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PeakOil is You

PeakOil is You

Is EROEI Important? Pt. 2

General discussions of the systemic, societal and civilisational effects of depletion.

Is EROEI important?

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No
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Re: Is EROEI Important? Pt. 2

Unread postby Darian S » Mon 05 Feb 2018, 00:15:49

EROEI needs to be carefully calculated to give meaningful results.

For example it's not just manufacture, but the mining and transportation of the materials unless they're recycled, and also the transportation and installation of the product later.

You also have to take into account whether it is viable in some areas or not, and energy storage device costs too, which are needed for viability.

If for example you're going to set a massive rig in the desert with superconducting cables to distribute it, the infrastructure costs need to go into EROEI too.

Hypothetically if it newer tech done with cheap ubiquitous materials, perhaps self assembled locally with cheap low energy process, it can basically cost little to no energy and has very good EROEI.
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Re: Is EROEI Important? Pt. 2

Unread postby rockdoc123 » Mon 05 Feb 2018, 00:19:59

EROEI needs to be carefully calculated to give meaningful results.


and the question from us oil and gas guys is ....who frigging cares? Any project will be done if it makes a profit, projects that can't possibly make profits will not be done. That is how decisions are made and what determines what is drilled and in turn what determines if found and produced. In my 30+ years in the industry I never once heard the term EROEI brought up in a meeting with senior executive. Didn't happen, never will.
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Re: Is EROEI Important? Pt. 2

Unread postby vtsnowedin » Mon 05 Feb 2018, 00:41:23

rockdoc123 wrote:
EROEI needs to be carefully calculated to give meaningful results.


and the question from us oil and gas guys is ....who frigging cares? Any project will be done if it makes a profit, projects that can't possibly make profits will not be done. That is how decisions are made and what determines what is drilled and in turn what determines if found and produced. In my 30+ years in the industry I never once heard the term EROEI brought up in a meeting with senior executive. Didn't happen, never will.

You have a real blind spot on this Doc. If the ERoRI was really low enough there would be no way to make a profit on that well. It is not there now so you haven't seen it, but that doesn't mean it wont become the driving factor some time in the future. As ERoEI declines they can reduce severance taxes on the production and then cut wages for the workers or move to robots etc. but eventually if you are not getting enough oil out of the well to both replace the energy used to drill it "AND pay all the other bills it will become pointless to drill another well as you won't be able to raise the capital needed because the bean counters don't see a potential profit. All the other factors, wages, cost of drill rigs etc. remain fairly constant or are under human control. The energy (oil) produced by each well is the variable we have no control over and can be expected to decline over time as we exhaust the highest yielding wells and move on to progressively lower yielding oil sources.
You say you never consider energy returned but if you wells did not return enough oil to pay the bills you would have long sense been flipping burgers at a McyDees.
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Re: Is EROEI Important? Pt. 2

Unread postby Darian S » Mon 05 Feb 2018, 01:02:46

rockdoc123 wrote:
EROEI needs to be carefully calculated to give meaningful results.


and the question from us oil and gas guys is ....who frigging cares? Any project will be done if it makes a profit, projects that can't possibly make profits will not be done. That is how decisions are made and what determines what is drilled and in turn what determines if found and produced. In my 30+ years in the industry I never once heard the term EROEI brought up in a meeting with senior executive. Didn't happen, never will.


The question is not whether it is profitable or not. The U.S could raise taxes to the roof and be willing to pay Trillions for oil. But in the end that depends on whether the entire economic infrastructure to extract oil can support that extraction.

If it took the energy of say a thousand barrels to get one barrel out of the ground. No matter how you cooked the numbers, with debt, with printing, with whatever. That wouldn't be sustainable, it wouldn't be physically possible.

Same happens with any other resources. Supposed we had negative EROEI on all our energy resources, that would be collapse, even if you said it was profitable, humans could, the physics wouldn't allow it.
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Re: Is EROEI Important? Pt. 2

Unread postby onlooker » Mon 05 Feb 2018, 07:45:07

Exactly Darian. Industry people like Rockdoc are either being naive or disingenuous. You have an Oil and Gas industry subsidized to a great degree. You have this same Industry making it a habit of incurring huge Debt loads. All this warps the reality of the Economics. The EROEI is a way to more honestly account for the Net Energy. And energy = money. Basically, what you have going on is that the Oil and Gas Industry by operating in this manner is cannibalizing the assets of the rest of the Economy and its participants. But, of course all they can say is EROEI does NOT matter. How convenient.
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Re: Is EROEI Important? Pt. 2

Unread postby rockdoc123 » Mon 05 Feb 2018, 12:47:07

If it took the energy of say a thousand barrels to get one barrel out of the ground. No matter how you cooked the numbers, with debt, with printing, with whatever. That wouldn't be sustainable, it wouldn't be physically possible.


