature holds the high cards.
Neoclassical economics and economists have reigned supreme despite their dismal track record of late, as evidenced by governments turning to the same economists who got us into the credit crisis situation to get us out. It used to work better: economies expanded simultaneously with an expansion of economic departments and economic theory. It looked like the theories worked, although since more and more oil was being pumped out of the ground perhaps any theory could 'seemingly' work. Capitalism may be a giant Ponzi scheme once fueled by ever more investors and ever more oil at its base, but this has ceased, most likely forever (see here for a definition of Ponzi scheme). The economic theories became ever more analytically elegant as they got further and further from reality. Our most prestigious economics departments not only did not teach very much about oil or grain or other sources of real wealth but increasingly not even about money. Rather their focus was far too often complex econometric models using rather stupid starting assumptions (e.g. Nadeau, 2008). Acceptance of graduate students was increasingly taken based on their math skills rather than their ability to understand real commodity paths. Wall Street followed the lead of our major economists. As we have seen in other disciplines, such as ecology, there has been massive conflation of mathematical and analytical rigor with scientific rigor.
The basic theories of neoclassical economics breaks many conventional rules of science: for starters the boundaries are wrong, the laws of thermodynamics are not respected and the whole edifice is based on “sets of more or less plausible but entirely arbitrary assumptions” about the economy that were chosen based on an inappropriate physical analogy and that were analytically tractable (Leontief, 1981; Hall et al., 2001; Nadeau, 2008). In fact why should economics be a social science at all? Real economies are about the flow of real materials and the energy required for those flows and materials. Earlier economists (the physiocrats and the classical economists such as Adam Smith and David Ricardo) understood the physical base for wealth and made no such foolish assumptions, nor should we.
If one were to ask a physicist or chemist or engineer about how something was made in our society they would probably begin with analysis of the resources required for its manufacture and then the energy required for that manufacturing. But economists, in their Cobb-Douglass production functions, use only capital and labor: P = f (K,L), and sometimes not even labor. Why? The economist Dennison (1979, 1989) in many papers wrote that about half of the increase of production over time in the US cannot be explained by the increase in capital and labor. He explains that the statistical error (residual) associated with correlating capital and labor with production is “innovation” (technology), something dear to the hearts of economists. But when Kümmel (1982, 1989) adds in energy, as any real scientist would, this error disappears and the increase in energy turns out to be more powerful than either capital or labor (also see Hall et al. 2001).
Instead of the kind of economics that dominates today what we need is a biophysical approach to our economic system, one that is based on real physical and biological production and distribution possibilities (Cleveland et al., 1984; Hall and Klitgaard 2006). The first International Meeting on Biophysical Economics was held in Syracuse, New York in October of 2008 and there is interest in setting up chapters in at least 6 European Countries. We are attempting to generate case histories, analyses and a textbook, but the road is difficult since conventional neoclassical economics is so firmly entrenched. But if the events of 2008 are a glimpse into the future, then the transition to this kind of economics is inevitable, and along the way it will render moot a good part of the analysis in this weeks IEA document. We would do well to understand and guide this transition.
Literature Cited
Bouchaud, J-P. 2008. Economics needs a scientific revolution. Nature 455: 1181.
Cleveland C. J. 2005. Net Energy from the Extraction of Oil and Gas in the United States. Energy: Energy 30: 769-782.
Cleveland, C.J., R. Costanza, C.A.S. Hall and R. Kaufmann. 1984. Energy and the United States economy: a biophysical perspective. Science 225: 890-897.
Denison, E. F. 1979. Explanations of declining productivity growth. Surv. Curr. Business 59:1-24.
Denison, E. 1989. Estimates of productivity change by industry: an evaluation and alternative. The Brookings Institute. Washington, D. C.
Gowdy, J., and J. Erickson, 2005: The approach of ecological economics. Cambridge Journal of Economics 29: 207-222.
Hall, C.A.S. and C.J. Cleveland. 1981. Petroleum drilling and production in the United States: Yield per effort and net energy analysis. Science 211: 576-579.
Hall, C. A. S., D. Lindenberger, R. Kümmel, T. Kroeger, and W. Eichhorn, 2001. The Need to Reintegrate the Natural Sciences with Economics. Bioscience 51: 663-673.
Hall, C. and K. Klitgaard. 2006. The need for a new, biophysical-based paradigm in economics for the second half of the age of oil. Journal of Transdisciplinary Research Vol. 1, Issue 1: 4-22.
Hall, C.A.S., R. Powers and W. Schoenberg. (2008). Peak oil, EROI, investments and the economy in an uncertain future. Pp. 113-136 in Pimentel, David. (ed). Renewable Energy Systems: Environmental and Energetic Issues. Elsevier London
Kümmel R. 1982. The impact of energy on industrial growth. Energy 7: 189 203.
Kümmel R. 1989. Energy as a factor of production and entropy as a pollution indicator in macroeconomic modeling. Ecological Economics 1: 161 180.
Leontief, W. 1982. Academic economics. Science 217:104-107.
Nadeau, Robert. 2008. The Economist Has No Clothes: Unscientific assumptions in economic theory are undermining efforts to solve environmental problems. Scientific American March 25 2008.
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P = f (K,L,E)
I think you should include other natural resources in your function. By convention "K" refers only to physical capital that is manmade--buildings, oilrigs, tools, trucks, etc.
In addition to natural resources, such as water and land and sunshine, I think one should also add in kinds of capital other than physical capital. In particular, both social capital (primarily education) and moral capital (values such as the work ethic or honesty) should be included.
Also, production includes wastes, and it is costly to recycle or dispose of these wastes; I think a production function should take account of these wastes and costs related to them.
I know it is wise to keep your number of variables down, but the availability of financial capital is also a binding constraint on production.
There is also the question of how to measure inputs: Do you measure them by dollar value or in some other way. One problem with using money as a measuring stick is that the value of money changes over time--so how do you measure capital that may have been built twenty years ago? Also, using only money means that one tends to neglect external costs and benefits--though one can put dollar values on these, it is a dubious process.
Natural resources (such as oil) are rent, not capital, and not generated by the difference between user and exchange value.
There is no owning of the means of production.
Or am I getting Ricardo wrong? I know I'm not getting Marx wrong.
In variable terms, perhaps separating out E is incorrect. Where would horsepower have gone originally, as capital (slaves and horses)? Or as part of labor? That would be interesting to research but not something I can do for today or tomorrow. If it's labor, by using price we vastly underestimate the amount of labor; we miss the 50 or so energy slaves every American has at their disposal. I wonder if Odum has a specific production function like that in emergy terms; it is more or less the concept of transformity.
Natural resources and low entropy. That price problem again.
cfm in Gray, ME
Experienced followers of low-EROI claims will not be surprised to learn that the link does not lead to any saying by Maxwell that at all resembles the claimed per-barrel costs. Saudi Arabia's oil production would either have been different beyond recognition before 2004, or not have begun until that year, if at $55 it were just breaking even.
--- G.R.L. Cowan, author of 'How fire can be tamed' --
you should read it -- http://www.eagle.ca/~gcowan
For what it is worth, I was able to find what I believe is the intended video reference available at http://www.moneyshow.com/video/video.asp?wid=2664&t=3.
Great idea, glad to see it!
Bad idea, please reconsider immediately!
EROEI vs EROI - what's the dif, right?
But the difference is huge . There is already a default meaning for "return on investment" in the english-speaking world, and it's about money. Really, ask anyone. It includes considerations of tax breaks and comparisons with other investments which may not even be tangible. It is an inhabited meme. (whacks dead parrot on counter). This is a former acronym.
Contrast that to EROEI, which refers to a ratio, ER/EI. That ratio is what embodies the revolutionary concept that there are real thermodynamic limits to the usable energy we may obtain. It's a game-changing Copernicus-level eye-opener and most people don't get it and never will.
When trying to educate the world to a new way of thinking, why intentionally hobble our own efforts by going with an inherently-confusing convention? If there were ever a time to move away from a needlessly confounding term, and a mission for TOD, this would seem to be a good time to put it into play. Man, academics will be the death of us yet. And I mean that in the very kindest way.
EROI has had a good run, but it is past time to retire it when what's being discussed is ER/EI. Do we want humans to understand the concept or not?
Alternately, if the mission here is to listen to ourselves talk back and forth while enticing newcomers to confuse and look down upon, we could just establish TOD:Phlogiston and continue rehashing every other misconception ad infinitum.
Just saying...
My apologies to the posters, but I think TOD should take this opportunity to change the debate in this minor way.
(edit) and of course, I'd prefer we actually substitute ER/EI, even though that would take a bit of effort to propagate into the world at large. Changing the debate, language and convention in that small but profound way may be exactly the level at which TOD can change the world. Indeed, it might be the most important thing TOD ever does.
greenish
you've made this point before and I happen to agree. But as you know, I'm not the guy who wrote the papers and you know how humans are...
And we do need an editor for TOD:Phlogistan if interested...;-)
Certainly, and I hate being a pain in the arse, but there's a real opportunity here. Indeed, this may be the last opportunity to change this piece of the debate, as it goes more mainstream.
My post isn't about these papers, of course; hence my apology to the posters; it's about the title of the TOD section. I don't suggest that there be any censorship, merely that TOD starts to exert its growing influence by making the terms of the debate clearer for the lay audience.
There's a real and valid question about any entity such as TOD: once it's established, what is it good for? I suggest that's it's good for exactly this: rendering abstruse-seeming concepts more easily accessible to non-academics. And if you do change it, it will be clear who changed it, and when it happened, and why.
This is good advice and should be taken.
I won't carp about it after this on TOD, I promise. Kudos for the concept of a dedicated TOD section on this, which is no small thing.
Acronyms should be made as simple as possible, and no simpler...
Oh, and I think the "Phlogistan" name already may be planned for use in a redivided Iraq. Kinda catchy...
Hi greenish,
Since your advice is good I don't see any reason why you should refrain from giving it at every opportunity. Anyone who has raised kids knows the value of repetition. Say it often enough and eventually you get through, and the lights go on.
If EROEI is the minimum accurate expression of the concept (and the truncated EROI fails to impart the necessary information) then EROEI it is!
Kindly go right on carping.
Nate and Greenish, I disagree. I believe the acronym should be shortened even further to ROI, Return on Investment. Oil is used for a lot of other things other than energy, asphalt and plastics for instance. It all boils down to; "Will this project be profitable?"
Quibbling over energy in verses energy out only confuses the issue. Energy is bought and sold but that is all too simple. Energy produces goods that are also bought and sold. It all comes down to economics and if any project is not profitable it will be scrapped. Unless of course it is a government project financed by taxpayers. And even these government projects must ultimately be financed by other projects by projects that are profitable operated by taxpayers.
No project can be operated at a loss, for very long anyway.
Ron Patterson
Ron, well said, but this rather goes to what I'm on about.
Are we talking about thermodynamics or economics? I see ER/EI as thermodynamic. You see ROI as economic. I'd agree with either, and think EROI is a confusing bastard stepchild.
ER/EI is a fundamental constraint for all life in the universe, wherever it may exist. Extraterrestrial aliens if they exist. Foraging strategies of bears on the tundra, etc. And humans, who ultimately must obey the same laws. That's a powerful concept, and has nothing to do with money.
Maybe it's just ME who's confused. If so, sorry....
all best...
(edit) a useful test for what we're talking about: can EROI be negative? ROI can be, ER/EI can't be. Yet more often than not, these terms are now conflated.
Re which see my below about more useful concept of
EG/EI (Energy Gain(loss)/Energy Invested).
