"Death Knell" For Peak Oil? Not So Fast!

It is easy to understand why some folks, including the nattering nabobs of the mainstream media, might somehow mistake the current glut of oil for evidence that Peak Oil is fiction or never existed at all. This would be a tragic error but as we see in today's Denver Post editorial ('The Death Knell for Peak Oil', p. 19A) it is definitely being made.

The Post's editor gushes that the "world is now awash in oil"- with Iran set to add its millions of barrels next, and in effect:

"It's as if the whole world were conspiring to bury the tattered remains of the 'peak oil' thesis so popular a few years ago."

Nowhere in his misplaced screed, not in one single paragraph, does this genius tie the consistently low economic growth rates in the advanced nations to the reduction of oil's efficiency. This is a result of having used up all the best quality oil and now going for the 'leftovers'.  As I pointed out to wifey this a.m.: "The moron doesn't even realize the shale oil we're pulling out of the ground is the next thing to garbage, which in fact proves the peak oil primary contention."

Yet the Post editor, blinded by BS, actually praises the fracked crap - devastating Colorado's landscape, air and water, btw -  as he merrily goes on:

"Little did the peak oil theorists - who insisted the planet was running out of oil- realize the shale oil revolution in the U.S. - already under way-was about to push domestic production to unforeseen heights"

First, peak oil "theorists" - like Richard Heinberg ('The Party's Over') never said the world was "running out of oil".  What they said is that the planet is running out of the highly efficient, high grade cheap oil (light sweet crude in particular) that is capable of driving the intense energy demands of industrial societies - from glass factories to military hardware and jet planes. Obviously, this point is too subtle for the editor at the Post to seemingly grasp. But let's try again to break it down for him - and others.

The planet was originally endowed with ~ 3,000 billion barrels of oil  – of which we’ve consumed one third and another one sixth of relatively cheap oil remains. Afterwards (say by 2030) there will reside another third of “break-even” oil (costs as much to access as it delivers), after which one -sixth of very expensive oil remains (costs much more to reach it than it delivers in energy).  At the heart of these considerations is the net energy eqn. (cf. Weisz, in Physics Today, July, 2004, p. 51)

Q (net) = Q (PR) – [Q (op)  + E/T]

In effect, for break-even oil one would find Q(net) = 0

For the last 700 billion barrels:    Q(net) = negative quantity =  - Q

Since the rate of energy production (Q (PR) must be debited by the energy consumed for its operation Q(op), and the energy E invested during its “lifetime” T. Thus its Q(PR) will be small in relation to the bracketed quantity.  In a similar vein, Richard Heinberg uses the quantity EROEI or ‘Energy returned on energy invested’ which for oil reached a high of 30 (ratio) in the 70s and is still the highest of all energy sources at around 22.   Thus, the problem in a nutshell is not “running out of oil’ per se but running out of CHEAP oil.

Right now, to fix ideas, we are very nearly at this Q(net) = 0 level with shale oil - which is why once its price falls to much lower than $50 /bl. it makes little economic sense to take it out of the ground. Compared to light sweet crude it is effectively garbage fuel. Bottom line, we need not run out of the stuff before the world economy runs into problems of untold, unspeakable proportions! We already have ample economic indicators showing the signs.

Alas, fracking shale oil - drilling into shale rock to get kerogen, or alternatively, natural gas, is in fact evidence of grabbing BREAK EVEN oil NOT high EROEI oil!  It is a sign of defeat and desperation.  not success - just like deep sea drilling for oil.

As Richard Heinberg explains (p. 110) it in his book, 'Snake Oil: How Fracking's False Promise Imperils Our Future':

"No evidence suggests that the technology of fracking has actually raised the EROEI for natural gas production. It temporarily lowered prices but only by glutting the market."

Get that? Adding it to the total world pool of higher quality oil merely "glutted the market". This is also what's dragging your 401k down right now, though yeah, you will catch kind of a break at the pump. Let's also grasp that this crap oil isn't even used here in the U.S. it's shipped off to places like China - where it fouls their skies and creates health havoc along with the CO2 and SO2 from factories and autos.

Also (ibid.) :

"A  study of the EROEI for electrical heating of methane hydrate deposits between 1000 and 1500 meters deep yielded ratios from 2:1 up to 5:1, depending on the source of the electricity"

Regarding the promises for kerogen or oil shale, he writes: 

"Kerogen is not oil. It is better thought of as an oil precursor that was insufficiently cooked by geologic processes. If we want to turn it into oil, we have to finish the process nature started: that involves heating the kerogen to a high temperature for a long time. And that in turn takes energy- lots of it, whether supplied by hydroelectricity, nuclear power plants, natural gas, or the kerogen itself. 

