What I am about to say about the state of the world's oil will shock even the most seasoned doomers on this board. The logic is so far beyond refute that even the most optimistic may fall into dispair.

The concept I present to you today is Net Oil. When one understands the concept of net oil it quickly becomes apparent that the situation is far more dire then Peak Oil leads you to beleive.

Peak Oil is based on the logic of Marion King Hubbert's curve which states that when half the world's oil is gone the rate of oil extraction will peak and decline. The Hubbert curve roughly resembles a bell shaped curve. After the peak is reached the world will have less oil every year. The results of peak oil will be at the very least an end to infinate growth replaced by perpetual economic and social decline posibly which only may lead to societal collapse. The process will take a long time after all half of the worlds oil still remains to be extracted after the peak.

If Peak Oil represents a long emergency of slow energy decline then net oil represents an appoclipitic end to energy as we know it. The concept of Net Oil is based on Energy Returned on Energy Invested or EROEI. It can easily be explained by this simple equation any economist will recognize.

Profit (Net Oil) = Revenue (Oil Outputs) - Costs (Oil Inputs)

Oil has been so cheap from an EROEI perspective over the last 140 years that it is easy to assume pumping oil has no costs. With an average EROEI of 30 to 1 return on energy investment in the last century all oil pumped for all practical purposes is profit or (Net Oil). The world Average EROEI has been falling for years and right now is around 15. So if the world is pumping 85 MBPD then put into the Net Oil Equation it looks something like this.

Net Oil = 85 MBPD - 5.67 MBPD = 79.33 MBPD.

Net Oil dares to ask the question of how much usefull energy or how much Net Oil is left in the ground after the peak of oil production. The first half of the worlds oil extracted had a very high EROEI. Some times aproaching 50 to 1 Net Oil capture. In the last 140 years humans have pumped out almost 1 trillion barrels of oil and almost all of that was net oil. The oil we must extract over the next few decades will have much lower EROEI. The full implications of this are dire to say the least. It means that of the oil that remains very little of it will be net oil. Over 80% or the all usefull energy may have already been consumed leaving only 20% of the world's total energy for the future uses.

Net Oil helps explain the the so called missing barrels of oil production in recent years. In the last five years oil world production has increased by 9 MBPD from 76 MBPD in 2001 to 85 MBPD in early 2006. Not all of this increase can be accounted for by normal demand. Chinese demand has grown hugely every year and has doubled to incease by 3 MBPD. American demand has increased by 1 MBPD but Europe and Japan have added none and India has only inceased silightly compared to Chinese growth. Roughly 4 MBPD can no longer be accounted for. The new oil coming online has much lower EROEI then past oil and older fields are also dropping in EROEI. The tapping of unconventional heavy oils has lead to an increase in unconventional demand to process those oils. The 4 MBPD that cannot be accounted for is energy that is used to pump out the inceasingly more difficult to extract oil. In the next five years Saudi Arabia plans to increase funding for oil extraction by 50 billion dollars. Much of that will go to pay for creased energy costs in the Net Oil Equation.

World Oil production may very well increase to 100 MBPD in the coming years but the cost in lower EROEI undoubtably will rise. If the EROEI falls to 5 then 20 MBPD of that 100 MBPD will simply by associated with the cost of pumping that said oil thus leaving only 80 MBPD for other uses. When the EROEI drops below 5 the world will come to a breaking point which will witness appoclipic declines in usefull energy. If EROEI declines from 5 to 4 then that represents a 20% net energy decline. The much promoted tar sands only have an EROEI of 2. If we do manage to get 5 MBPD from tar sands only the half of that will be net oil. Many older nearly depleated American wells only have EROEI of 2. Other great wells of the world are declining as well not just in output but EROEI as well.

If you were to graph the Net Oil curve it would look like a cliff with massive year after year declines when the breaking point occures. Even if absolute production keeps up the amount of usefull energy will decline at rates many times greater then Hubbert model declines. Society as we know it would not survive such massive declines in usefull energy. If you compound the two curves the then it is game over for humanity.

Not only does "Net Oil" make the situation worse because our oil doesn't go as far, but like in the case of Cantarell, it is probable that the midpoint of economically producible oil passed years ago.

But we've talked about all this before. Unfortuately, there are those that do not like the concept of EROEI, as you will see soon enough.

Let the games begin.

Well for what it helps I do agree with you Novus. By always discussion the oil issue in terms of the volumes that can be produced, half the problems of oil depletion are skipped over.

I think where we will see a demonstration of your "Net Oil" concept is in the current efforts to replace Gasoline with Ethanol. I'm sure after a year or two of using E5 or E10 on a wide scale, people will quickly come to understand what it means to be "running faster just to stand still" (I don't think we'll ever get to the point of wide scale use of E85)

The concept of "Net Oil" can also be applied to import/export capacities. When countries with national oil companies start going into depletion, they'll quickly turn off the export tap to maintane internal stability. This should be a horrific concept to Americans since the majority of the oil they import is from Nationals (which don't really like them too).

Perhaps Iran's quest for Nuclear power has less to do with developing an alternative to their depleting oil, and more to do with building enough firepower to defend their oil when they decide to keep it for themselves

Well done.

Applying the concept put forth by Heinberg in "Powerdown" as "the last man standing" approach, we see that the US military is now using a great amount of fuel in the Iraqisthan conflict. Supposedly this will help secure our oil supply lines, but at a high cost in energy use. I have a hunch that this energy use is not counted as being consumed in either the US or Iraq - or under any other country. Still that does not fully account for what you say is 4 mbpd missing.

Possibly the 'missing' barrels are also partly used (or lost) directly in transporting energy. But I don't want to quibble over details. It seems that government policies ignore the amount of energy used to get more energy. The scamble to use ethanol in US gasoline seems to be a good example. Based on local reports, the amount of energy produced by ethanol is roughly equal to the amount going into its production and shipment.

Very nice analysis. My compliments.

how much longer do we have????

It may look something like this.

I borrowed it from theoildrum

Direct link

http://www.peakoil.com/fortopic16456.html

I'm linking to this thread because it's relevant, and because I thought there were some excellent responses.

Thank you for putting a name on a concept I've been mulling over for a while now. Until now, I've just been calling it "diminishing returns".

Source? It stands to reason that EROEI has been gradually falling, but why should it suddenly take a dive now, other than the fact you expect peak oil to happen about now?

net oil is totally irrelevant IMHO... few use gasoline directly to fuel oil well pumps. Most of it is good ol' coal/nuke based electricity... so really its a coal to liquids conversion
Net energy is important, though.

Not me. I posted on this subject here in Dec 2004.

EROEI: Energy Returned on Energy Invested

Your post, however, was very good. One of the best I've seen on Peak oil discussion as of late.

MonteQuest

Less than we thought.

It is not about when oil will peak, but about when the "cost to access energy" will become untenable, regardless of supply.

Peak oil is about the socio-economical upheaval that will result as the cost of all access to all forms of energy rises.

Peak oil is the end of cheap energy in any form.