Sheesh, you guys throw out all these high falutin terms and concepts like thermodynamics and stuff... I mean, next thing you know ya'll will be expectin us common folk to be able to understand the Krebs Cycle or sumthin.
Seriously though I wonder how many people of even college level literacy have any understanding of thermodynamics and are able to grasp why classical economic theory is pure bunk.
It seems obvious that there are two quantities here, and making sure they are obvious and separate is a sensible idea.
First there is EROEI talking in simplistic terms about energy and efficiency of extraction. Second there is ROI talking in simplistic terms about money. Now EROEI informs ROI, but so does location, market prices, shade of sky colour in your part of the world, etc.
EROI, energy returned on investment, is a bit of a muddle in the middle, conflating energy with finance. It doesn't really tell you anything and confuses the issue by being too close to ROI in the minds of economists. Don't confuse the poor dears.
Load up your spellchecker with EROI => EROEI and get rid of it from articles unless the author is really incorporating energy with finance. If they are, don't let them get away with the woolly thinking that so exemplifies economists and accounting - they need to define inclusions, exclusions and assumptions.
PS Plastics and fertilisers is a red herring on EROEI. What is output from the resource recovery process is potential energy. What you use it for is another question. Plastics, fertilisers, etc. have high 'energy' inputs because they can use feedstocks that could be energy.
can EROI be negative? ROI can be, ER/EI can't be
ER/EI never negative? On a strict thermodynamic basis this must be true, for energy can neither be created nor destroyed, thus each term must always be positive. (Unless they manage to harness Dark Energy, that is.)
But, to be practical, we are talking about useful energy here, so there is a subjective judgement in what precisely constitutes energy.
For instance, say I use a motorised winch to hoist a heavy weight. Neglecting friction, I have an EROEI of one because the potential energy gained is equal to the work done.
If the rope breaks and the weight falls and smashes my winch, I've ended up with net negative energy, because I've gained zero useful energy from burning my fuel, plus I've lost the energy used to make the winch.
Thus I can get negative EROEI in a catastrophe.
(I realise I have cheated in re-drawing the boundaries of the problem between start and finish, but I am prepared to argue that this is acceptable in a practical situation.)
It is my fault for including our honest indecision on EROI vs EROEI in the introduction to this piece, as it seems the folks at IEA and others around the world who happen to have read this might be missing the bigger message by the semantic bicker.
Briefly, there are all sorts of references to this concept in the literature. Mark Hatfield, Senator from Oregon and (successful) advocate of making net energy analysis part of public law in the 1970s did not call it EROI - just 'net energy'. EROI is a ratio. EROI-1 is the 'net energy' or energy surplus or energy gain. EROI is a dimensionless number so it needs to be multiplied times a scale to come up with a total energy surplus that can be compared. EROI X Scale per unit time is Power. If you add in what Odum called transformity and Tainter called quality, then you have qualified Power for a particular socio-economic system.
EROI can never be negative. The second law of thermodynamics assures that over long periods of time, EROI from fossil sources will decline (technology trumps depletion via heat loss during transforming to usable energy). The first law assures that EROI can't go below zero. Energy is neither created nor destroyed - (it just moves to less usable state).
In my opinion, the current EROI debate on this site is approaching a standstill, which is why we brought EROI guy in to focus as editor on this section. My own opinion is this needs to be expanded to maximum power principle, marginal vs fixed EROI, externalities, non-energy inputs, etc. This is a CRITICAL area of research, but not in the way most people think. I think net energy analysis will be the tool that really tells policy makers what our constraints are, not a tool to pick and choose between 2 competing energy technologies. The biggest lesson from declining net energy we can learn is what happens in nature, and that once on a net energy cliff, we will be grabbing from all corners to replace the power we have lost. Ergo, this limits our consumption options.
I see where you are heading with that.
One unit of energy at what total cost - not in dollar terms, but in terms of resources (water, steel, energy, environment, etc.) Dollars have done a good job of parsing this into one unit on an empty planet but as we have reached capacity and are running into source and sink constraints and lower energy gain, we ultimately will need a 'currency' with some physical backing. And Bretton Woods II will not be about gold, as some suggest...I don't know the answer. I don't know if there is one.
How about Quanta? Si, muchacho, Planck's constant times its frequency equals more energy for you mi amigo.
Que? quanto custa. No way, Jose...
Energy return on Energy invested or EROEI has huge implications beyond just its thermodynamic properties.
It also suggests that the economic models we use for extraction are wrong since they don't include declining EROEI.
Even though my original energy costs are low and thus generally investment cost if EROEI increases in time this means
you need a fairly significant sort of reverse deprecation to correctly price the "cheaper" original investment.
Thus the oil we extracted in the 1980's had far higher intrinsic worth then we assigned it since we did not back date peak
oil "appreciation" into the equation.
A interesting approach to balancing this is to force any use of a depleting resource to be balanced with retaining a renewable resource.
For example say every thousand barrels of oil equals 1 acre of prime forest or farmland thats left fallow for 20 years. Thus the energy used
in burning oil and even the C02 is banked via setting aside a renewable resource for later use. You could also match to PV and wind etc.
Slightly harder than conserving but same result. As you can see by balancing this way it seems that we do a really good job of ensuring continuous energy and thus we have balanced the EROEI equation. And its a easy way to correctly price oil to include EROEI increasing.
Also it seems obvious by burning oil for a century without attempting to balance has left us in dire straits.
And yes for the most part this means we probably have sold oil at ridiculously cheap prices for some time.
It seems clear to me that attempting to balance the equation when oil itself "costs" the same as renewable using
our normal economic constraints is wrong. Using my approach to make up for the deficit we would have to price oil
at say its projected price in 20-30 years. My best guess would be 500 dollars a barrel.
This makes intuitive sense since if we correctly repriced oil to 500 then we would see a huge burst in renewable energy
development. This would be funded by the difference in EROEI / investment in oil today vs what it would be in 30 years.
Assuming my logic is sound this gives you some idea of what we would really have to do to handle oil depletion correctly.
If we had done it right over the last 100 years then we would not be faced with this huge tax right now and we would
have a stable society. Either we pay the tax or we dramatically reduce our societies energy usage and probably complexity.
EROEI is intrinsic in making it clear that you cannot get out of this situation.
ROI would be my choice too. One could discuss rebuilding the auto fleet under ROI but it would seem a bit out of place under EROI. That's the "goods" darwinian mentions. And where energy substitutes for lower grades of other resources - low concentration copper for example - resource depletion in general would fit.
All topics are going to get mashed in anyway. Categorization is hard work.
cfm in Gray, ME
Greenish
You highlight key point of the debate. We will see what the consensus is soon enough, and maybe your thoughts will prevail. I believe it is important to separate ERO[E]I analyses as distinct from 'return on investment'.
Thanks for the gracious comment and for your excellent work.
My point, if point there be, is that I don't believe in consensus as the best policy-setting tool. I believe in trying to actively steer things based on the logic of the situation. I hope you'll weigh in on this!
The path-dependency of evolutionary biological and social change now has us in a real existential pickle. Lets perturb this for the better, here and now.
Just my two cents, I think its better to avoid using ROI, but EROI as an acronym may be (it seems to me) still quite open for detailed definition, at least to non-economists. So who's your target audience, economists or others?
A bit of further, I note that on the web,
a) Wikipeadia offers for EROI "This article is about Eastman Rochester Organ Initiative. For the concept of Energy Return On Investment, see EROEI."
b) TheFreeDisctionary - Acronyms section, at http://acronyms.thefreedictionary.com/EROI defines EROI = "Expected Return on Investment"
the first of which argues for the dissenter(s) above, eg. EROEI
the second of which appears to argue for the use of EROI, as the thread initiators propose.
I like EROI because it seems adequate, but if you choose to stick with it then DO claim its definition by making the proper entries at at least these two sites, and likely several others.
I, for one, think TOD needs to speak out on organ initiatives, and I'm sure it will be doing so frequently once TOD:EROI is set in cement. I've been wanting to know how I can get "organ donor" off my driver's license since the cannibalism expose at the Kaiser morgue in Honolulu.
But to the matter at hand, it seems that BOTH your examples (a) and (b) are other than what is intended by TOD:EROI; certainly neither of them are based in thermodynamic considerations, one being about organs and the other about money.
I DO support the establishment of TOD:ELOI as a sub-forum, to facilitate a perhaps-inevitable demographic schism and place anthropophagy in a useful energy and environmental context.
I surrender %-O
I don't surrender ;-)
I am more for BOOBI
Barrels of Oil On Barrels Invested.
As soon as that goes negative we will no longer pump oil.
and as Hubbert showed us, once a resource is extracted, we have a ramping-up period until we reach the highest extraction rate, and from that point forward we have a ramping-down period.
Therefore, we can state with conviction that BOOBIs will grow, reach their peak, and then sag.
Mash
(sorry, I could not help myself)
-Father, Farmer, Doomer, Engineer, Drummer
greenish -
Very well stated. And I agree emphatically with your point. EROEI or ER/EI or ER:EI are all clear, precise, limited (in the sense that both the investment and the return are measures of the same factor), and most importantly represent the crux of the real issue; EROI is none of that, at least without further elucidation.
People are so very confused about so many things that any opportunity to lessen that confusion should be seized forthwith and with great enthusiasm.
IMO.
I prefer the concept of net energy because it clearly shows how much is left over for uses other than obtaining more energy. For instance at best ethanol available to society would only be 1 unit out of every 4 units distilled if all the energy used by the farmers, transporters, and distillers was from ethanol.
Can anyone comment on the the accuracy of this claim:
Brazil's Oil Economical at $35 a Barrel, Lobao Says
The Tupi field lies below a water depth of 2,140 meters, then a 2,000-meter-thick salt layer that itself is under 3,000 to 4,000 meters of sand and rocks. Now is it possible to build a platform, drill at these depths and temperatures for $35 a barrel. This must be the most expensive oil in the world, or very close to it. Somehow I doubt Brazil's claim.
Ron Patterson
Just a guess, but I suspect their labor costs are much lower than elsewhere. Brazilians do not earn much.
I am sure this is true, when compared to the US anyway. But they would not save very much over world costs. Saudi for instance, would have only a few high paid engineers on each project. The vast majority of their labor would be Pakistanis, Filipinos and other low costs labor. You would find a similar situation in Brazil. The drill ships and crew would be leased at the going world rate. They would save very little.
Labor, supplied by Brazilian nationals, would be but a tiny fraction of the total cost.
I'm doubtful too Ron but I'll try to crank out some realistic numbers this weekend.
Even his statement you posted is subject to interpretation. Is he saying that once all the development monies are spent they would break even on the operational expense if oil sold at $35 to $40 per bbl? In other words, even though the investment might be a money looser it would still be profitable to produce the field at these lower prices. Or is he saying that the investment in drilling, infrastructure and operational cost would deliver a satisfactory return on investment if oil were in this price range over the entire life of the field? Or is he saying they would go forward on such a project if oil were in this range initially but isn't pointing out that they are also using an escalating price expectation over the life of the field?
You probably know that such economic analysis requires an adjustment for the time factor involved. It also requires a future price forecast. There has never been a single price for oil that justifies a project. It requires a series of producing, price and flow rate models to generate a project's economic viability.
Brazil reported lifting costs of about $25 a barrel as recently. That is the cost of getting the oil out of the ground and into a pipeline or FSPO unit in a developed field. Most of their fields are offshore.
