Energy Return on Energy Investment

Peak oil, declining EROI and the new economic realities:

New limits to growth?

Charles Hall, Stephen Balogh and Jessica Lambert

SUNY Environmental Science and Forestry, Syracuse N. Y.

I. IMPORTANCE OF ENERGY TO ECONOMIES

The dirty secret to wealth production: Use more energy

?

Can we learn anything from ecology?

In ecology, succession occurs after a disturbance. Production (photosynthetic energy capture) increases rapidly and then becomes asymptotic. Respiration (energy use) increases more slowly as biomass increases. Eventually, energy use equals energy gain and the system stops growing.

SBB6

Slide 4

SBB6 lose the slide or simplify and labelSteve Balogh, 3/21/2012

What if these guys were right?

Revisiting the Limits to Growth After Peak Oil

Charles A. S. Hall and John W. Day, Jr. 2009 American Scientist, Volume 97: 230-237

II. THE GROWTH RATE OF MANY ECONOMIES IS DECLINING

The evidence: declining growth rate of US GDP

-15%

-10%

-5%

0%

5%

10%

15%

20%19

35

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Annu

al p

erce

nt ch

ange

Gross domestic product Linear (Gross domestic product)

-15%

-10%

-5%

0%

5%

10%

15%

20%19

35

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Annu

al p

erce

nt ch

ange

Gross domestic product Linear (Gross domestic product)

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1935 1945 1955 1965 1975 1985 1995 2005

Annu

al %

cha

nge

GDP GDP (10 y. avg.)

Another way of looking at the same data

-15%

-10%

-5%

0%

5%

10%

15%

20%

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010An

nual

% c

hang

e

GDP (10 y. avg.)

Stagnation in middle class incomes

Falling per capita GDP

Are we just in an economic downturn or are we on a slope?

??

Why is this the case? Why is the economic growth in the US (and

OECD and maybe the world) slowing down?

If it is a slope (and it seems to be) what might be the cause of that?

Our candidates:

Peak Oil (or rather declining rate of oil use) Declining EROI

There is no longer cheap energy to feed the beast

III. PROBABLE CAUSE: DECLINING RESOURCE AVAILABILITY (QUALITY AND QUANTITY)

Hypothesis:

Declining Non-renewable Natural Resource Input --->>

Declining Economic Output (GDP) --->> Declining Societal material well being (Material

Living Standards)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Annual Rate of Change (all petroleum liquids)

Rate of Change (all liquids) Linear (Rate of Change (all liquids))

Global petroleum

-5%

0%

5%

10%

15%

20%

1891

1901

1911

1921

1931

1941

1951

1961

1971

1981

1991

2001

Annual Rate of Change (Dry NG)

Rate of Change (Dry NG) Poly. (Rate of Change (Dry NG))

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1850

1860

1870

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

Annual Rate of Change (Coal)

Rate of Change (coal) Poly. (Rate of Change (coal))

Global

Global

III.a PEAK OIL

17

King Hubbert

• Geophysicist at the Shell lab in Houston, Texas

• In 1956, he wrote a paper with predictions for the peak year of US oil production

• It happened

Peak oil? Then Peak petroleum? Courtesy of Colin Campbell)

The important thing (so far) is NOT peak oil but cessation of growth in oil

(and energy)

III.b DECLINING EROI(FOR PRODUCERS)

EROI: definition, history and future implications

I. DEFINITION of EROI (Sometimes EROEI)

Energy return on investment for an activity:

Energy delivered to society EROI = __________________________

Energy put into that activity

Usually consider energy invested from society

• Humans use high quality, low cost resources before low quality, high cost resources

(Ricardo)

• Best-to-worst ordering of resource exploitation

Best First Principle

US Oil Field Size

0

20

40

60

80

1900 1920 1940 1960 1980

Mill

ions

of b

arre

ls

Petroleum production in Norway in 1970 – 2008

0

2

4

6

8

10

0

50

100

150

200

250

1970 1980 1990 2000 2010

EJ

Mto

e NGL Cond.