Therefore the EROEI in processing oil shale is bound to be pitifully low. According to the best study to date, by Cutler Cleveland and Peter O'Connor, the EROEI for oil shale production would be about 2:1. That tells us that oil from kerogen will be far more expensive than regular crude oil."

In other words, conflating oil shale (kerogen) with actual light crude oil of high EROEI is like mixing up cow turds with cow's (calves') liver.  One can be eaten, the other can't - and for the oil - one requires additional energy inputs to put to use, the other only refining.

These are crucial points to process, but the Post editor never does as he goes on to cavil about "peak oil handwringing".   The guy would be better served having studied the issue in more depth before putting out an editorial. In particular, that Heinberg's numbers and projections are reinforced by sound sources such as the London-based brokerage firm Tullet Prebon, whose Strategic Insight report declares:

"Our calculated EROEIs both for 1990 (40:1) and for 2010 (17:1) are reasonably close to the numbers cited for those years by Andrew Lees. For 2020, our projected EROEI of 11.5 to 1 is not as catastrophic as 5: 1 but would nevertheless mean that the share of GDP absorbed by energy costs would have escalated to 9.6% from about 6.7% today. Our projections further suggest energy costs would absorb as much as 15% of GDP (at an EROEI of 7.7 to 1)  by 2030."

The Report goes on to note that the "diminishing dismal energy returns" (and again one needs to separate Q(PR)   from Q(net))  means that "the economy we have known for two centuries will cease to become viable at some point."

We are already seeing the initial signs in the entrenched low growth (barely 2 percent)  confounding the nation's politicos and economists who - up to now - haven't tied this to the degraded oil slopping around the world..  

Stop and think - and read - before you buy into the bullshit that cheap oil prices (or an "oil glut") mean Peak Oil is or was a myth. And should you disbelieve it, then take note of this forecast from yours truly: as high quality, efficient oil becomes ever scarcer, look for returns on investments to sink ever lower and the world economy to 'bottom out' with growth barely 1 percent per year. Look also for common goods including food to become ever more expensive since oil is the fuel needed to produce it, as well as transport it. Not to mention the water resources consumed as well.

Oh, and look for your energy bill - relatively low now - to go through the freaking ceiling when shale is exposed for the snake oil it is..

Cheap Oil Turns Out Not To Be The Economic Boon Everyone Believed

Fracking has caused more economic problems than energy solutions.

As the endless oil shale commercials proclaim on the tube, the U.S. is "now number one in oil production".  Well, actually, it's the world's largest combined producer of oil and natural gas. Also, since the frack well drilling boom erupted in 2008, U.S. oil production (mainly via shale or kerogen) has increased nearly 75 percent and natural gas production has increased 30 percent.

But has this boom translated into a national economic boost? Evidently not, according to a Denver Post account ('Cheap Oil Hurt, Didn't Help U.S. Economy', May 21, p. 13A).  There are a number of reasons why this great, expected economic boost didn't materialize:

1) It was based on the false belief that if people had more money in their pockets, from saving on gas, they'd spend more. This has turned out not to be the case as CBS finance analyst Jill Schlesinger has pointed out Americans are now saving 5.3 percent of income - nearly double what they were before the 2008 crash.  Causing even more consternation for economists, Americans are more reluctant to take on credit card debt. Thus consumer spending rose an average of just 1.9 % in the first quarter.

2) The Saudis had already lowered their prices and opened their oil spigots so the increased oil shale boom in the U.S. merely added to the existing glut and lowered prices. Indeed, according to the Post account:

"The industry's breakneck growth was thrown into reverse by a 50 percent drop in oil prices from June through January."

It should be pointed out that earlier, ca. 2008-09 when oil prices were $100 a barrel or more, hydraulic fracturing to excavate kerogen was profitable. But when prices fell below about $70 a barrel it ceased to be because that is the "breakeven" point for kerogen.

Thus, reality was instantly brought home to oil producers that oil shale is not the same quality as light, sweet crude. This exposed the brutal reality that this new form of oil embodied a decreasing energy return on energy invested (EROEI).. In other words, our energy-dependent civilization was becoming ever more impoverished as the efficiency of the energy to run it diminishes over time.