If you have a low EROEI system, you may get the illusion of much energy being produced by focusing on the end product energy yield, but were distracted from counting the costs of the energy used to create the fuel. It is like a treadmill. The odometer might show you walked a long way, yet you had not moved a foot.
Here's my contribution to understanding EROEI for oil.
As oil depletion progresses, more and more oil is used to produce oil. When the amount of oil used to produce a barrel of oil equals the amount of oil produced, it is pointless to continue oil production. In addition to the oil used on site to produce and refine oil, energy is used in all of the processes for the machinery, equipment, and personnel used in the extraction, transport, and refining processes. For deep water oil production, this would include all of the ships, platforms, steel piping (many kilometers of pipes on-site and to onshore locations), and their employees, including the energy used in making the hundreds of thousands of parts, the energy used in the factories that make the parts, the energy used in transportation of all of the parts and employees, as well as the energy that is consumed when employees and stockholders spend their salaries or dividends on goods and services (food, automobiles, yachts, airplanes, recreation vehicles, vacations, consumer purchases, etc.). Because there are a number of confounded energy input variables, it is difficult to measure all of this consumption of energy, but it is an economic reality that is shown in corporate decisions about the profitability of deep water oil projects. For deep water, heavy oil, tar sands, and extraction where special techniques are used, the point at which energy consumed in production equals the energy produced will be reached rapidly. For this reason, some oil that is classified as recoverable (for example deep water oil, heavy oil, and the Bakken formation) may never be recovered.
This means that global economic collapse occur quickly.
Agreed. But the majority of inputs into oil and gas production are natural gas and electricity. (I will find link and edit it in). So oil is our perceived limiting input now, and we will continue to produce it, even at an energy loss, if we have enough of other inputs (like water and natural gas). Of course, the Liebigs limiting input of this entire resource depletion situation is our political system. (I.e. we have the tools and knowledge to allocate energy assets towards their liabilities for centuries, we just don't have the sociopolitical ability to do so)
One quibble. In the tar sands, PROVIDED the heat energy needed to produce the oil comes from in-situ oil rather than Natural Gas, then its use as an input does NOT affect the production decision, only the amount recoverable. Toe-to-Heel in-situ, above-ground gassifiers using by-product coker output, etc.
World's a little more complicated than some of you would like to present.
I meant conventional oil and gas.
And you are correct assuming that the in-situ energy has no other use.
For example, the bagasse burned in sugar cane ethanol production is not counted as an input but it should be because it can be used for energy in other applications. Hence sugar cane EROI is overestimate by factor of roughly 2.
But in your example, i can't imagine any other use for that in-situ tar - so you are correct..
see - not so complicated!
Sorry flipant Nate, will read the name I'm replying to in future. Highest respect for you and all editors here, keep it up please.
No, it is not all that complicated if all you consider is return on investment. Yesterday on Drumbeats we had a poster saying:
A very silly statement I know, but he has a point. Never is 100 percent of oil recovered used for energy. Some is used to make plastics, asphalt, pesticides and other chemicals. So even EROI is a misnomer. If you talk energy in verses energy out then that only leads to confusion. However investment in verses profit out is very simple. No confusion, just plain understandable English. Yes it is that simple. So why confuse things by separating energy from non energy return or energy input that you do not have to buy as in-sutu energy.
Ron Patterson
Much natural gas is used directly in cooking the tar sands mess, and much is used in all of the manufacture of pipes, and in refining also.
Perhaps you need to do some research on Tar Sands present and prospects. As in many embryo technologies, the way the largest installations are working today is not necessarily the way any future intallations will work. I anticipate economics making obsolete the old floatation cell systems, with their attendant water usage / quality / storage / disposal problems. Replacement by some mix of Toe-To-Heel InSitu extraction and perhaps some adaptation of the Shell electric heating system developed for Shale extraction.
eg. how many mercury bed electrolysis plants remain producing industrial chlorine? None, but that doesn't mean we no longer use large quantities of chlorine. Simply that the next-lowest-cost alternative was selected to replace all of them (proton exchange membranes, now become the basis of many fuels cells as well).
Genuine environmentalists have clearly stated and logical goals, as I do. I don't care how much oil may be produced from Tar Sands, provided it is produced cleanly and its use has less negative effects on earth and society than alternatives. If your goal is to cripple high-technology society and return us to a pastoral society of wandering shepherds, you should state that so others can evaluate your propositions fairly.
What manipulative bullshit. We are talking about the fact the oil/tar sands production uses much natural gas. You are trying to make some future phony scenario pass for today. You are probably wrong for the future too, as converting to use of tar sands to heat up the mess instead of natural gas will take much investment, and it is just not there.
Perhaps you should check out your phony future scenario on the alleged impossibility of running the electric grid without substantially similar inputs of oil to the present - and railways, forsooth, when they have historically run at a time when very small amounts of oil were used.
There is no question that nuclear energy can be used to extract oil from tar sands.
With the credit crunch and continually worsening Greater Depression, no new nuclear power plants will be built in the U.S. or Canada, ever. There no plans to build a nuclear power plant for the tar sands, just chatter, and there is only one application in at the DOE to build a nuclear power plant in the US. They take some 10 years to license and build.
The railways you refer to burned coal and covered a small network compared the vast network of today's highways. Coal powered/burning trains are not in anyone's plans. You can talk about things, but the reality of them ever happening is a different thing. Burning coal has no political future. Do you really believe that coal/steam trains will be build again. Are you serious???
If you are talking about electric trains the infrastructure is out of capital investment possibilities, and the same for solar, wind, and nuclear power for the electric economy, all of which are now lack the necessary capital.
The Energy Watch Group (funded by the German Parliament) concludes in a current report:
"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."
http://www.globaliamagazine.com/?id=482
You dream about ideas that are unrealistic.
You should read the Hirsch report, the 2 EWG reports, the Peak Oil primer on TOD and www.energybulletin.net, and the U.S Army Corps of Engineer report for starters.
The EWG, which you love to quote, concludes that oil shortage COULD lead to societal breakdown.
Somehow, magically, you translate that to your own reading of the tea leaves, with a declaration of it's inevitability.
You also entirely ignore what is technically possible, as if the alternative is starving, sure people will build more coal trains.
Your suggestion that rail lines would need to go to everywhere that highways go is simply ludicrous, it would run to exactly the sort of points that is used to do, to main population centres for further distribution.
Of course a return to coal trains is unlikely, simply because it will be perfectly possible to run them by electric.
However, the fact that it is perfectly possible demonstrates that under no reasonable scenario will it not be possible to move goods by rail.
In addition, you appear to be entirely ignorant of the fact that there is a world outside of the US, as in some countries such as China finances are in a much better state.
You also entirely ignore any critique of your thesis. I have repeatedly asked you how you can justify the way that you misrepresent the one and a half pages you have written on the non0fungibility of energy sources as being an 'exhaustive analysis' when it is simply a series of assumptions laid out.
You repeatedly change the subject instead of backing up your clear statements, which are clearly false, such as that 'Energy resources cannot be substituted'
You should learn to respect your own statements enough to either back them up or retract, and a course in critical thinking might open your eyes to the complete non-sequiturs which you present as analysis.
Alternatives energies will not fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.
The proponents of the electric economy, the hydrogen economy, or an algal bio-diesel economy ignore the obvious. There is little capital, time, energy, or public will for such trillion dollar infrastructure makeovers.
There are no plans for the electric economy, that is plans for infrastructure development of thousands of new service stations, millions of electric trucks, millions of electric trams, and millions of solar panels and millions of wind turbines. Tractors/combines and trucks are not feasible given the short distance they can go. No plans for the capital, nor plans for where the energy in oil and natural gas will come from for trillion dollar/Euro make overs.
The belief in alternative energies is so strong that most scientists avoid examining obvious questions – does the development of alternative energies consume more energy than they provide, and do alternative energies consume liquid fuels and give us electric power, which is not what we need?
If you are proposing a trillion dollar/Euro make over, you must have plans, not just hopes and words.
Where are the plans DaveMart??? You are proposing something, so you can't just do say I can do it, you must show us your plans.
You are once more trying to change the subject when challenged about the complete inaccuracies and misrepresentations you have made in your own presentation.
I might or might not object or differ from a more reasonable and moderate presentation of a similar thesis, but am under no obligation to do any presentation at all when it seems that you are unable to comprehend the very obvious deficiencies in that which you claim.
Until you demonstrate some ability to stick to the subject and perform a critique of that which you have written, I remain unconvinced of your capacity to deal rationally with any alternative views.
Hi Nate,
Most of the energy inputs to produce oil come from oil. Some comes from natural gas (especially the manufacture of equipment and piping), and some from coal, and a tiny amount from hydro/solar/wind.
1. The exploratory ships use oil:
http://www.nytimes.com/2006/11/08/business/worldbusiness/08gulf.html?pag... NOTE CLICK ON THE PHOTO BELOW MULTIMEDIA
2. The drilling power for drilling for oil uses diesel generators to produce electricity, but 100% of the power comes from diesel. http://science.howstuffworks.com/oil-drilling3.htm
3. The pumping uses electric motors, in which case the electric power is generated by natural gas, oil, nuclear, or hydro. Oil pumped at sea uses oil.
4. Steam injection uses either oil or natural gas to produce steam. http://science.howstuffworks.com/oil-drilling6.htm
5. Fractional distillation can use either natural gas or oil to heat crude up to vaporise it: http://science.howstuffworks.com/oil-refining4.htm
6. Oil is used to transport oil rig workers; cars, planes, and helicopters
But in addition to the above, there are many energy inputs necessary to produce oil: transportation of all workers who work for oil producers and transportation for all of the workers in the thousands of parts companies around the world who supply parts for exploratory/drilling/refining equipment, and all office equipment, as well as advertising, gas station employees etc, etc, etc, THAT IS ALL OF THE OIL USED, AND THIS INCLUDES ALL OF THE OIL THAT EMPLOYEES USE WHEN THEY GET A PAY CHECK, OR DIVIDENDS, OR STOCK GAINS AND THEY SPEND THE MONEY THEY GOT AND USE OIL IN THE PROCESS SUCH AS ---- A SIX PACK OF BEER THAT WAS TRANSPORTED BY TRUCK, A VACATION TO DISNEYLAND USING GET FUEL ETC, ETC, ETC. All of this oil was used to get oil out of the ground and into your car, NOT JUST THE OIL THAT YOU SEE USED DIRECTLY.
THESE ARE THE FORGOTTON INPUTS OF EROEI WHICH IS INVARIABLY EXCLUDED IN MOST EROEI STUDIES.
Regards,
Cliff Wirth
Well wirth saying, though not in CAPITALS which are rightly disapproved of on this site as on many. Please use some of those html tags instead!
For every primary industry you also have secondary support industries. For example the restaurant where the oil workers eat. All the energy used in food and the restaurant and the restaurant employees should be allocated to oil.
A very easy example to see how this works is to consider a town that all it does is build houses for each other. Its obvious that
the economy of this town would quickly grind to a halt. Another example are the boom mining towns once the mine shuts down the
town is dead and gone.
Even though the oil support economy is huge its no different from these smaller examples the moment it can't produce more oil
than it uses its dead.
Actually its probably dead well before this because its obvious that well before ER == EI you reach the point that you have nothing to sell
at any price. And as you work it back its obvious that the price was untenable for the rest of the economy before this.
Again consider a mine it did not shut down when it became completely depleted but when it became uneconomic to produce. If you
follow what I'm saying this happens well before you hit the EROEI cliff. The fact that people argue that its later means they
really don't understand the problem in fact when you add in economics it makes the cliff come screaming forward in EROEI terms.