Which can't happen and that is because each and every bit of energy that goes into the production and transport of a barrel of oil is accounted for through it's cost. Everything. You pay for the diesel, you pay for the casing, you pay for manpower etc etc. And because each of those items must also make a profit on their services or equipment they account for all the energy that went before them. As an example in the case of drilling pipe everyone from the miner who extracts raw materials to sell to steel refineries, through the refinery, through the retail dealer all make some profit up the chain. If they didn't they wouldn't sell their product. If oil prices go to low and no one down involved in selling equipment or services to E&P companies can make a profit then the industry goes under. It hasn't so far.

This is why there is not a single person in the oil and gas industry who even considers EROEI. It is unimportant other than as an academic exercise. Economics drives decisions and ultimately determines what will and will not get produced. Always has, always will.

You have an Oil and Gas industry subsidized to a great degree. You have this same Industry making it a habit of incurring huge Debt loads. All this warps the reality of the Economics


What a load of bollicks. Debt doesn't warp economics. Do you actually think I could go to an institutional investor and say hey I need a loan of $600 million, however, I don't have any production nor do I have a business plan to demonstrate how positive free cash flow is generated and I'm pretty sure I won't be able to pay the carrying charges or the principle back? If a well is profitable to drill it doesn't matter what the source of capital is for that well, your own money or someone else's, it is either profitable or it is not, debt doesn't change that at all. And pull your head out of your backside. The oil industry is only "subsidized" in terms of tax treatment, much like most other industries. Perhaps you need to compare it to the rest of the industries out there which get an equal or better treatment.
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Re: Is EROEI Important? Pt. 2

Unread postby Darian S » Mon 05 Feb 2018, 23:28:35

under. It hasn't so far.



Money is just tokens that stand in for energy.
You could say the excess energy produced has been subsidizing the whole chain. As EROEI drops that excess energy drop will raise the needed price to operate throughout the whole chain.
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Re: Is EROEI Important? Pt. 2

Unread postby vtsnowedin » Tue 06 Feb 2018, 12:10:33

Darian S wrote:
Money is just tokens that stand in for energy.
And other things of value. Oil and energy are not the be all and end all of value they are just part of the equation. You could have all the oil in the world and without a car, or some other devise to burn it in, it would be useless. That car requires the intellectual value of it's design plus a factory to build it plus the employees labor and the food and clothing to sustain them and the capital to pay for all that before the car is sold and paid for.
Of all the things money stands in for energy is perhaps just a third of the total.
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Re: Is EROEI Important? Pt. 2

Unread postby onlooker » Tue 06 Feb 2018, 12:19:10

V, how do you think all those things you mentioned are created and constructed? And how do they run? Yes, with energy. And for the most part in rich countries FF energy. Of the FF, Oil is what runs almost entirely our transportation modes. But to the point of Darian, it is right because energy presupposes economic activity or allows it to occur. All other tangible property and goods do not possess that property. So without the ability to have economic activity, money is worthless as everything taken to its logical conclusion comes to a halt. Got Energy?
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Re: Is EROEI Important? Pt. 2

Unread postby KaiserJeep » Tue 06 Feb 2018, 12:41:58

I wonder all the time about our desire to simplify concepts to the point they become meaningless. Reality and complexity are the same concept.
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Re: Is EROEI Important? Pt. 2

Unread postby ROCKMAN » Tue 06 Feb 2018, 12:57:16

vt - "If the ERORI was really low enough there would be no way to make a profit on that well." So true...as I've repeated explained. Again just my educated guess but it's not possible for the EROEI to get below 5 or 6 and have a drilling project still calculate as worth drilling. As far as all the other costs (energy used for drill rig or casing production, transportation of the oil, refining, etc.) none of those factors enter into the economic analysis of a prospect because we don't pay for any of it. Thus the EROEI of those are not factors in drilling decisions.

