EROEI FOR DUMMIES

10 comments

Posted on 29th October 2012 by Administrator in Economy |Politics |Social Issues

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Sometimes I wonder whether the idiots who blather on about American energy independence and hundreds of years of supply are shills for the oligarchs or whether they are just plain dumb. Maybe one of you can explain. Even a CNBC anchor bimbo should have the brain power to understand the concept of EROEI. The U.S. has been using less oil since 2008, but the cost keeps going up. 2012 will finish with the highest average price for a gallon of gasoline in the history of the country. We are not in control of our energy destiny. The cost to retrieve the remaining fossil fuel resources will continue to rise. Worldwide demand will keep rising. The easy to access oil has been burned. Math is hard. So is reality. Charles Hugh Smith with another fact filled article of truth.

Why Energy May Be Abundant But Not Cheap   (October 29, 2012)

 It doesn’t matter how abundant liquid fossil fuels might be; it’s their cost  that impacts the economy.
Many people think “peak oil” is about the world is “running out of oil.”

Actually, “peak oil” is about the world running out of cheap, easy-to-get oil. That means fossil fuels might be abundant (supply exceeds demand) for a time but still remain expensive.

The abundance or scarcity of energy is only one factor in its price.  As the cost of  extraction, transport, refining, and taxes rise, so does the “cost basis” or the total  cost of production from the field to the pump. Anyone selling oil below its cost basis  will lose money and go out of business.

We are trained to expect that anything that is abundant will be cheap, but energy is a  special case: it can be abundant but costly, because it’s become costly to produce.

EROEI (energy returned on energy invested) helps illuminate this point. In the good  old days, one barrel of oil invested might yield 100 barrels of oil extracted and refined for delivery.  Now it takes one barrel of oil to extract and refine 5 barrels of oil,  or perhaps as little as 3 barrels of unconventional or deep sea oil.

In the old days, oil would shoot out of the ground once a hole was drilled down to the  deposit. All the easy-to-find, easy-to-get oil has been consumed; now even Saudi Arabia  must pump millions of gallons of water into its wells to push the oil up out of the ground.  Recent discoveries of oil are in costly locales deep offshore or in extreme conditions.  It takes billions of dollars to erect the platforms and wells to reach the oil, so the  cost basis of this new oil is high.

It doesn’t matter how abundant liquid fossil fuels might be; it’s their cost that impacts the economy.   High energy costs mean households must spend more of their income on energy, leaving  less for savings and consumption.  High energy costs act as a hidden “tax” on the economy,  raising the price of everything that uses energy.

As household incomes drop and vehicles become more efficient, demand for gasoline declines.   Normally, we would expect lower demand to lead to lower prices.  But since the production costs of oil have risen, there is a “floor” for the price of gasoline.  As EROEI drops, the price floor rises, regardless of demand.

This decrease in real incomes and ratcheting-higher energy costs could lead to a situation where energy is abundant but few can afford to buy much of it.

The relative abundance of fracked natural gas and low-energy density fossil fuels like tar sands and shale has led to a media frenzy that confuses abundance with low cost.This article (via correspondent Steve K.) illustrates the tone and breezy selection of data to back up the “no worries, Mate” forecast of abundant cheap liquid fuels:An economy awash in oil. (MacLeans)

Not so fast, reports Rex Weyler of theDeep Green Blog.Here is Rex’s response to the above article.

Fair point about the volume of unconventional – deepwater, shale gas & oil, tar sands, etc. – hydrocarbons. These reserves may even produce peakies and/or sustain the plateau longer than some observers believe. However, biophysical restraints remain real; peak oil remains real; peak net energy appears imminent, and the impact on economies is already being felt globally. Points to consider:The dregs:In spite of huge shale & tar reserve discoveries, peak discoveries  remain well behind us, in the 1960s. My father, a petroleum geologist his entire life (and still, in Houston, Kazakstan…), knew about shale and tar deposits when I was  a teenager in the 1960s. He called them “the dregs.” These deposits are not really news within the oil industry. And they are the dregs because of high cost, low EROI and rapid  depletion.

EROI:The volume of these low-net-energy reserves could extend peak oil production for decades, but at fast-declining net energy returned to society. We high-graded Earth’s  hydrocarbons, just as we high-graded the forests, fish, copper, tin, water, and so forth. We’ve taken the best, highest EROI hydrocarbons, the 100:1 free-flowing wells of the 1930s and 40s. We’re now into the 3:1 and 2:1 tar sands.