My best guess and this has be discussed is the actual cutoff is with a EROEI of around 10:1 to 6:1
Lets figure indirect costs work the same as fractional banking thus one direct oil employee is say backed by nine dependent workers.
I figure that about 500 million to 1 billion people are indirectly involved in the oil industry. This is important because all the rest
of the people need to profit off of the oil they buy in other enterprises. Say our pure customer load is 4:1 discounting a bit the number of poor people in the world that don't use much oil. In fact just to be really safe lets just say it could be as low as 2:1.
The ratio of the indirect pyramid of the oil industry to pure customers effectively increase the point at which we reach the EROEI cliff.
If its 4:1 and the direct is 10:1 then we go over at 40:1 if its as low as 2:1 then we go over 20:1
This means that we have probably already fallen off the EROEI cliff for our society. Now the interesting question is not that we are
already over the cliff but why are we still here ?
I'm pretty sure my numbers are right but the puzzle is we are actually still close to our normal society. Well the answer to that of course is we are using infrastructure that was developed back when oil was cheap so only a fraction of our economy is actually running on only 40:1 or 20:1 EROEI resources. But now we can do fairly standard depreciation and its pretty obvious that at best this buys you 20 years at most more like 5-10 years before your economy explodes or shrinks dramatically.
This starts bring in time into the EROEI equation and shows its not a good idea to ignore it also of course it shows the effective EROEI of a lot of our sources for oil is probably not at the 40:1 or 20:1 brink best guess is at least 50% of it is still less right now.
Enough however does not make the cut that the estimates I've made probably hold.
This also point out that high EROEI source such as KSA are not relevant since they only supply a fraction of the oil. It does not matter if 10% of your oil supply has a EROEI of 100:1 what matters is how much has cross the brink and is no longer adding any real energy to your economy. Even if I'm off its a pretty safe bet we have lost at least 10% of our usable energy already and only fading embedded energy in infrastructure is hiding this. This 10% loss was probably already present a decade ago and its been uncovered if you will very rapidly over the last few years. Now its worse like I said it could easily be 50% because of time this will rapidly hit our economy each year.
Best guess is we are probably facing and escalating decline in EROEI at about 5% a year thats increasing geometrically. So it was 1% to say 2005 then climbed to 5% then now probably to 10% and say 15% or so next year. The reason it hits so fast is we are already well over the cliff its just how fast our infrastructure degrades and needs replaced that determines how fast we decline. Its already decoupled from the actual EROEI in oil in the sense that this is well ahead of our actual decline rate in time.
Obviously this implies that all our infrastructure regardless of its it directly related to oil or not will now begin to degrade in a fairly dramatic fashion. Infrastructure like northern and mountainous roads that have to be rebuilt every year will not be rebuilt next spring.
Damage from natural disasters will not be repaired etc.
Hi memmel: I think I disagree with (my interpretation of) your core assumption that all "profit" for every transaction among people and companies dependent on oil must be charged to the oil. I can't think of a good clear example to refute with just now, but seems an error to me at this point.
"When the amount of oil used to produce a barrel of oil equals the amount of oil produced, it is pointless to continue oil production."
Not quite--besides its non-fuel uses, oil may still be produced as the convenient liquid fuel that it is for various specialized uses and for those who can pay. But at this point it is a kind of boutique fuel, or (increasingly inefficient)conduit of energy (like electricity) rather than a true energy source, much the way the energetics of a hydrogen economy would look if that pipe dream ever materialized.
If you use oil to produce oil, and it takes more than one barrel of oil to produce one barrel of oil, it truly is pointless to continue production. After all, you could just use the original barrel to produce whatever it is you are going to produce form the new oil.
Your argument only makes sense if you use some other form of energy to produce oil, like nuclear, and oil is more valuable in the marketplace than the energy used to produce it. That is, if you can sell the oil for a higher price than the energy used to produce it cost, then it is economical. In this cast EROI would be negative but ROI would be positive. Not very likely but that is the only way your argument makes any sense.
I good case would be oil needed for production and maintenance of wind farms and other renewable energy systems.
Yes, you are right. That is what I meant.All sorts of things are mined that have EROEI below 1. Oil will at some point join their ranks.
Do you really think it is unlikely that oil will not be extracted any longer when it ceases to be an energy source? I doubt it myself. But that moment will be hugely significant for the worlds energy consumers (pretty much all of us)--probably the most significant point on the whole PO curve. That's why I am glad to see it b'eing discussed here.
Great piece Guy. Upfront I think it would be valuable for everyone to keep clear distinctions of EROI with respect to the various phases of the oil flow chain.
Depending upon how one amortizes the drilling equipment involved, the exploration drilling phase might appear to have a relatively high EROI. But how readily can we calculate the energy resources utilized to support the personnel overhead, office buildings housing the exploration staff, the seismic boats which acquire the data for the exploration effort, the energy used to build the drilling rigs/vessels, etc? I’ve worked in the oil patch for over 30 years and have difficulty coming up with even a rough estimate. On the other hand, if we just use the actual energy consumed in the drilling process we would come up with an unrealistically high EROI. There is very little diesel utilized compared to the volume of oil discovered in success efforts. But this also leads to another criterion. Do you factor in the energy consumption of unsuccessful exploration efforts? Technology has significantly improved the success rate but the majority of wildcats don’t find commercial hydrocarbons.
The development phase has a completely different EROI profile. Not only are significantly more wells drilled then those needed to explore for a particular field, the infrastructure can consume a massive amount of energy. It would seem appropriate to some to use the energy consumed to create the huge amount of steel used in the construction phase especially in the offshore arena. Again, the actual fuel consumed during the development drilling phase is relatively minor compare to the overall costs.
During the production phase the EROI would be rather high during the early life of the field. An onshore oil field might actually be close to an EROI of 100 if one only considers the energy consumed to produce and transport the oil. But this isn’t a constant state. As a field produces it energy requirements can change drastically. This will vary widely depending on the nature of the reservoir drive. Also, eventual enhanced recovery techniques (water/NG/N2 injections) can demand a great deal of energy. The energy demand to process the oil on the surface can also increase significantly as the field ages (the separation and disposal of water from the oil stream as an example). To generate a representative EROI for the entire life of the field requires weighting these different phases. This would be neither a simple nor accurate calculation before a field begins producing.
Thus to come up with a reasonable estimate of a project's EROI from conception through depletion seems almost impossible. On the other hand, the oil patch wouldn't care if we did. The oil industry has never used EROI to determine the viability of any exploratory or field development project. I doubt this will ever change. The value of a project is based upon $’s and $’s out. Of course, this is still related to EROI indirectly. The energy consumed in the process is bought with $’s. But the issue is cloudy. An offshore drilling rig might cost $500 million to build and utilized a great deal of energy in the process. The question of amortization of the rig’s EROI becomes difficult since that rig might have cost the operator $150,000 per day 6 years ago but now costs $600,000 per day.
Additionally, the industry not only doesn’t use the barrels of oil produced as a measure of success but doesn’t use the actual $ value of the oil found. It uses the cash flow stream, adjusted for time, to determine the viability of a project. The time factor adjustment itself requires an oil price projection ten or more years into the future. If operational expenses are low and future price expectations are high, projects with relatively low EROI’s will be drilled. Conversely, if high costs are combined with low price expectations (similar to what we see today) projects with reasonably good EROI’s might be delayed or even abandoned. EROI would be a good measure of the efficiency our oil extraction efforts. But the oil industry will never it used directly. Only pricing sensitivity to EROI will have any impact on the decision making process.
Rockman
Do you factor in the energy consumption of unsuccessful exploration efforts?
We would love to incorporate a hole-by-hole analysis, as it would certainly increase our accuracy/precision, but the data is sparse at best.
EROI would be a good measure of the efficiency our oil extraction efforts. But the oil industry will never it used directly. Only pricing sensitivity to EROI will have any impact on the decision making process.
I agree! An explicit connection between profits and EROI needs to be made, and if it is done, then the business world will at least start to pay attention to EROI. To do this, however, would require a time-series approach correlating EROI and profits in some way, but calculating EROI, as you pointed out, is quite difficult. That said, I am still interested in doing this. You have any data to help me?
See my post above to be explicit we probably can expect that the secondary support pyramid is closely tied to fractional reserve lending.
I.e its about 9:1 this makes sense since the oil industry is one of the largest in the world and the way money is created limits it.
If you think about it for a bit the oil industry cannot consume money faster than its created and it probably does not do it a lot slower.
I believe this applies to all large global mature industries they become limited in scope by the rate of growth of the money supply.
You can probably think of other ways to figure this but the point is with huge industries we can look at macroeconomic variables to deduce the size of the support industry they need.
But then of course you get a huge boost on the time series side esp with oil since a lot of equipment last decades and was developed with cheap oil its only once you start have to replace a significant amount of it that the situation becomes untenable again see my long post.
The short version is Rockman should be scared :) The reason is once you figure out the real EROEI including time and depreciation we fell off the cliff a decade ago.
A useful reference....
Scientific Community Called Upon To Resolve Debate On ‘Net Energy’ Once And For All
I like this quotation:
Thanks George.
I would say 'interesting' reference as opposed to useful.
Dale has been funded by biofuel industry for decades and has been railing against net energy analysis for almost as long. This is hardly an impartial commentary, but at least he is asking for help. (his last powerpoint I saw was titled: "EROI-RIP"
And for the record, I have written here and in peer review that net energy analysis lacks an accounting for non-energy inputs and externalities. (See AMBIO Mar 2008). Also pending 'The Limitations of Net Energy Analysis for Policymakers'.
The quotation I provided is from a critic of Dale.
But to quote Dale himself:
I would give net energy much more emphasis than this. Perhaps my view could be summed as follows:
For any particular fuel, net energy analysis will not overwhelm other considerations. But for the energy mix as a whole, it may ... but it's not certain.
If 25 years from now most of us are driving range-extended EV's that use a relatively small amount of ethanol at cost of $10 gallon in today's money, nobody is going to care if net energy of biofuels is very crappy or even negative. i.e. 3 million barrels a day of low net energy biofuels are not a problem as long as the net energy of the rest of the energy mix is reasonable.
The energy involved in rebuilding the automobile fleet and maintaining the automobile infrastructure may well exceed that of the biofuels involved in using the system. All you've done is shift the energy requirement into the capital column. Your point about the energy mix is on target, but the net energy analysis would have to look at the whole system, not the marginal vehicle mile.
I suspect the ROI would be seriously negative. Sorry, couldn't resist! ;^>
cfm in Gray, ME
I don't understand your point. Net energy calculations don't really deal with how the produced energy is used. It's about a production process, not a consumption process.
I raise the example of range-extended EV's because it shows how a niche fuel could be useful even if the EROI is poor.
An extreme case is the hydrogen used by the space shuttle for blast off. What is its EROI? Nobody cares.
Yes, with range-extended EVs using biofuels, the energy in the biofuels will be small compared to the other energy costs. That's why we don't care that much about their EROI as long as they meet other standards (if they do).
We have a liquid fuels problem. As far as I can see we may always need some hydrocarbon liquids.... for planes for instance and maybe for heavy trucks and range extended EVs. But if those liquid hydrocarbons are a small percentage of total energy usage, it may not matter that the EROI is crappy.
How much would it cost to fly across the continent if the EROI of the fuel used were only 1? Maybe 2 or 3 times what it costs now. (just guessing) There will still be plenty of air travel at those prices.