Don't call us f*cking naïve if you don't understand how the oil/NG extraction industry is run, child. LOL. This also points out how silly the claims that the extraction industry is burning more Btu's then it's producing. Also let me explain once more how the claim that our EROEI is constantly declining is also bullshit. When oil prices crashed our EROEI (however you calculate it) increased dramatically...perhaps doubled. Hold your outrage and think about it for 60 seconds. When oil was $90/bbl it took X bbls for a prospect to be worth drilling. But we don't use the number of bbls to decide to drill...we use $'s. So it took $Y to meet economic justification. But at $45/bbl it took twice as many bbls to generate $Y. Thus the only prospects drilled would be the ones that produced 2X bbls. And guess what? There aren't as many that produce 2X bbls as X bbls. Duh! So the rig count fell.

And now oil prices have increased. So, class, how has the EROEI of prospects being drilled changed? But once more the EROEI of other industries, such as refining, have no direct impact on our drilling decisions.
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Re: Is EROEI Important? Pt. 2

Unread postby rockdoc123 » Tue 06 Feb 2018, 13:26:10

As far as all the other costs (energy used for drill rig or casing production, transportation of the oil, refining, etc.) none of those factors enter into the economic analysis of a prospect because we don't pay for any of it. Thus the EROEI of those are not factors in drilling decisions.


actually they do simply because the money that you will pay via day rate, or to the trucking outfit or to the pipeline to transport your production have to be paid for. And those companies in turn pay for the materials that built the rig, or the trucks or the pipeline. This may seem to be opaque when you are calculating the economics of drilling but it is in fact captured. There is no hidden energy costs, that is a complete myth. My point has always been that oil companies do not bother with discussions about EROEI as they are not important but are already captured in the idea of profit throughout the entire chain (eg. producing the minerals to smelt into steel and selling them for a profit, smelting that material to produce drill pipe and other tubulars and selling those for a profit, buying that drill pipe and charging companies for deploying it to drill wells, buying those tubulars to drill and complete those wells.).
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Re: Is EROEI Important? Pt. 2

Unread postby Darian S » Tue 06 Feb 2018, 15:23:29

ROCKMAN wrote:vt - "If the ERORI was really low enough there would be no way to make a profit on that well." So true...as I've repeated explained. Again just my educated guess but it's not possible for the EROEI to get below 5 or 6 and have a drilling project still calculate as worth drilling. As far as all the other costs (energy used for drill rig or casing production, transportation of the oil, refining, etc.) none of those factors enter into the economic analysis of a prospect because we don't pay for any of it. Thus the EROEI of those are not factors in drilling decisions.

Don't call us f*cking naïve if you don't understand how the oil/NG extraction industry is run, child. LOL. This also points out how silly the claims that the extraction industry is burning more Btu's then it's producing. Also let me explain once more how the claim that our EROEI is constantly declining is also bullshit. When oil prices crashed our EROEI (however you calculate it) increased dramatically...perhaps doubled. Hold your outrage and think about it for 60 seconds. When oil was $90/bbl it took X bbls for a prospect to be worth drilling. But we don't use the number of bbls to decide to drill...we use $'s. So it took $Y to meet economic justification. But at $45/bbl it took twice as many bbls to generate $Y. Thus the only prospects drilled would be the ones that produced 2X bbls. And guess what? There aren't as many that produce 2X bbls as X bbls. Duh! So the rig count fell.

And now oil prices have increased. So, class, how has the EROEI of prospects being drilled changed? But once more the EROEI of other industries, such as refining, have no direct impact on our drilling decisions.


You say shale wells have same eroei as the first vertical wells? What about tar sands or deep ocean?


On another note
As for hidden energy costs that is what debt does.

Say you sold a bitcoin when it was near 20,000$ and someone bought that with a credit card or loan. All of a sudden you have 20,000$. And if you were paid in bitcoin all would seem fine.
But debt went up elsewhere.

The oil chain can be kept running as debt piles elsewhere to make up the deficits.