For example: damming rivers in Northern BC, to send electricity to the fracking fields,  to send shale gas to Alberta, to cook the boreal substrate, and mix the black sludge with gas condensate shipped in from California and by pipeline from Kitimat to Fort McMurray, to mix with the bitumen, to pipe to Vancouver Harbour, to ship to China, to burn in a  power plant, to supply electricity to their manufacturing empire.

By the time any of this energy gets used to actually make something useful to someone in society, and by the  time that user puts that usefulness to work to feed, clothe, house, or heal anyone,  there is no net-energy left.

Our food in North America is already negative net energy  by1:10 at best, up to 1:17 or worse for much of the crap we eat. This matters. EROI at well-head, EROI at the consumer pump, and EROI at the point of society’s actual  service all matter.

Well-head EROI, counting all public subsidies, is now in the 5:1 to 1:1 range for all  these “non-conventional” (meaning the dregs) hydrocarbon deposits. Money can be made.  Some energy can be delivered to Society, but this is already way below the well-head EROI that could likely run the current complexity of the human society, much less “grow” economies.

The degrading reserves take us down along the EROI curve, in which Net Energy returned to  society falls off a cliff around 6:1, and is in freefall by 3:1. Net-energy alone kills the idea of much economic growth from a booming hydrocarbon bonanza (other than some great  stock plays along the way). Furthermore, depletion renders the idea ever more unlikely:

Depletion:Depletion rates on these gas fields have arrived quickly and appear  drastic by historic industry standards. The fracking fields peak early and decline swiftly. In the Bakken shale field – one of the great North American saviour fields – the average  well has produced ~ 85k barrels in its first year and then declined at about 40% per year. The newer average wells peak earlier and decline faster, so the overall trend is down.

The depletion moves the production process along a function that approaches zero net  energy… Down we go along the EROI curve… 5:1 .. 4:1 .. 3 .. 2 … and then really complex society breaks down. An Amish farmer gets 10:1.

The Bakken break-even oil price is $85, so there is no profit in any of this right now,  but of course there will be if global depletion exceeds demand from crashing economies.

Depletion – both in volume and quality – and depletion for all industrial materials and  energy stores, EROI, and economic stagnation all work as feedback loops. No one knows  the bifurcation points in this complex system. We try to predict those, but miss by a longshot sometimes. Complex societies crash in this manner, declining returns on  investments in complexity, from Babylon to London and Washington. See J. Tainter,  H. Odum, N. Georgescu-Roegen, Hall, Cleveland, et al.

Here are some depletion data on The Oil Drum:Is Shale Oil Production from Bakken Headed for a Run with “The Red Queen”?.

See A Review of the Past and Current State of EROI Data (PDF)  by Hall, Cleveland, et al. (source: www.mdpi.com)

There is a lot of EROI data here: Obstacles Facing US Wind Energy. (The Oil Drum)

Below is the EROI curve, only the “We are here” point at 10:1 is the modern average, and  from a few years ago. The new conventional stuff is coming in lower and and the enhanced  recovery, shale and tar fields are already over the falls at 6 or 5:1 for the better stuff  (best dregs), and 3:1 to 1:1 for the dregs of the dregs, the deeper shale and tar sands.

So yes, our friends are correct about the great volume of tar, shale, deep, heavy  hydrocarbons, but increasing production of world liquid hydrocarbons much beyond the current 85mb/d is not likely, and increasing net productionis even less likely. As you may know, net production per capita peaked in 1979. Actual net production is  peaking now. This is the figure that counts: Actual current Net Production Delivered to  Society.

Growing this figure is technically possible, and may happen with some massive production  bonanzas, i.e. we may see actual production push above 90mb/day, or higher, and may  even see net production increase, but a major glut of hydrocarbons? No. Not remotely.

When settlers first came to North America, they found copper nuggets the size of horses  exposed in river beds. China just bought the best known, last, huge, moderate-to-low-grade,  strip-minable, high-cost copper field in the world, in Afghanistan, for $billions over the western bids. There will be others, but rest assured: They will be lower grade, higher  cost, and the competition will be more intense. When was the last time you bought a “copper” fitting at the hardware store. They’re crap. The alloys are crap. Because the ore  quality is in decline and the costs of extraction are rising. Same with oil, trees, tin, coal….

