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Oil: Beyond the Barrel – And Over the Cliff

Oil: Beyond the Barrel – And Over the Cliff thumbnail

As the price of oil climbs through $85 a barrel, it reminds me of the explanations flying around a little over two years ago as oil went to this level for the first time. “It’s all the funds chasing the hot commodity – the only game in town” was the refrain. It’s all a bubble and we will have stable oil at $35 soon – that’s what Steve Forbes and many others said. But now, as oil goes through $85, it’s not the only game in town. In fact, it’s been the dog underperforming just about everything. No desperate performance chasing mania is driving the price of oil today as we threaten $100 again. Could those peak oil nuts be right? Could the Great Recession be camouflaging a real supply peaking process?

There is an interesting article out just yesterday over at The Post Carbon Institute by Tom Whipple. He states:

For two weeks now the peak oil portion of cyberspace has been abuzz with commentary on the International Energy Agency’s (IEA) newly released World Energy Outlook 2010. Without missing a beat and without much explanation, the world’s leading compiler of everything about energy has gone from denying that conventional oil production will peak in our lifetime to saying it happened four years ago.

What? A conventional oil peak happening in late 2005? That’s what nuts like Ken Deffeyes and me were saying back then. Overall barrels of what is classified as “oil” isn’t peaking. But conventional oil was peaking then, and that’s where all the net energy is. As Tom Whipple’s article points out, it’s net energy that is missing from the equation of energy planners. And, as I wrote in an article about back in April, this miscalculation is a potential nightmare waiting to engulf us. CNBC had just started showing their “Beyond The Barrel” story, and this prompted me to post “Beyond The Barrel – And Over The Cliff” on my blog where I look at this whole conventional vs nonconventional, net energy peak thing. This is the post:

CNBC premiered “Beyond the Barrel – the Race to Fuel the Future”. This is a look at the alternatives to the crude oil bursting forth from the ground that has spoiled us for decades with cheap, abundant energy. One thing that will probably be missing in the discussion is the major issue EROEI. What is EROEI? How do you pronounce it? Well, I don’t concern myself with pronouncing it, but I do get vexed by how much attention is being paid to it.

EROEI is simply Energy Returned On Energy Invested. It was not even a word back when Jed Clampett could start a bubblin’ crude when he was out shootin’ for some food. But as we started drilling deeper to recover oil, people like Cleveland and Hall began tabulating estimates on how much of our energy supply was being used to find, drill, and use our new energy finds. They come up with about a 100 figure for oil of the 1930s (1 barrel of oil burned to get 100 new barrels online). This had dropped to around 30 by the 1970s as so much of the easy to find oil in the world’s elephant fields in naturally pressurized reservoirs has already been exploited. EROEI for oil and natural gas now is running around 8 – 11 depending on locale.

That is a huge drop from the 100 EROEI of the 1930s, but as it turns out in the math of net energy, it’s not that big a deal. What is a big deal is what happens as this EROEI number goes from around 8 to below 4. (click on chart to enlarge)

This chart, constructed by Dr. Euan Mearns, an editor at theoildrum.com, plots net energy as a percent from 100 down to zero over EROEI’s range from very high down to one, where it is taking a barrel of recovered energy to obtain a barrel of new energy. As you can see, we’re in fine shape as long as EROEI keeps north of 8, but we fall and we can’t get up as we go over the cliff as EROEI goes to 4 and below. This is an exponentially increasing problem as we try to replace peaking crude production with things like corn ethanol, which is a worthless solution.

As this oil replacement scale shows, corn ethanol, at an estimated EROEI of 1.3, must be produced at a rate of over 20 barrels for each barrel of oil it replaces energy-wise. Many biodiesel, solar, and electric EROEI estimates aren’t much better.

You see a lot of barrel count estimates of future oil production as we deal with peak oil, but as we go over the top of the conventional oil production peak (the evidence suggests we already have) the flood of “alternative” liquids such as tar sand oil, deepwater, etc. are severely challenged to come close to matching crude’s EROEI. This makes a big difference in how much net energy is actually being delivered to society despite the raw barrel count. This makes a good EROEI estimate of any new alternative fuel critically important – its most important feature. But nobody is paying any attention as we approach the net energy cliff.