Didnt exxon that benefits from the greatest economies of scale miss target expectations despite the rise in prices? Didnt they borrow a bit to pay dividends? Didnt the Saudis start borrowing despite highest eroei wells?
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Re: Is EROEI Important? Pt. 2

Unread postby rockdoc123 » Tue 06 Feb 2018, 15:33:40

Didnt exxon that benefits from the greatest economies of scale miss target expectations despite the rise in prices? Didnt they borrow a bit to pay dividends? Didnt the Saudis start borrowing despite highest eroei wells?


Exxons miss was nothing to do with the upstream but was higher maintenance costs and shut-downs as a consequence of hurricane Harvey. Dividends aren't part of drilling wells, it is a discretionary item that companies choose as a means to reward shareholders, it has nothing to do with the economics of drilling. As an aside companies over very short terms might keep dividend payments higher when theoretically they should be reduced, that is in order to keep shareholders from selling off at critical times in the business cycle. The Saudis borrowed for two reasons...1. they had no debt and with the new business model some debt is precieved as a good thing and 2. it was money used to continue to subsidize the country through food, petrol etc. Again nothing to do with the economics of a given well.
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Re: Is EROEI Important? Pt. 2

Unread postby ROCKMAN » Tue 06 Feb 2018, 17:54:18

Darian - "You say shale wells have same eroei as the first vertical wells? What about tar sands or deep ocean?" I understand the point you're trying to make but that question makes no sense. Individual shale wells have a wide range of EROEI's. Same for vertical wells and all others drilling efforts. You seem to bee under the impression that the type of well determines it EROEI. Don't take this as a harsh criticism but it seems you don't understand how EROEI is calculated. There have been Eagle Ford Shale wells that have recovered 50,000 bbls (Well A) and another (Well B) that produced 500,000 bbls. If those two wells used the same amount of energy to drill then the EROEI of Well B would be 10X higher then Well A. Both horizontal frac'd shale wells. Now compare Well B with a Deep Water well that recovered the same 500,000 bbls but used 10X as much energy to drill. Understand that a huge amount of fuel is burned for a Deep Water rig even if it's not drilling.

I do understand the desire to use simplified concepts:a ll shale wells use the same amount of energy to drill and produce the same amount of oil. Not even close to true. A 5,000' lateral with 64 frac stages uses a lot more energy then a 2,000' lateral with 12 frac stages.

"As for hidden energy costs that is what debt does." There are no "hidden energy" cost in any well I drill. I can tell you down to the Btu how much energy I've used to drill any of my wells. How much energy was used to build the drill rig? I have no idea: that energy wasn't used to drill my well. More important drill rigs don't produce energy. They really don't. I may use that rig to drill my well but one rig might have used 10X as much energy to build as another rig I might use. The other complication: one rig might drill 5X as many wells as another.

But to beat that dead horse one more time. The discussion began with drilling decisions being made on the basis of EROEI. They aren't. And even if the industry wanted to we couldn't since there's no way to determine our pro rata share of the energy consumed in the infrastructure. And remember what the infrastructure includes: every ICE vehicle that burns gasoline produced by an energy consuming refinery that processes oil produced from a well.

Or consider the world consumes X amount of Btu's from fossil fuels. How much energy does the world produce from the process? Much less then it produces. IOW globally the production and consumption of fossil fuels is hugely negative. You can try to break it down into various individual components but it doesn't change the facts: the world's fossil fuel consumption doesn't not create a net increase in energy.

If I drill a well with an EROEI of 100 it doesn't make a f*cking difference: all you consumers are going to piss it away doing whatever the f*ck you consumers do. And in the process directly produce all that climate altering CO2. Shame on you. LOL.
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Re: Is EROEI Important? Pt. 2

Unread postby Darian S » Tue 06 Feb 2018, 18:52:48

Look I didnt say there wasnt variability in shale. But those older wells where you accidentally knocked the ground and oil came out gushing for decades at high rates are better than even the best shale well.

Theres the 60 saudi wells are equivalent to nearly 3000 shale well graphs and they produced for decades of high output not a measly few years. They also required less energy to start.

the world's fossil fuel consumption doesn't not create a net increase in energy.