Your getting into energy quality concepts and they don't really hold for secondary and small energy sources.
A much better example is a disposable battery the net energy is negative but we don't run our economies off alkaline batteries.
Actually the net energy of any non rechargeable battery is negative they are effectively pure energy quality.
Even better anything manufactured using energy that does not produce energy is itself a quality conversion.
The reason these sources don't matter is your not trying to grow your economy on top of them its fine for
them to be negative. A perfect example is hydrogen made from a nuclear plant. The energy source is nuclear
hydrogen or even synthetic fuel is simply a energy carrier.
The biofuels camp is trying to assert they fall into this group but the problem is they are trying to replace
a primary energy source well it does not work that way.
Now it gets interesting because the obvious question is when does a substance become a energy carrier and thus
valued for its quality ?
In my long posts I set this at 40:1 - 20:1 using some wags to determine overall inputs. This means that oil has actually
been simply a energy carrier for some time. Thus our real energy sources are already coal, natural gas, and nuclear.
On the energy front the problem I believe we are having now is that the oil industry now is competing with its customers
for coal and natural gas. Thus its customer base can no longer grow as the real energy sources are now being cannibalisticly
removed. So effectively whats happening now is its selling a energy carrier at ever higher long term prices and also
removing more and more of our real energy sources of the Market. And worse of course the EROEI of a lot of our natural
gas sources are very questionable esp if you use my method. This means of course that if I'm right then the world must
have already made a massive transition to coal as its primary energy source.
And in fact it has underlying all the politics the move of manufacturing to China and use of coal actually has some very
valid energy underpinnings esp give my approach. We had no choice but to exploit Chinese coal to continue to grow.
So overall EROEI does matter since energy quality transitions eventually removed the overall net energy gain from the system
if they make any significant contribution.
'Energy profit'.
It still has yet to be proven that a gigantic energy profit is necessary.
If I invest and get a
10% return, that pretty good but for EROEI believers a profit of anything less that 500% is unacceptable.
Do we get an EROEI of 500% in food energy?
No.
To keep well nourished takes an input of 2000 kcal per day or 8000 BTUs per day. Walking around takes about 300 BTUs per hour while sleeping or laying around takes 150 BTUs per hour. Your daily energy profit is your not-working time of 3600 BTUs, your energy investment is the walking around time 16 hours a day--3200 BTUs.
Pretty much an EROEI of 1. The human body is efficient and we can get work done in our civilization with minimal effort.
Though I'm not sure of this, your remark seems to assume that you think EROI can not go "negative".
I'm just guessing, but your comments suggest numbers "approaching zero" but not going below.
However, this is *not* guaranteed by any laws of physics. It is perfectly possible for a barrel of oil to be so hard to extract and process that it would effectively use up *more* energy than you eventually get from burning it.
And yes, maybe we actually *would* continue to extract oil at a negative EROI, because for some reason or other we prefer the energy in the form of oil rather than something else (e.g. natural gas used in the oil extraction/refining process). Maybe that reason would be that our cars, plains etc. don't run on natural gas.
But no matter how you look at it. There has to be some point where it just doesn't make sense anymore to keep extracting oil at an exceedingly high energy cost.
That would mean EROI less than 1, not less than zero.
I'm not sure what negative EROI would mean. I guess a solar power scheme might attain it if you opened the box, brought the panels into daylight ... and the sun went out.
--- G.R.L. Cowan, author of 'How fire can be tamed' --
http://www.eagle.ca/~gcowan
The use of erori or eroi is needlessly confusing. This confusion is repeatedly manifested even on Tod by people talking about negative erori.
It would be much better to present things in terms of Energy Gain on Energy Invested, or EG/EI for short (with loss counted as negative gain).
If, for instance my crackpot energy production technology dictated digging up coal then carrying up and down Everest ten times then hammering it for a year, before finally burning it in a leaking steam engine, its EG/EI would be very certainly negative. (The loss would be almost equal to the investment so the EG/EI would be approx minus 1.)
It will be apparent that for values of about 10:1 or above, ER/EI and EG/EI are increasingly close. But the crunch for EG/EI comes at the more psycho-logical point of 0:1 rather than 1:1.
I previously proposed EGOEI, but now favour EG/EI in view of the neat suggestion of another poster upthread here.
EROEI can be negative: Consider an SUV. Takes a lot of energy to produce, then is used to burn lots of additional energy. I say this not to be cute, but I think it's a real issue. We are using lots of energy to build things that consume additional energy (McMansions & SUVs).
I guess that you could argue that you could increase the EROEI of your SUV to zero if you didn't use it.
Even if you can't get any energy back (eg trying to burn sand or something in your home wood fire) then EROEI is still no less than 0. Negative EROEI is just as impossible as getting a negative result from a squared number calculation. The concept of EROEI is absolute not marginal.
The mistake is applying EROEI to a energy quality change. They are completely different.
Its like the thermodynamics of a phase change vs a chemical reaction. They both use the concepts of energy but its fundamentally different processes. Most people that argue agianst EROEI make this mistake.
It the case that a quality change is also used as a energy source it gets somewhat tricky although its clear if you use the example of batteries.
The transition from being a energy source to being a energy quality change is not clear cut. I.e it can be made in my opinion well before EROEI goes to zero. Energy quality changes can be negative. Again using the battery as and example so you can readily find your self thinking your measuring EROEI and in reality your actually studying a Energy Quality change that has negative values.
I use the lack of bootstrapping capability as a hallmark that what was a energy source is now a energy quality problem. However I think a lot more thought needs to go into this.
I think the fact it is a subtle transition is one reason its capable of destroying civilizations.
You have to have a excellent understanding of this subject and good data to detect the fundamental shift that gives little sign. Its like a tsunami wave in the open ocean it looks like a swell until it hits land.
I don't think we and by that humanity has developed the science of energy flows well enough to do a good job of detecting this incredibly dangerous situation.
Again I would like to suggest that researchers look at isolated economies such as mining towns and see if they can see pure triggers for the transition.
I hope one of the things that does come out of the collapse of our current civilization is a well formed theory of collapse and I further hope it will guide future civilizations.
As Fred Hoyle said back in the 70's, civilisation, at least of the technological kind, is a one-shot deal.
I am agnostic as to whether we will manage to survive transitioning to other energy resources in the current civilisation.
It seems to me that at least the technological potential is there, as thin film solar and some variants of nuclear energy have good EROEI, and the potential to make better use of energy supplies is very large.
The political and economic realities, not to mention time constraints, make the outcome however doubtful at best.
Where we appear to disagree is in the potential for either graceful decline or the foundation of another civilisation.
On the first point, the record is clear, where resources become tight people fight. In that environment, with the starving masses adamantly refusing to go gently into the good night, then any holdouts hoping to be left in peace to grow vegetables in their windmill powered society are likely to be swept away, apart from any concerns that a society which relies on wind-turbines etc will not in fact be able long term to carry out all the functions like mining and refining needed to sustain itself.
Under those circumstances then if society does break down one would expect population levels to fall not to levels of the pre-industrial agricultural society, but to hunter gatherer levels, or more precisely to lower than prehistoric hunter gatherer levels due to the severe degradation of the environment.
If EROEI constraints hit our society hard, what must be said for their impact on a society attempting to get going on the ruins of our old society?
Initially very high grade ores were mined by primitive means, both for metals and coal.
Perhaps some of the rusting remains of our goods can be re-used for metals, if the time lag is not too great, but what energy source is going to be used?
It seems that any renaissance civilisation would be impossible until geologic periods of time have passed, to allow re-formation of deposits.
To me it looks like that if we screw up it is game over, once and for all.
I realize that the ratio EI/ER can never be negative.
Talking in reference to the poster that I was replying to however, the number he quotes *can* go negative.
When he says 10% (energy gained) he actually means 110% EROI.
An energy loss of 10% would be an EROI of 90%.
I actually realized this technical mistake but thought it was not the actual source of the misunderstanding I was trying to explain (i,e the fact that there is no guarantee you get more energy in than out).
Maybe that should be called something else?
Energy gained on investement = EGOI = ER / EI - 100%
I've noticed that many people here will actually give / talk about numbers which are actually "EGOI" when they call it EROI.
This however does not, in my mind, lead to a fundamental misunderstanding, merely a technical one.
The fundamental misunderstanding is that there are no physical laws that ensure we always get more energy out than we put in. EGOI can be negative.
Come to think of this, perhaps it is more intuitive to many people to think of "negative returns" versus ratio < 1.
Marjorian,
Your comment is spot on. EROI>1 is only a requirement for some rough level of approximation based on the costs directly associated with energy extraction. In the limit as all externalities are considered, the EROI must go to 1. (Otherwise the world would be stockpiling oil, and it isn't.)
The analysis approach required would be to construct a weighted graph, linking every economic transaction to direct oil extraction, something like the Six Degrees of Kevin Bacon Game, then construct a series and set the limit to 1. That still leaves a lot of DOF to be resolved by surveying actual energy costs of various activities, but maybe there are some simplifying assumptions?
Majorian
The Kung! Bushmen are quite efficient hunter gatherers. They chose food sources that build up fats in there body so that they can rest more. So is a huge energy profit necessary for survival in the sense of maintaining a diet for one person, maybe not. But scale this comparison to the global level - there is no way we could feed everyone on earth without fertilizers, which are only available on global scales because of natural gas. So energy profit is quite important at the global level.
The efficiency of the human body (in terms of chemical energy to mechanical energy) is similar to some modern internal combustion vehicles.
Of course, when it comes to transportation the principal reason why a bicycle uses less energy than a car is that the former has a much lower weight. Using 10 kg of materials (bike) to transport 50-100 kg of 'load' is a very efficient mode of transportation. Using >1000 kg of materials (car) to transport that same load is rather dumb.
I think the Term EROI is fine.
ROI is ratio of capital invested over capital returned (KI/KR)... right?
So EROI is the same type of ratio (EI/ER) for energy. So why make the acronym any longer?
But while we are on the topic of changing terminology, why not insist on stopping to use the word
"production" in relation to "oil".
If there ever was a wrong connotation with using a word in this context it is that one.
It would be much better to refer to it as "extraction" or some such word. After all we are not really producing oil, we are merely taking it out of the ground, where it has been ever since it was produced millions of years ago.
Talking about "oil production" is highly misleading. The word production suggest we can just "produce" more if only we wish it so.
BTW: I didn't come up with this myself. I don't remember however where I first heard someone object to this use of the word production. A good chance it was someone here on the oildrum :-)
And yeah, I know, there's a fat chance that people will *actually* stop calling it "oil production". But maybe it is still good once in a while to harp on this misleading use of words to make a point.
I mean, I do believe that how we use words to describe something is deeply entrenched with, and reveals how we ultimately think about a problem/situation at the subconscious level.
For another example, I recall where I read the criticism of saying "oil *production*" it was also mentioned we say "environmental costs". In that case we reverse the distortion:
- we claim ownership of "producing" that which we simply "take" from the earth.
- then we disown the damage and destruction we do by externalizing it to something outside of us called "the environment".
I do believe this kind of use of words reveals something deeply profound and disturbing about the way humanity *really* looks at its relationship with the planet that it inhabits.
> ROI is ratio of capital invested over capital returned (KI/KR)... right?
> So EROI is the same type of ratio (EI/ER) for energy. So why make the acronym any
> longer?"
"ROI" - Return (of what? Money? Energy? Warm fuzzies? Exhausted inkjet cartridges?) On Investment (of what? Time? Energy? Blood? Sweat? Tears?)