Gas Oil

OIL

GAS

Energetic cost of petroleum production in Norway in 1991 – 2008.

0

50

100

150

200

0

1

2

3

4

5

1991 1996 2001 2006

PJ

Mto

e

Embodied energy

Direct fuel for drilling

Diesel for production

Gas for production

Leena Grandell

EROI of Norwegian petroleum production in 1991 – 2008

0

10

20

30

40

50

60

70

1991 1996 2001 2006

ERO

I

total petroleumoil only

EROI for Norwegian oil has declined by half in 11 years

0

20

40

60

80

100

120

140

160

0

5

10

15

20

25

30

35

40

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Mill

ion

Feet

Dril

led

ERO

I

Year

EROI and Drilling Intensity

U.S. oil and gas 1919 -2008

0

10

20

30

40

50

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

ERO

I

Year

US oil/gas (Cleveland et al 1984) US oil/gas (Hall et al 1986) Global oil/gas (Gagnon 2010)

US oil/gas (Guilford et al 2011) Norway oil only (Grandell 2011)

EROI for Oil: US and other

0

10

20

30

40

50

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

ERO

I

US oil/gas (Cleveland et al 1984) US oil/gas (Hall et al 1986) Global oil/gas (Gagnon 2010)US oil/gas (Guilford et al 2011) Norway oil only (Grandell 2011)

0

20

40

60

80

100

120

1980 1985 1990 1995 2000 2005 2010

ERO

I

YearCanada (Freise 2011) Pennsylvania (Sell 2011)

Natural Gas

Coal: US and China

0

20

40

60

80

100

120

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

ERO

I

YearUS Coal (Cleveland 1992)US Coal Bitum/Sub-bitum. (Balogh, Guilford, Arnold 2012)China Coal [washed] (Zi-Feng and Balogh 2012)

Move to Western sub-bituminous coals

Consolidated Global EROI for all Fuels1919-2006

0

10

20

30

40

50

60

1910 1930 1950 1970 1990 2010 2030

ERO

I

Global EROI: 1919-2006 Linear (Global EROI: 1919-2006)

??

?

http://econ.worldbank.org

Energy Prices

Metals Prices

FOR UK

Our projections for UK oil production make sense only if low EUR -- Analysis by John Hallock

United Kingdom (Low-DP50-5 - 2012 scenarios N)

0

300

600

900

1200

1500

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

Mill

ion

barr

els

/ yea

r

Actual DemandProjected Demand"Production Forecast - High-EUR"Production Forecast - Mid-EURProduction Forecast - Low-EURActual Production

Gains and costs of UK oil and gas

-

2

4

6

8

10

12

-

50

100

150

200

250

300

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mill

ion

tons

of o

il eq

uiva

lent

Mill

ion

tons

of o

il eq

uiva

lent

Production (left axis) Effort (right axis)

EROI of UK oil and gas

0

5

10

15

20

25

30

35

40

45

ERO

I

EROI (direct), data from DUKES

EROI (direct+indirect), data from DUKES, indirect per Grandell et al. (2011)

EROI UK oil and gas (direct + indirect), from Gagnon and Hall (2008)

EROI for UK oil and gas has declined by half in 10 years

III.c DECLINING EROI FOR IMPORTERS

-

5

10

15

20

25

30

35

1970 1980 1990 2000 2010

WBE/WBGD '05"

EIAE/IMFGDP '05

EIAE/WBGDP '05

WBE/IMFGDP '05

Year

Pakistan's EROI (Imported)

ERO

I

-

5

10

15

20

25

30

35

40

1970 1980 1990 2000 2010

WBE/WBGD'05"

EIAE/IMFGDP '05

EIAE/WBGDP '05

WBE/IMFGDP '05

Year

MJ/

US$

Pakistan's Energy Intensities

-

5

10

15

20

1970 1980 1990 2000 2010Year

MJ/

US$

Bangladesh's Energy Intensities

- 10 20 30 40 50 60 70 80

1970 1980 1990 2000 2010Year

Bangladesh's EROI (Imported)