What? And how do u think the economy operates? Every step of the economic activity is powered by the excess energy available mainly from fossil fuels(carbon natural gas and oil).
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Re: Is EROEI Important? Pt. 2

Unread postby ROCKMAN » Wed 07 Feb 2018, 13:03:19

Darian - "What? And how do u think the economy operates?" Read what I said carefully. You're referring VALUE. I'm referring to ENERGY. Remember where this conversation began: the EROEI of drilling activity. That's just one component of our fossil fuel dynamic. Whether someone calculates it as high or low doesn't matter in the BIG PICTURE. For example I drill a well with an EROEI of 100. But what happens to that energy? The same thing that happened to the energy I used to drill the well: it is consumed. So even if the industry has an overall good EROEI it doesn't matter: the consumers will take that net energy gain and turn it into an energy loss. I'm not trying to be tricky: regardless of what the EROEI of the fossil fuel extraction industry the oil we produce is also consumed. And with the exception of the tiny bit of that which goes into more drilling and alt energy construction most of it is not used to produce more energy. The EROEI of the fossil fuel industry is whatever it is. But the EROEI of the world's economy is hugely negative. out.

I know that concept will be difficult for some to grasp. But it's really as simple as I laid it
As far as old conventional wells such as the Saudi production compared the new shale wells that's rather pointless. Those wells are very much the one off. So what's you're point.
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Re: Is EROEI Important? Pt. 2

Unread postby Darian S » Thu 08 Feb 2018, 03:32:23

ROCKMAN wrote:Darian - "What? And how do u think the economy operates?" Read what I said carefully. You're referring VALUE. I'm referring to ENERGY. Remember where this conversation began: the EROEI of drilling activity. That's just one component of our fossil fuel dynamic. Whether someone calculates it as high or low doesn't matter in the BIG PICTURE. For example I drill a well with an EROEI of 100. But what happens to that energy? The same thing that happened to the energy I used to drill the well: it is consumed. So even if the industry has an overall good EROEI it doesn't matter: the consumers will take that net energy gain and turn it into an energy loss. I'm not trying to be tricky: regardless of what the EROEI of the fossil fuel extraction industry the oil we produce is also consumed. And with the exception of the tiny bit of that which goes into more drilling and alt energy construction most of it is not used to produce more energy. The EROEI of the fossil fuel industry is whatever it is. But the EROEI of the world's economy is hugely negative. out.

I know that concept will be difficult for some to grasp. But it's really as simple as I laid it
As far as old conventional wells such as the Saudi production compared the new shale wells that's rather pointless. Those wells are very much the one off. So what's you're point.



Point is EROEI drops basically mean less oil produced per energy spent taking it out. Assuming similar oil type given similar energy content.

You can produce ever more of ever lower EROEI but a higher and higher percent of energy will be spent just to get it out. And it doesnt have to go negative to start causing problems and taxing the system.

The world needs ever more energy it cant devote larger and larger quantities of energy just to produce more oil.
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Re: Is EROEI Important? Pt. 2

Unread postby onlooker » Thu 08 Feb 2018, 08:47:59

Precisely Darian. But I think again the problem with relying on prodigious amounts of Debt to fund the Oil Industry and other industries is that warps the economics of it. It simply cannot be said that Debt is accounted for. Not in the present transactions and economic interactions. Debt is an obligation of a future payment So in fact we are just deferring ever more of our capital ie. money for future payments with ever less Net energy which ultimately translates to less money. Of course on face value the question of the original post is absurd as you eloquently fleshed out Darian. Oil is crucial because it is probably our most important energy source and because it is a principal energy source. As I am sure everyone here has already read, energy is unlike other commodities and goods. It is the driver of economic activity. No energy , no economic activity. So its relative scarcity has profoundly pernicious effects on the economy. Our modern economies are energy guzzelers. A drop in energy to the overall Economy reverberates throughout the Economy including the Oil Industry. So EROEI is certainly important and that is why one hears the quote that when the Oil age ends they're will still be Oil in the ground but too expensive to the Economics of our Society to attain.
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Re: Is EROEI Important? Pt. 2

Unread postby marmico » Thu 08 Feb 2018, 10:20:23

Point is EROEI drops basically mean less oil produced per energy spent taking it out. Assuming similar oil type given similar energy content.


So what. If there is less net level energy per unit of gross energy, then extract more gross energy to achieve the same net level of energy. The level of net energy is what matters at the gasoline pump or the natural gas meter. And through conservation, efficiency and substitution the gross level of energy per unit of standard of living relentlessly declines.

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