energy return on energy investment
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Energy Return on Energy Investment with Professor Charles Hall. A dynamic look in detail at Energy Return on Energy Investment, from one of the top thinkers on the subject.TRANSCRIPT
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.