ERO

I

-

5

10

15

20

25

1970 1975 1980 1985 1990 1995 2000 2005 2010

WBE/WBGD '05"

EIAE/IMFGDP '05

EIAE/WBGDP '05

WBE/IMFGDP '05

Indonesia's EROI (Imported)

ERO

I

-

10

20

30

40

50

60

1970 1975 1980 1985 1990 1995 2000 2005 2010

WBE/WBGD '05"

EIAE/IMFGDP '05

EIAE/WBGDP '05

WBE/IMFGDP '05

Year

Malaysia's EROI (Imported)

ERO

I

-

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000 2005 2010

WBE/WBGD '05"

EIAE/IMFGDP '05

EIAE/WBGDP '05

WBE/IMFGDP '05

China's EROI (Imported)

ERO

I

-

5

10

15

20

25

1970 1975 1980 1985 1990 1995 2000 2005 2010

WBE/WBGD '05"

EIAE/IMFGDP '05

EIAE/WBGDP '05

WBE/IMFGDP '05

Year

India's EROI (Imported)

ERO

I

If, when, UK domestic petroleum resources are gone, what will they be able to produce that will give them a favorable EROI through

trade ??

IV. ECONOMIC IMPLICATIONS

CONCLUSIONS1. Economic growth in the past has been highly

dependent upon growth in fossil fuels2. We cannot assume this growth will continue3. While technology is important and continuing, it

appears that depletion is trumping technology as indicated by declining production and EROI

4. The U.K. is likely to depend increasingly on the EROI of imported fuels

5. Our existing economic approaches and theories are completely inadequate for understanding this situation

-

II. Stability theory:• from General Systems Theory

Systems science has often been concerned with STABILITY

Figure 1. A system with a stable (A) and unstable (B) equilibrium point.

Limit Cycle Behavior

III. Does this apply to our current economic system?

• We make 8 assumptions:

1. When oil consumption grows, so does the U.S. economy

2. 50% of the variation in GDP is explained simply by oil consumption

Is oil the chicken or the egg?

Karanfil 2009

Is oil the chicken or the egg?

4. Adjusting energy for quality differences among fuel types indicates causality running from energy consumption to GDP

Cleveland et al. (2000)

3. But its not just energy that grows the economy

Oil Prices are Lower During Expansions

Average Real Oil price from 1970 - 2008

4. Every recession since 1970 has been preceded by a spike in the price of oil

5. Supply Curve

Decrease of ~2 mbpd lowers price to $30 bbl

6. Supply didn’t increase with Price

7. We are finding less oil globally

8. The oil we do find is in hard to reach places (i.e. expensive)

% DEEPWATER

Break-Even Cost

McKinsey GEM, 2010 using IEA, Wood Mackenzie, Interstate Oil and Gas Compact Commission

Where are we finding oil?

10 mbpd

Summary of the Facts

• Inexpensive energy has been used to provide steady economic growth in the recent past

• We are finding less oil, and the oil we do find is expensive, creating a volatile price situation

What about England ?

Google : US EIA petroleum reserves 2011Pick : Maps: Exploration, Resources, Reserves, and Production - EIA (second page) Pick Updated 9/30/2011: Bakken Shale Production from 1985 to 2010

R. Hersh

. It seems no one wants to hear these things. I believe they are behind the

increasing financial problems we have in Europe and US for we have been

clearly living economically beyond our biophysical means. This is not to

negate greed, corruption and financial malfeasance.

II. WE WERE WARNED

H. T. Odum M. King Hubbert Jay Forrester

Then one fateful day I was

browsing in the UNC book store and found this:

Production of UK oil and gas

-

50

100

150

200

250

300

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mill

ion

tons

oil

equi

vale

nt

domestic oil domestic gas

Oil

TOTAL

Total

Gas

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

1935 1945 1955 1965 1975 1985 1995 2005

Annu

al %

cha

nge

Primary Energy GDP Primary Energy (10 y. avg.) GDP (10 y. avg.)

Rate of Growth of GDP and Primary Energy in the U.S.

U.S.