"EROI" - a step in the right direction. At least now we know what kind of return we're looking for, but the investment could still be anything at all.
KR/KI and ER/EI make it clear, without further ado, what's under discussion, and adroitly avoid the near-universal situation of talking (wittingly or unwittingly) about two different things.
In a very real way, we are using very cheap oil and gas found a long time ago to pump out new oil and gas to be sold at low prices and used on immediate dopamine fixes and ephemeral consumption rather than investing it into infrastructure which pays us back in energy or natural resource terms. This is at the heart of the EROI issue. As energy surplus declines, what are we spending it on. I hope Obama keeps this as his top priority (and makes some tough but necessary changes on biofuels, et.c)
Yes, while we are entranced in our seemingly endless American Dream gluttony (with some fitful awakenings), in the real world we are chasing receding horizons in a lung-bursting sprint towards a City of Ember-like tribulation, though the result is spread across a greater timeframe (the "slow motion train wreck"). Those who are peak aware must feel like the Morpheus crew in The Matrix.
Wait ... is that a digging sound I hear above ?....
Nate, good comment.
It is possible, and may be desirable, for EROEI to be <1 for some processes (e.g. liquid fuel from renewable energy) if the end product has unique utility that is essential for maintaining civilized society. But it is not possible for EROEI to be <1 for society (the 'system') as a whole. Maybe that's where ROI can be misleading, because it may give the impression that a process offering a high ROI can be scaled up for the whole of society, even if the EROEI is <1. The danger then becomes the way in which plans are drawn up for future production and exploitation processes. Consideration of EROEI 'lifts the veil' and allows a more system-based approach to be adopted based on what will work for the whole of society rather than isolated processes (which, of course, are never truly isolated).
TW
Regarding EROI (Energy Returned on Investment) vs EROEI (Energy Returned on Energy Investment.
I came up with this more detailed acronym after considerable experience with folks thinking we were talking about Energy Returned on Money Invested, which is definitely the case at all. (And the acronym EROMI may actually tell the story of money/economics quite well, although another option could be EROMA, as in Energy Returned on Money Advanced)
The primary distinction of Energy Returned on Energy Invested (EROEI) analysis is that it is primarily tied to the measures of physical energy invested for physical energy returns--which mainly to economists tends to be a foreign concept.
Tom Robertson, Moderator EnergyResources Group on Yahoo
While the discussion in the article is in line with previous TOD EROEI articles, I was hoping for more substance and hard numbers. For example, what will the EROEI average be, not just the prime spot that Shell picked? What will the EROEI average for the tar sands be, not just the easy top layer? How would carbon taxes affect the price and overall demand? Even if we don't know exact numbers, a sensitivity analysis in the face of uncertain answers will help us to model the expected trends within some window of price.
I think (hope) this will be forthcoming. We just wanted to include an introduction to biophysical economics in relation to our IEA series. One hope would be that some serious funding would go to IEA or other (impartial) organizations to do this type of research - something other than the boilerplate that with exception of first few paragraphs is beginning to look to have similar resonance to "Americans need to hear that our economy is sound and our banking system strong"
Ok, this is a good start to a biophysical economics series, then. I look forward to the next issues if/when more details are forthcoming from IEA, or when EROI-Guy wants to drill down in any area (and no, this is not a pun; it's a sad reminder, though).
Plea from a former technical writer ...
Please
- Break essays into short paragraphs for easier online viewing. Use bullets if appropriate.
- Provide an Introduction to ease readers into a subject. It's a good place to summarize your theme.
- Provide a Conclusion for take-away points.
The EROEI is very high! Little extra effort, many more readers.
Bart
Energy Bulletin
Bart
good advice. thanks
Which would read even better as:
The EG/EI is very high! Little extra effort, many more readers.
But please cut out those subtle witticisms, we're trying to panic over here.
Just my two cents.
I prefer EROEI as well because to me it is specific to energy balance to continuously acquire the energy and not co-mingled with monetary value for different energy sources.
So EROEI for MAKING solar cells and wind turbines tries to capture all that energy regardless of source or cost. The PRODUCTION of energy from those devices however does rely on energy calculation because it is not directly handled by humans but instead impinges directly on the devices regardless of human effort or pricing.
Oil, NG and coal on the other hand require both the energy to make the devices (drills, pumps, casing, etc.) and also the ongoing energy to operate said systems (pumps, water separators, etc). So in this case we can place a monetary value on the operating energy while in the renewable example we do not place a monetary value on sunlight or wind. So it easy to substitute a low cost energy type in order to get a high value oil and say that there has been great gain made even if the net energy is not so good.
Great to hear that a worldwide biophysical economics society is developing. I hope the textbook will be out soon as an economics textbook.
I feel the most misleading graph from the IEA report (related to EROI) is this one.
For those new to EROI: Most of these alternate sources of liquid fuels are very low EROI. Below 5:1 for most of them. What this means is that as the price of energy rises, the cost to produce these liquid fuels will also rise. Around here is called the "receding horizons effect".
Low EROI sources must be subsidized by high EROI sources (such as coal or natural gas) and those are also running out. For oil shale to ever reach the size of the box on the IEA chart, some other fuel source just as large would have to be found to power the extraction and conversion.
A good summary of EROI values is found on the following chart. Just look at where most "alternatives" are located.
Source Article
Fuel sources need a 5:1 EROI. The reason is that a fuel source must not only provide energy for its own extraction (which is what EROI means) but must also pay for transportation, refining, distribution, the energy of the device that uses the fuel, the road system, all the inherent energy losses (from fuel burning) and still have some surplus left over to actually move people and freight around.
Again, if a fuel source cannot cover these energy costs, then it must be subsidized and another fuel source must exist that is large enough to step in.
I notice that Concentrated Solar Thermal is conveniently missing.
I have not seen any academic studies of CST. I did a few rough estimates based on construction and operating costs of Nevada Solar One. I found an EROI ranging from 4-9 based on data source. Which is roughly correct, as CST is cheaper than PV but more expensive than Wind.
I would expect that number to get better as the plants scale up in size. If you get a full bill of materials for a new plant under construction, send it my way and we will do a more detailed analysis.
I think there's a stronger way to make the case, showing the deep problem in its true light. The markets and our policies are reading the natural signal of approaching limits as if a sign of limitless opportunity (i.e. responding backwards) by mistakenly increasing investment in response to increasing cost, and so accelerating depletion.
We're responding to the increasing natural cost as an investment opportunity, because it’s our habit, and the increasing scarcity raises the price faster. That investment actually accelerates the rate of increasing physical scarcity too, though, and so the price and profit in accelerating the depletion. That's the heart of the "tragedy of the commons" and what makes exhausting necessities for everyone so hard to avoid.
Maybe that will finally make clear what the deeper problem is, we're responding to the natural signals backwards. I can explain it fully, I think, basically in terms of the inflection point in the supply curve (the point of diminishing returns) reversing the natural rules of sustainable system economics...
There are solutions too, like teaching our system how to read signals like natural sustainable systems do. That would take some doing of course, but seems somewhat possible! pfh
That is a very important post. Thank you.
The energy invested to extract conventional oil & gas is sourced from whatever is available at the well location and is presumably chosen based upon cost. I would be interested to hear from the forum the effects on the equations, subsequent to the EROI going negative. A quick google around reveals for example that oil producers in the middle east are looking seriously at importing coal for energy generation. A sort of coal to liquids process !.
This seems like a typo.
I believe these numbers show the amout of money needed to develop the marginal barrel and not the average cost of production. Actually I'm pretty sure, otherwise the whole industry would have come to a halt in the past few weeks.
------------------------------------
On another note, I like this post but missed (and still do miss) any projections about future EROEI (I prefer this acronym). As we know, not all declines in EROEI are equal, as an EROEI decline of 1 from 10 to 9 is by far not the same as one from 2 to 1. To make things even more complicated, the ever increasing decline rate will make EROEI fall (a lot) faster, if we try staying even. (In case we don't try that, but instead go with the decline in production that matches the decline rate, the fall in EROEI will be a lot less steep.)
So are there any ideas as to how much time it takes to get from EROEI 10 to EROEI 3? I'm sure it's not the same amount of years as it was to get to EROEI 10 from EROEI 17.
It has to be slower, and I believe that's easily demonstrated if we are thinking about the meaning EROEI. EROEI is not a real quantity, t is virtual. Net energy is real, Ein and Eout our real. EROEI doesn't exist in real life, it is not more than (a very good) concept. But a declining EROEI from 2 to 1 means Ein was 50% of Eout and it became equal with Eout. On the other hand, going from 3 to 2 is not a 50% reduction -- it is significantly less. All in all, I have to think that the change in EROEI is slower (the speed by which it declines diminishing) if the EROEI becomes lower. (More net energy can be 'sacrificed' the lower EROEI is.)
To summarize:
As of now, I can't decide which of these has the bigger effect.
You have a really good point. I think fitting a curve to EI and using that to predict the shape of the EROI curve works better, such as this chart (click to expand):
Which gives this EROI chart (click to expand):
Or just fit an exponential to the EROI curve.
There is another feedback: As EROI goes lower producing costs are going higher. As producing costs go higher, production rate forced to slow to keep production prices under what greater society is willing to pay.
How much is society willing to pay? Good question. Here in the US it seems that industrial uses of NG are fading while electricity generation from NG is growing. So clearly different industries have different pain tolerances. I feel the answer must lay in what fraction of useful energy is left over after all "energy costs" have been accounted for.
If an industry uses up most of the value of the energy as heat waste, it is going to have trouble competing with another industry that converts the same energy source into twice as much useful goods.
Maybe a good way to look at the real EROEI for oil is to consider the following.
Take all the wells in existence and the pipeline and the people and equipment and rip it all up.
Fire all the oil engineers etc except for a small cadre capable of re-creating our current infrastructure.
Effectively we keep the knowledge base and throw everything else away.
Next starting from college grads rebuild it all and give yourself a reasonable finite amount of time
to do it say 50 years. If at the end of 50 years you have any oil left over to sell then the EROEI is still
positive.
I suspect we are not even close.
memmel,
Did I misunderstand your example? If you tear up all the wells pipelines, etc., and spend 50 years rebuilding them, then how do you pull the oil out of the ground and from under the sea to do the rebuilding? I know it was only a sort of a thought exercise, but I am still trying to understand what your saying, as it brings up an interesting issue, that being how to figure in the factor of "sunk cost" and sunk energy that is already invested in the oil and gas industry. It must be huge.
Your example woud seem to indicate that the sunk resources in the oil and gas industry is equal to all the remaining oil we can affordably extract, if I am understanding it correctly. That would be a lot of energy. Is that what your implying? Not that I am differing, I just wonder where statistics that would give us such a number could be found (it would have to indicate that the sunk costs in current oil/gas infrastructure in replacement energy cost would be about 1 trillion barrels of oil if you accept the normal recoverable oil in place numbers used by the peak oil community *i.e., M. King Hubbert or Colin Campbell)
If your example is correct, it also would seem to make the EROEI of renewables such as solar and wind much better in comparison to the oil gas extraction method of gaining energy than has formerly been assumed.
By the way, here's an interesting little link but short on real statistics:
http://www.sciencedaily.com/releases/2007/08/070813153419.htm
The idea of considering all energy producing mechanisms by whole life cycle costs is interesting. I have been surprized by what research I have done to learn that concentrating mirror solar systems can actually have a productive life span at least as long as nuclear plants in many cases, and that there are PV solar houses still in existance from the 1970's that are still producing electricity, often at 80% or more of the production rate they delivered when they were brand new.