Make no mistake: The war for the dwindling materials and energy flow is well underway.

Thank you, Rex, for this commentary on EROI and the quality and cost of hydrocarbon resources.Complex systems like economies are nonlinear, and so history does not necessarily track linear extrapolations of present trends.  With that caveat in mind, the preponderance of evidence supports the notion that fossil fuel energy may remain abundant in the sense that supply meets or exceeds demand in a global recession, but the price of liquid fuels may remain high enough to create a drag on growth, employment, tax revenues and all the other economic metrics impacted by high energy costs.


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10 Comments
  1. Muck About says:

    All it looks like to me (i.e. Da Chart!) is that I will be gone by the time we fall off the cliff! How nice! The Silent Generation luck at work again! Born too early for Korea, Too late for ‘Nam, Too early for run-away hyper-inflation (I hope) and too early for the energy cliff. Just right to collect all my Social Insecurity and Medibroke before I croak!

    Boy does that piss off RE!

    What more could I wish for. You Boomers eat it! The next generation has nothing left to eat.

    MA

    Well-loved. Like or Dislike: Thumb up 9 Thumb down 1

    29th October 2012 at 8:16 pm

  2. Roysyl says:

    I am not amazed at the total lack of understanding of the Laws of Thermodynamics as like banking if people understood it there would be rioting tomorrow. The first law states energy can neither created or destroyed, it can only be transitioned. The only source of sustainable energy is the sun. The only mechanisms to convert the energy of the sun to usable energy is photosynthesis, gastrointestinal and photovoltaic. Fossil fuels are stored energy and exist in finite quantities. Photosynthesis converts carbon dioxide to carbon on land. The cycle is dead vegetation to peat to lignite to bituminous coal to anthracite coal to diamond over millions of years.

    Oil is formed at sea from microorganisms forming hydrocarbon chains consisting of carbon (C), hydrogen (H) and oxygen (O). There are stages of development of crude oil as with coal. Crude oil comes in varying quality, light, heavy, sweet and sour which determine how much of different fuels you can get from a barrel (42gal). Diesel oil is the highest energy per unit volume.

    You can synthesise any of these hydrocarbons such as the German Fisher-Tropsch process for making gasoline from coal since they didn’t have crude oil but had coal. I don’t know where they got H, either from methane (CH4) or the electrolysis of water. This process used much more energy to make gasoline than the got from the gasoline but internal combustion engines run on liquid fuel not solid fuel.

    Well-loved. Like or Dislike: Thumb up 5 Thumb down 0

    29th October 2012 at 8:55 pm

  3. Muck About says:

    @Roysyl: Everything is relative. The sun is not sustainable either as in a few billion years it will slowly expand and engulf the earth – not that there will be anyone left to observe it. (forgive me for being literal).

    All natural resources on and in the Earth are sustainable in that we will never run out of anything. It will just become to expensive (regardless of what we use for a medium of exchange) to extract.

    When we start mining the mantle economically, t_h_e_n we got it made..

    Unfortunately, long before the MOHOLE is extended to that extent, those of the human race that are left will be running around in tattered furs or naked (again) hunting and gathering and dying at 25 years old.

    You can see my optimism about our future!

    MA

    Like or Dislike: Thumb up 3 Thumb down 0

    29th October 2012 at 10:07 pm

  4. The Watchdog says:

    A recent news article made the following (misleading) claims:
    A US oil boom is set to push America past Saudi Arabia to become the world’s top producer.
    Driven by high prices and new drilling methods, the US production of crude oil is on track for the biggest single-year gain for more than 60 years.
    Analysts claimed yesterday that, if the growth in domestic drilling continues, America will soon overtake Russia and Saudi Arabia – and possibly become ‘the new Middle East’ in another decade. The boom has surprised even the experts

    Read more: http://www.dailymail.co.uk/news/article-2222413/US-set-overtake-Saudi-Arabia-worlds-biggest-oil-producer-following-boom-output.html#ixzz2AXYEALyT

    Here’s why this is a load of crap:
    Country Reserves (bbl)
    1 Venezuela
    288,571,000,000
    2 Saudi Arabia
    265,405,000,000
    3 Canada
    175,200,000,000
    4 Iran
    154,580,000,000
    5 Iraq
    115,350,000,000
    6 Kuwait
    111,500,000,000
    7 United Arab Emirates
    97,800,000,000
    8 Russia
    77,403,000,000
    9 Libya
    48,014,000,000
    10 Kazakhstan
    39,800,000,000
    11 Nigeria
    37,200,000,000
    12 Qatar
    25,382,000,000
    13 United States
    20,682,000,000

    Just because we choose to deplete our PALTRY reserves faster than the Saudis who have 10X the reserves does not make us the “New Middle East” What a crock! MSMES!

