I recently came across PERFECT STORM – ENERGY, FINANCE, AND THE END OF GROWTH. It’s a well-written and thoroughly-researched 2013 report issued by Tullet Prebon, a British financial services firm (in the wholesale financial and energy sectors), authored by Dr. Tim Morgan, Global Head of Research.
This effort presents a sobering take—from a nuanced, slightly different perspective—on the issue of peak oil and our energy supply future. [Unless otherwise noted, quotes are taken from that PDF report.]
[T]he critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.
The report devotes more than two-thirds of its coverage to an excellent analysis of economics and growth in recent years, and the challenges we all face. Warning that future economic growth is not a guarantee no matter what economic measures are instituted [Gail Tverberg is among those who cover this topic regularly; her work is well worth reviewing], Dr. Morgan urges a greater understanding of what lies back of any economic prosperity.
A central argument set out in this report is that economic problems will remain insoluble for so long as policymakers concentrate on monetary issues rather than on the ‘real’ economy. We go further than this, arguing that the physical economy is, in essence, an energy system or, to be somewhat more precise, a surplus energy equation.
Much of the section devoted to energy and its great significance in ushering in our modern society over the past two centuries focuses not so much on peak oil as it is more commonly discussed [e.g, production declines, rates of production].
Instead, echoing themes raised by, among others, the terrific work of Charles Hall [see this], while supporting much of what I and peers have also written about [see these: 1. 2. 3. 4.], the Tullet Prebon study emphasizes the vital importance of energy returns: how much input is needed to provide supply as measured against the energy actually “left over.” It’s an important concept almost never discussed by those who proclaim energy abundance, yadda, yadda, yadda.
The mathematics of EROEI are pretty straightforward. If the EROEI is 50:1, this means that 50 units are extracted for each unit invested in the extraction process….
An absolute decline in available energy volumes, serious though that would be, is not the immediate concern. The truly critical issue is the relationship between energy extracted and the amount of energy consumed in the extraction process. Known as the Energy Return on Energy Invested (EROEI), this is the ‘killer equation’ where the viability of the economy is concerned. Put very simply, there is no point whatsoever in producing 100 barrels of oil (or its equivalent in other forms of energy) if 100 barrels (or more) are consumed in the extraction process….
Though described earlier as an energy equation, a more precise definition of the economy is that it is a surplus energy dynamic, driven by the difference between energy extracted and energy consumed in the extraction process….
[T]he progression in energy sourcing is moving unmistakably and inexorably towards ever-lower EROEIs.
As with other factors affecting fossil fuel production, we ignore to our eventual and great detriment the energy investment needed to extract the supplies we all need for just about everything we do, own, and use. Assuring the public that we have X gazillion of barrels of oil still to be extracted is impressive only until you get to the end of the sentence.
After that, considerations about expenses, quality, and similar ought to be part of the dialogue we should be having much more often and to a much greater degree than we are. So too must we recognize exactly how much energy and effort are needed to provide us with the supplies we’ve come to expect. EROEI is not rocket science.
Production, exploration, and all of the related activities which constitute the entirety of oil production depends on those very resources in the first instance. If more and more energy and effort are required on the front end, what’s left over is necessarily less than was the case with the “easy” production efforts associated with conventional crude oil.
We don’t have to wait until we’re at the “100 barrels in to get 100 barrels out” stage before realizing energy production and supply challenges will pose enormous problems that ripple throughout economies world-wide. Waiting for that moment is actually about the worst thing we can do.
Engaging in different conversations with all the facts on the table—now—would be a good idea.
I’ll have more thoughts on this the next time.
~ My Photo: at JW Marriott Desert Springs Resort & Spa, CA – 02.23.14
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