If the EROEI of fossil fuels constantly decline, there will come a point at which the EROEI of true renewables such as solar, wind and geothermal will cross it, and the renewables will be the bargain, unless you assume that the energy input component of renewables is the bulk of their cost in both energy and money. There are already places where concentrating mirror thermal solar built at scale is "grid competitive". Think of Hawaii, where all oil and gas must be shipped in but local solar and wind can be harvested relatively cheaply once the capital expense and effort is covered. This would be true in Australia except that continent is still very rich in natural gas which keeps grid electric prices low.
The complexities of calculating true EROEI are overwhelming.
RC
This is a highly useful exercise that might have some scary conclusions (and might not). I tend to side with Memmel here -we THINK we have all this oil left, but the gain we are getting is mostly marginal - the huge gains were seen in the past and were used to build industrial civilization. It is such a tragedy that the large % of our marginal energy gain (the part that IEA say has 6.7% decline rates) is being consumed on business as usual and not redirected into renewable structures, repeal of washington consensus, local food system etc.
Question to IEA: If you assume the energy resource available in the chart Jon Friese posted above have NO infrastructure built. How much would it cost from 2009 T=0 to develop the remaining oil resources? I.e. how much is the oil industry subsidized by sunk costs?
Sorry Roger I thought about that after I posted the first wells would be used to recreate more so the energy would initially never make it out of the oil industry till you had fully recreated the infrastructure we had today. At that point your open for business and the question is
is their any oil left to sell.
Think of house builders building houses for house builders during the bootstrap stage internal demand is sufficient.
I felt it was implicit that the energy of extraction in rebuilding would come from the remaining reserves sorry if it caused confusion.
The point is its fairly obvious with this example that the energy industry probably can no longer maintain its infrastructure and produce
excess energy only previous investment allows it to continue. Its already fallen off the cliff and the rate of decline is actually controlled
by the rate that previous created infrastructure declines. I think Simmons figured this out but has not articulated it clearly.
A perfect example is the shale NG plays they cannot grow past a certain point after the initial field investment at some point the number
of new wells needed simply cannot be drilled and declines of older wells cannot be mitigated. They solve this to some extent by moving
to new plays but the return on infrastructure investment such as pipelines is exceedingly poor.
The oil industry is already reduced to building houses for carpenters only the depreciating investments made in the past hide the situation.
Again the most important point is that the way the industry crashes is when it can no longer reinvest in infrastructure knowing this is in my opinion critically important. And given that estimates for needed investment are in the hundreds of billions of dollars and will probably climb into the trillions my assertions and the statements made but the oil industry are in very good agreement.
The difference is we know they are toast because of our model they think they just need to throw more money at it and don't realize they are already dead.
memmel, thanks for the reply and the clarification.
The problem is that we need the energy to (a) continue extracting the current energy we are extracting {sunk cost can cover a lot of that} and to maintain the existing infrastructure, and to find and develop new fossil energy {new energy cost}, to attempt to develop and install the infrastructure to implement renewables, and to live on {and we are hoping for if not BAU then at least a minimal level of civilization technical ability maintained}
So we are trying to spend the same barrel of oil about 3 or 4 times!
RC
Leverage kills !
Yes this is exactly what I'm saying and expose it in my long post as failed accounting principals and expound on that.
Given the collapse of our financial system a lot more people understand leverage these days and we are levered to the hilt
throughout our entire society and underlying this is a incorrect estimate of our ability to pay based on flawed accounting principals.
Also you should be able to see how this drives the feedback loops in complex systems leading to collapse.
Your over committed and trying to pull back in any of the commitments leads to collapse and trying to meet all of them
leads to collapse. And we don't have a Fed able to print oil.
Now you see why I say the only solution is a controlled collapse you can direct it but you cannot prevent it.
memmel,
you're making wonderfully salient points here. I think an "EROEI lag time" is a key concept... heck, you bring up a number of 'em, I'd like to see the various points you've made here collected into a keypost.
I love your thought experiment above. In the real world, of course, you'd also have to consider absolute thresholds of complexity investment in addition to energy; evolved systems are intolerant of hiatus. NASA couldn't build another Saturn V even if it wanted to.
I think you're getting at some very important stuff which hasn't been squarely discussed... as usual.
if I haven't said so explicitly in the past, thanks for all that you bring to TOD.
dittos, hell, double dittos
Thanks !
The problem is to do this right gets into the gray areas of accounting and economics we are talking about concepts such as goodwill
deprecation etc. This area is generally marked to model via trial and error.
Or normal if you will economic models have to deal with this and they do a very poor job.
One of the big mistakes I see with traditional EROEI models is they get conflated with economic models they are not they are accounting models and belong in the realm of accounting. People that think they understand them make economic conclusions from them but to some extent doing this is probably not helpful given that the audience generally does not understand accounting in the first place.
If your accounting models are incorrect as I'm suggesting then your economic models built on top of accounting are incorrect.
Just like our recent blow up in the financial world at its base where some blatantly incorrect accounting schemes.
And example from another related field is the green revolution it turns out that the model used for the green revolution
was incorrect it did not take into account either population growth or the effects of fertilizer run off.
Now to late we realize that the green revolution will probably result in far more deaths then lives saved originally from
starvation. Land reform and sustainable farming would have been a better solution. And whats sad is we have known that our green
revolution has been wrong for sometime but what happened was the incorrect accounting models became standard since they showed a profit !
So looking a bit deeper you realize this is a widespread problem you don't let the people that stand to profit create the accounting rules.
Its a intrinsic problem in our society and actually its the Achilles heal of market economies. Only the simplest transactions actually work any complexity and you open the doors to introducing distorted accounting rules.
Basically money or market economies fail once they are extended past using money to smooth barter transactions. The failure to correctly account for EROEI is simply a symptom of a systemic and fatal disease. And whats funny is history is littered with previous casualties.
If money is reduced to its only useful purpose then it should be clear that EROEI becomes prominent in calculations and how a society functions. In fact it becomes the controlling force limiting the growth of the society thus instead of and obscure concept thats poorly understood its the central driver of the economy. Its not EROE thats important but the Investment term. If investment has to properly compete with the status quo i.e renewable static living vs growth then we get the right answer.
I'm not sure a key post telling our society that it is completely and utterly f%@s# because its based on false accounting rules is
all that useful I think people are slowly starting to realize it.
I do hope that some of the wisdom thats been brought forth on the oildrum makes it into the historical record for our descendants so that
they know we realized to late that we made a huge mistake. But I honestly don't see anything can be done with our current society.
The reason I support electric rail is that it makes a lot of sense that electric rail would be a big part of a new society after ours
collapses you can see how it fits very well with my focus on Investment in EROEI. Other technologies such as sailing ships also fit.
Information technology esp wireless seems to fit i.e rapid exchange of knowledge seems to be a good thing but also it could just be outside the model. I'd like to think that since education can have a major impact on how you invest its not outside.
This also fits quite well with my assertion that the problem is accounting well underlying the accounting problem is obviously a incorrect education issue. Accountants are not trained in the physical sciences and don't understand the processes they are doing accounting for.
The bean counter vs engineer stories are so rampant its not worth repeating. But for some reason no one realizes that these simple stories are actually the underlying reason our entire civilization will collapse.
The fact that we collapse because we forgot to send our accountant to engineering school and our engineers to accounting school is beyond ironic.
Whats interesting is once you realize that its a problem of incorrectly partitioning knowledge you realize that other societies fell because of similar issues. Theocracies fall because the only people with the time to do accounting and engineering are tied to the charade needed to control the populace. Modern Western civilization is actually based on the successful schism between the theocracy and the scientist.
Underlying this is the problem that it becomes difficult to correctly partition knowledge as the knowledge base expands and worse of course very few recognize that this is a dire problem. Generalists don't fare well in our society I suspect its because as they turn over the rocks and kick the tires they uncover truths that shatter the belief systems.
I don't have a solution I'm just going to go to Oregon and hope I can grow some nice tomatoes despite the rain and enjoy my children.
The death of our society is actually a hobby for me and has been for sometime its a morbid but fascinating hobby.
Its honestly not all that important I think once you realize that then your on the right track.
I don't mean to sound cruel but people are responsible for there own lives and finally underlying this problem of partitioning we find the real problem that people are willing to give up easily on educating themselves. The number of people willing to educate themselves from different branches of our knowledge tree is vanishingly small these days this is a unsolvable problem in our current society of specialists.
We can't go back thus watching the crash becomes a hobby.
When you take a complicated process like oil extraction and crunch all the energy numbers down into one single number, you lose a lot of the subtle complexity and gain only boring simplicity.
So ER/EI does have its place, but it is nowhere near as useful as the full energy budget from which those energy numbers are extracted.
The full (life cycle) energy budget tells you not only the EI and the ER, but also the quality of the various energies involved and their timing over the life cycle. For example, all the steel work has to be in place before any oil is pumped, and that steel took a large amount of fossil energy to make it, and the timing of this is critical in some circumstances. Energy Invested Up Front (EIUF) is a useful label for this.
The dynamics of energy availability haven't been a problem up until now, because we have been on an easy energy binge. But hopefully very soon the world will have an Emissions Trading System with a reducing cap, and that will put us into an environment of energy scarcity. Then it will become apparent that although PV does have an ER/EI > 1, and it will produce an energy profit in the medium to long term, in the short term the energy cost of building the panels has to be met by existing fuels, largely fossil fuels.
This means a short-term demand for PV generates a short-term demand for fossil fuels. And if the fossil fuels are constrained by Kyoto 2, then PV is also constrained. The degree of the constraint is proportional to ER/EIUF . If you only look at ER/EI, then you will never be able to grasp this seriously important concept.
I discuss this at length in
"The Energy Dynamics of Energy Production" and the outcome for low ER/EIUF technologies is bad news. I believe we are now past the time when we can afford to subsidise the scale up of low ER/EIUF technologies to take over from fossil fuels. The article includes a spreadsheet you can download and try different settings out.
Dave Kimble
I think Energy Invested Up Front is and excellent concept most of the Energy invested in oil extraction is in the form of up front costs. Replacement and upgrade costs are really just and extension of the upfront costs.
However I read your link and your claiming that you recover the energy invested for solar panels within eight years I think your way overestimating the return.
I did not see that you included the worker pyramid supporting the plant this is all the direct and indirect products that go into the manufacture. Workers driving to work eating their homes etc. Think of the PV plant as some isolated mine you have to account for all inputs. A good way to get a handle on these number would be to get the inputs into isolated mining towns. Now the factory does not count all this as cost because it pays the workers and they then spend their pay checks on food and housing thus our accounting methods hide the real cost in energy since its absorbed
int workers pay. Probably safe to figure that for each worker about 10% of his paycheck is eventually spent on energy if not more if you include embodied energy in cars food etc.
This could easily double or triple your estimate since you have to provide for all the workers I'd say 24 years is more realistic. Next of course you have to sell most of your production lets say you only keep 10% each year to provide for bootstrapping purposes. Now the time goes out to 240 years before the plant is self sustaining.
If this sounds crazy consider that oil really started commercially in 1859 and only became critical after WWII in fact its easy enough to pick 1960 as the point that the oil age reached its zenith. Thats 100 years of bootstrapping of a very high EROEI resource. 240 years for PV to become self sustaining is actually very reasonable.
Wind is probably a lot better but its still on the order of 50-100 years using these metrics. Also understand that oil was introduced well before we had a shortage of coal thus the oil age was bootstrapped fairly early in the coal age.