If you were to do an adjusted production curve to get an estimate of a “net energy curve” based on best current estimates on EROEI of the various nonconventional oil liquids going into the barrel count of official oil supply, you get a much different curve than the official projections (which all our energy planning is based on).

The two curves are for the more traditional base production decline rate estimate of 4.5% annually and for the newer estimates suggesting this to be around 7% – so a kind of best and worst case range is shown. The EROEI issue becomes acute as we go past about 2011 unless something radical is done about the low EROEI oil replacement theme that is now so entrenched in Congress, which seems dedicated to any alternative energy in direct inverse relation to its usefulness in actually replacing oil. They dote on corn ethanol because of a powerful corn lobby. They slight lightly lobbied natural gas in favor of the black lung clean coal coalition. They reward anything that will take decades to scale up as an oil replacement and ignore the one viable thing that’s already at the scale and the EROEI needed – natural gas.

Obviously, replacing oil is going to have to be a team effort from many things – renewable ethanols, solar, wind, and the best currently available bridge to all these future fuels – natural gas. But we’re going to have to pay a lot more attention to the EROEI science of all these team members, or we’re not even going to make the playoffs.

Seeking Alpha



6 Comments on "Oil: Beyond the Barrel – And Over the Cliff"

  1. KenZ300 on Sat, 27th Nov 2010 1:35 am 

    A California-based company is building a $120 million biofuels plant near Reno Nevada. They expect the plant will create more than 50 full-time and 450 temporary jobs.

    The plant is expected to produce over 10 million gallons of second generation ethanol AND 16 megawatts of electricity annually by processing MUNICIPAL SOLID WASTE.

    This plant will create clean energy and reduce dependence on foreign oil by
    processing HOUSEHOLD GARBAGE.

    Clean, sustainable alternative energy — that is what we need — local energy, local jobs.

    If every garbage dump in the country co-located an ethanol plant we could go a
    long way toward producing local energy and local jobs. Let’s diversify our energy sources.

    Since the garbage is being collected and delivered daily already I wonder what the EROEI on this plant would be?

    This sounds like a win win situation. Cheap input for both second generation ethanol and electricity generation and it also reduces the amount of trash going into the landfill.

    If this process was replicated around the world we could go a long way toward providing clean, sustainable, locally generated energy AND reduce the problem of waste in our landfills and oceans.

  2. James on Sat, 27th Nov 2010 5:00 am 

    They forgot to mention that the production of alternative energy requires some element from Crude Oil, or Natural gas. Both in short supply in the long run. Oil is used to run the agriculture equipment to plant the raw materials to make alcohol or bio diesel. Pesticides are produced from oil. Fertilizers use Natural gas as a feed stock. So, until we can get away from using any or all of the components provided by Crude Oil, we are still in trouble. The amount of alcohol we would need to keep up with our demand will never be met with the methods we use today. All of the other sources, solar, coal, wind, Etc. will never produce the amount of energy we would need to match what we get from crude oil. We simply must learn to do with less energy as a whole, and prioritize its use.

  3. James on Sat, 27th Nov 2010 5:03 am 

    If we plant crops that provide raw materials for alcohol or diesel. We will burn the soil up if we don’t maintain the fertility levels provided by fertilizers. Fertilizers are in short supply and the prices are going up and up.

  4. James on Sat, 27th Nov 2010 5:09 am 

    KenZ, what happens when garbage becomes scarce? Once they start using household garbage, eventually in a short time the city won’t be able to generate the amount of garbage to run the plant. The only reason it would look good in the beginning is because garbage is available due to no one using it for anything now. But, once it gets started, it will become scarcer over a short period of time. My city had a trash burning plant that produced electricity, and they tore it down because the EPA said it was producing too much pollution. Also, they still had to haul unburnable items and waste to the land fill.

  5. KenZ300 on Mon, 29th Nov 2010 12:01 am 

    Diversify… diversify… diversify…

    Like they say “don’t put all your eggs in one basket” — relying on oil as the sole source of transportation fuel reduces our options.

    Bring on the electric and flex-fuel vehicles.

  6. giles pearson on Tue, 30th Nov 2010 3:49 am 

    Yeah James, spot on, untill the “free market ” is stopped , we will all suffer, through lack of supply, local , and individual is the only answer.

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