    Like or Dislike: Thumb up 4 Thumb down 0

    29th October 2012 at 10:11 pm

  5. Roysyl says:

    MA – The First Law of Thermodynamics also states matter cannot be created or destroyed. All matter is comprised of combinations of the elements in the Periodic Table. I am sure all the elements can be found on Pluto or any planet. The problem again is one of transformation. There is more gold dissolved in the oceans than exists on dry land however there is the problem of extraction.

    I am not sure I understand what you mean by “all natural resources are sustainable in that we will never run out of anything.” Natural resources are not sustainable in a usable form. For example phosphorus (P) is the rarest of the nutrients necessary for life being one of the five elements comprising DNA, the other elements in DNA are C, H, O, and N. P in a pure state is nasty stuff and industrial produced P fertilisers are water soluble and wash into the ocean with the gold. The largest P deposits are in Morocco so if you see or hear we want to bring “democracy” to Morocco you now know why.

    When the sun engulfs the earth the elements will still exist. Before that happens I believe we will turn the country into one gigantic Easter Island populated by the Donner Party. Cannibalism will be sustainable until the last cannibal dies of starvation!! I think you are overly optimistic about our future.

    Like or Dislike: Thumb up 3 Thumb down 0

    29th October 2012 at 11:22 pm

  6. TeresaE says:

    Roysyl, you are missing Muck’s inherent, understated, doom, but he is uber doomful!

    You agree with each other, but are somehow missing it.

    He stated we will never run out – as do you.

    He also stated that, “… It will just become to(sic) expensive (regardless of what we use for a medium of exchange) to extract…”

    Muckster knows that cheap energy is going away. He even mocks the boomers for failing to account for this reality and greedily using up the readily available energy.

    Unless I’m totally off base and MA has become non-doomer!

    (so nice to see you around here Muck, so very nice)

    Like or Dislike: Thumb up 2 Thumb down 0

    29th October 2012 at 12:06 am

  7. flash says:

    Roysyl says, [ Muck About]I think you are overly optimistic about our future.

    TBP comedy gold , right there folks.

    MA is the blinding light of optimism cutting though the doom cast about TBP like a lighthouse in a storm.

    Like or Dislike: Thumb up 0 Thumb down 0

    29th October 2012 at 6:39 am

  8. Roysyl says:

    TeresaE – MA and I are debating semantics at the piss ant level and are aware of the 800 lb gorillas. To understand the big picture you have to understand the exponential function (compounding), the Laws Of Thermodynamics, bureaucracy with James Buchanan Public choice Theory, the difference between capital and credit and how our banking system works. Quinn does a good job of showing the symtoms but not the root causes. u

    Like or Dislike: Thumb up 1 Thumb down 1

    29th October 2012 at 7:58 am

  9. Eddie says:

    “Our food in North America is already negative net energy by1:10 at best, up to 1:17 or worse for much of the crap we eat. This matters.”

    This is why I worry much more about the availability of food than the availability of fossil fuel for my vehicle. How much longer can we keep up this crazy unsustainable way of farming and long distance transport?

    Food costs would appear to me to be already going up exponentially. At some point quality of life has to suffer. I wonder about this, just like I wonder about all collapse scenarios. Will it be gradual. or will we fall off a cliff at some point?

    Like or Dislike: Thumb up 2 Thumb down 0

    29th October 2012 at 9:21 am

  10. ThePessimisticChemist says:

    @Eddie – Food costs will eventually end up being 1/3-1/2 of your budget.

    Unless we get “lucky”, and a massive plague/war wipes out a sizable portion of the population.

    Like or Dislike: Thumb up 2 Thumb down 0

    29th October 2012 at 9:37 am

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