Coal really started to see widespread use about 1800 thus oil was introduced well before coal became difficult to access.
To have achieved the same overlap of PV for coal/oil/NG would have required developing PV by the 1930's or so. Of course we did not know of them at that point. Obviously we are not going to pull off a transition to renewable energy without experiencing some pain. Certainly you could harness wind, nuclear and hydro for some of your PV plants but this removes them from general use so it does not really solve the problem.
I actually don't think Kyoto is a huge issue since it will be ignored but the intrinsic problem of siphoning off enough energy to seriously convert to renewables while maintaining our current society is probably unsolvable.
We will have to dramatically curtail our energy requirements and given the dropping EROEI for oil and coal and NG you run fairly quickly into the problem of having to divert energy from our current energy sector to bootstrap the new one.
This is untenable. We could mass manufacture nuclear power plants but I think this will cause its own problems given they would have to be deployed worldwide you fairly quickly run into the problem of proliferation of nuclear weapons.
Given the political climate of such a strained world nuclear for military use is almost certain.
And last but not least as we look back on our own recent past over the decades since WWII we see that our economy has had serious problems repeatedly even with cheap energy so our economic system is barely stable with effectively free energy.
Just contemplating taking our current economic system esp given its strained past the breaking point into a new low energy economy is shall we say doubtful.
Sure maybe I'm off but I seriously doubt I'm off by much since the historical record supports my arguments very well. In fact I suspect if I'm off its in underestimating not overestimating the time required since I've not included the need economic transition.
In time maybe people will begin to recognize we are stuck and I honestly don't think that it really matters that much any more if people realize the full extent of our situation late. I used to have a huge urgency feeling if we just acted NOW we could avoid this fate. Now I don't think so.
What I do realize with the help of WT ELP economize localize produce concept is that smaller regions can achieve stability much faster than this 240 years esp regions with natural hydroelectric, coal, NG or Wind sources. So instead of focusing on the time needed to convert everyone if you look locally your realize any locality that has reasonable resources can actually transition rapidly say over a 10-20 year time frame.
Take Alans New Orleans or the gulf coast for that matter if it dropped its exports to the rest of the nation of energy then that region is highly self sufficient.
If it was linked via Electric Rail and the Mississippi to the rest of the country it represents a high energy enclave that could readily export solar cells and fertilizer etc and still maintain a excellent lifestyle for decades if not centuries esp if it itself adopted Wind, Nuclear, Solar.
Another obvious place that can succeed in a similar manner is the Middle East.
It has less diversity in resources but it theoretically could become a high energy enclave region.
When you break it down to smaller regions you realize that we actually have a lot of local regions that are capable of transitioning some with more pain some with less. And we also have some areas that have serious transitioning issues like Southern California, Phoenix Az, and the North East. The entire world has similar enclave possibility levels with potentially a wide variety of technology levels.
I define a enclave as simply a region that stable self sufficient and exports some useful product. The technological level it chooses to reach stability is irrelevant. As long as we have enough stable regions that maintain a high technology level sufficient to produce a reasonable amount of solar cells, wind turbines etc we will eventually regain energy growth. It probably can and will take centuries still but its not a homogeneous problem.
I suspect at some point as refugees start moving around the planet these regions will recognize that they have special status and will shut their borders.
You can look at internal migration controls inside of China esp between Hong Kong and the mainland to get a glimpse of our near term future.
But to close since the whole reason these regions survive is because they have decades or centuries of resources left the fact that they comprehend what I'm saying late i.e after its already set in motion does not really change the outcome.
As individuals that recognize the problems that are coming its important to pay attention for personal reasons similar to the situation of the Jews in Nazi Germany. You need to stay a alert and think about doing your best to mitigate the effects of peak oil on you personally. This means moving to a region that has ample farmland. Ensuring you have wood for heating if your in a cold climate.
And also finding a place with good Wind, Hydro or Nuclear resources or a coal or oil/NG producing region. Stay away from the largest cities esp New York and LA but also recognize that industry will return to the town centers and our roads will probably crumble so its your call remote areas could become wilderness again.
If you have to stay in a large city consider buying some land and putting in services to at least support a RV small trailer for living or a decent cabin.
I'd assume you feel forced because of income a decent escape place can readily be created for under 50k. A rental property in a small town is also a possibility although kicking out the tenants when times get tough is problematic.
Also consider your medical and physical condition.
Get out of debt and if you can pay cash for a house buy it if not rent and stay mobile. Learn to garden and learn some skills such as woodworking, metal working cooking and storing food.
And most importantly stay alert to whats going on around you.
Sorry to fall down into high level survival concepts but seriously the solution is to transition yourself and eventually help others transition or to ELP. Getting through what it seems is coming in the best possible condition is really a personal and village level problem. Thats the level that where we will succeed or fail. If your break down creating PV panels to the level of maintaining a PV plant powered by hydro then suddenly a unsolvable problem becomes locally solvable. And you should be able to see that all of the peak oil problems actually have local solutions that work outside of some problem areas.
Hi Memmel.
I don't think it is correct to rule this out because on the grounds of proliferation it seems undesirable to you.
In fact, although they can delay things a little, the days are way past when the West could decide who would have nuclear power and who would not, and in fact they barely existed in the past, as country after country has acquired not just nuclear plants but nuclear weapons.
What could be done if the West adopts the right attitude is to funnel the move to nuclear into ways less likely to lead to nuclear weapons proliferation.
On the subject of EROEI I would like to make two observations.
The first is that the EROEI of thin film solar is very different to normal silicon crystal.
This applies to thin film silicon as well as those making more extensive use of rare earths.
A number of technologies which would also reduce the energy used to make solar cells are also being developed, such as the use of much less pure silicon.
The second point is that if the solar cells are being produced for use in countries like the US, which uses around 20 barrels of oil per person per year, then their being produced in China which uses around 2 barrels per person per year greatly reduces the energy cost.
The energy used for the workers to come in was mentioned, for instance.
If they ride bikes in instead of driving an SUV the energy used for this purpose is greatly reduced.
In more general terms, if energy is scarce and expensive then efforts will be made to optimise it's use as against other factors of production, so present EROEI calculations are likely to change, as with cheap and plentiful oil then it's use has been maximised as against the other factors.
This will change.
I did not say anything about the US as far as proliferation goes. Look at Pakistan right now its unstable and technically at war with India and both countries are nuclear armed. Unlike most people I'm actually more worried about India in the long run its stability could shatter in a heartbeat.
Or more correctly a shattered India and Pakistan. I'm not agianst nuclear energy hell I probably understand fission better than most I did my masters thesis on nuclear shapes the geometric reasons why fission happens. As far as being and American goes we are the only people in the world that have dropped nuclear bombs in anger so its probably sensible to respect our dread of nuclear war.
If you consider the political tensions that will occur as the world runs out of energy I'm simply saying putting reactors all over the place may not be a good idea.
Next the workers riding the bikes will probably be us. Nothing wrong with that just its not exactly our current society.
Other than that yes the factors will change I probably should have added that PV needs some serious work to be a large scale viable solution but I don't see any reason why it can't be made to work.
I agree 100% on thin film solar its holds a lot of promise. However I'm not sure the bootstraping procedure can be significantly shortened remember it took 100 years for oil to fully supplant coal.
And thats going from a lower value resource to a higher value one. Both my gut and my calculations indicate we face the same long transition period off of oil at the minimum and it could be much longer.
We did not flip from coal to oil in 20 years and we won't flip from oil to renewables in 20 years.
In 20 years oil exports if not production will be substantially lower than today.
We need to change our society no matter what to substantially reduce the amount of energy we use period regardless of the source.
Hi memmel,
I am not saying that your concerns about nuclear proliferation are unjustified, just that whether they are or not if energy gets tight then they will build them as fast as they can, which obviously changes the amount of energy available.
I would largely agree about the time needed for renewables, although in some of the ways they are thinking of using them local municipal scale installations could affect things quite fast as it is right where you want it.
The main effect though is likely to be build out of coal, and hang the GW implications.
Methane hydrates on land can apparently also be extracted using conventional techniques, and Underground coal gasification would yield large amounts of energy.
None of this should be taken as necessarily advocating these things, but it does seem to me that the future may be rather less energy constrained than you suggest, although likely very dirty, perhaps dangerous and imperilled by GW.
Hydrates are a big question mark where they occur is and issue.
I agree on coal however I don't think we will resort to in-situ process by the time we get there our society would probably have crumbled to the point that in-situ is not important.
I do expect extensive use of our remaining coal reserves however and even CTL to be deployed.
I think until we really ramp up coal production little will be done on the Nuclear side in any case.
Now this obviously lead to fairly dramatic energy supply differential between the coal rich regions and those without but this simply fits into my enclave concept.
And yes Global Warming will be ignored fairly quickly.
But even with coal we are going back down at least the energy quality treadmill and then we can't look at energy in isolation by must deal with the interaction of fiat currencies with declining energy.
Transformation of our economic system is just as big and traumatic of a issue as changing our energy usage profile and in my opinion the actual collapse is not because of the energy problems they serve is a trigger it will be that we are unable to transform our financial systems.
Overall eventually financial instability feeds back into the EROEI problems in all the wrong ways.
And last but not least at the political level I don't see a honest assessment of our situation required for people to be willing to take on short term pain for long term gain.
The political implication of getting Americans onto bicycles is interesting to say the least.
As you can see to make the structural changes you need cultural changes to make the cultural changes you need structural changes.
Or you can go grow tomatoes and see if you can make decent homemade wine.
> The fact that we collapse because we forgot to send our accountant to engineering
> school and our engineers to accounting school is beyond ironic.
Excellent point. I'd suggest we also send them, especially engineers, to "biology school" as well. As life forms, we are subject to biological laws as well as the well-known chemical and physical laws. And life, over about 4 billion years, has evolved some pretty nifty and elegant engineering solutions that are only beginning to be studied by our specialist engineers.
Just saying.
I agree 100 percent with what Memmel states.
IMO economics and its sidekick,flawed accounting, has been the main culprit that takes us to exactly where we are today. The main practitioners of these processes are basically charlatans and they have hoodwinked us all with their efforts to gain huge fortunes off the masses who are not able to understand exactly what they were doing.
EROEI is best. I am no oil techie but I see what future costs of stripping our land is doing and will do. This hidden cost is not something the culprits stated above will even consider YET the land and soil is really all we have when it comes right down to it.
You can't grow shit in concrete!
Make the acronym portray reality as close as is possible. Leave out all the economic/shoddy accounting/dowahditty. We need honest practices at this late,extremely late date. Thats where I think Obama will fail us. He will harken to those he might view as 'experienced' but their only experience is how to lie and manipulate.
Airdale
Here is some quick feedback from Charlie Hall after he read first replies to the essay. I hope when Im his age my brain still works so quickly:
This looks wrong.
Eo/Einv=E; E is EROEI
If you have two EROEI processes in series you can figure an Eequivalent from algebra;
Eeq=(1-(n x(E1-1)x(E2-1))/(E1 x E2)^(-1) where n=heat efficiency of downstream process.
No series of net energy positive processes(E>=1)will become net energy negative lrt alone EROEI negative.
For example
E1=1.01, E2=1.02, n=10% efficiency
(1-.1x.01x.02/(1.01x1.02))^-1=1.00019=Eeq.is net energy positive.
Even net energy negative process paired with net positive primary energy is not EROEI negative
E1=5, E2=.5 n=1
(1-(4 x -.5)/(5 x .5))^(-1)=.55 = Eeq>0