No surprise then that investment in wells and production facilities collapsed nearly 50 % last quarter. After all, construction of refineries, production facilities requires real energy input of high EROEI oil, not kerogen (which degraded stuff  is usually exported to nations like China). Thus, the ruse was up and the losing game had begun.

3) For the economy as a whole, in effect, the technological breakthroughs that originally enabled the energy industry to power its growth were now contributing to the slowdown.  The lower EROEI shale was in fact also extracting higher costs in GDP  - a subtle effect not really appreciated until author Richard Heinberg pointed it out (p. 115) in his book, 'Snake Oil: How Fracking's False Promise Imperils Our Future'  citing  a report issued by a London -based brokerage firm Tullett Prebon whose customers are mostly investment banks. In a Strategy Insight report, author Tom Morgan wrote:

"Our calculated EROEIs both for 1990 (40:1) and for 2010 (17:1) are reasonably close to the numbers cited for those years by Andrew Lees. For 2020, our projected EROEI of 11.5 to 1 is not as catastrophic as 5: 1 but would nevertheless mean that the share of GDP absorbed by energy costs would have escalated to 9.6% from about 6.7% today. Our projections further suggest energy costs would absorb as much as 15% of GDP (at an EROEI of 7.7 to 1)  by 2030."

 

 Morgan's report goes on to conclude that the dismal diminishing energy returns means that the economy we "have known for more than two centuries" will "cease to become viable at some point".

 

Energy costs absorbing as much as 15% of GDP by 2030? What does this mean? It means our present energy-intensive civilization with its HDTVs, Nooks, Ipads, Smart phones, F35 bombers, Dreamliner jets,  drones and SUVs will cease to function. To try an analogy, think of a gluttonous guy of 300 lbs, suddenly dropped on to 'Survivor Island' and forced to eat rice, a few crabs and coconuts for the rest of his life as opposed to just 39 days. Think he'd have the energy to do anything?

This gluttonous guy is the perfect metaphor for our current energy gluttonous civilization which foolishly believes it has so much energy on hand it can afford to waste major portions on unprovoked wars of choice, and stupid energy investments - such as the F35 bomber.

If anyone believes this to be make believe or hype, there is this further uncompromising fact to reckon in: last quarter's annual economic growth ( measured by GDP) dropped by more than 0.75 percent.

Other costs from oil production are hidden, such as the clean up costs and devastated environment arising from the Santa Barbara oil spill - with a damaged underground pipeline unleashing  105,000 gallons -  fouling the beaches, the ocean and aquatic life. Also, there are the mounting health costs to consider: everything from COPD (owing to breathing in frack vapors emanating from nearby wells) to cancers - including of the liver, kidneys, pancreas and colon (from drinking water contaminated by hydrocarbon frack effluent such as benzene, toluene, xylene etc.)

Will things get better? Perhaps in spurts but not permanently, i.e. extending into an indefinitely brighter energy future. Heinberg observes that while it may cost less to extract a cubic foot of natural gas or a gallon of oil shale today, it will cost much more in just five years and even more in ten - such that one would have to spend as much or more to get the energy as the benefit it delivers. Heinberg summons a point that most of the snake oil salesman humping fracking won't tell you, that it costs energy to get energy. And if you are a nation that resorts to employing 15 to 1 EROEI energy to extract  5 to 1 EROEI  oil shale energy.....well, can we say 'stupid'?

As Heinberg puts it (p. 116):

"No evidence suggests that the technology of fracking has actually raised the EROEI for natural gas production. It temporarily lowered prices but only by glutting the market."

 Heinberg's book is essentially a tour-de-force exposing the false promise of fracking with hard statistics and basic energy principles. Just as Richard Charnin's recent book on the conspiracy to kill JFK dispatches (via mathematics) the false narrative of the lone nut brigade , so Heinberg's book skewers the fake promises of the frackers.

Americans need to pay attention to these issues and inform themselves because ultimately they impact numerous aspects of our lives and how (as well as IF)  we assume responsibility as citizens. This was perfectly expressed by Jefferson in his 'Notes on Virginia':

"Every government degenerates when trusted to the rulers of the people alone. The people themselves therefore are its only safe depositories. AND TO RENDER THEM SAFE, THEIR MINDS MUST BE IMPROVED."

Are citizens' minds being improved? Only to the extent they can distinguish truth from lies, and in particular their own welfare and interests from those of the corporatists.

See also:

http://www.smirkingchimp.com/thread/dave-lindorff/62330/finally-some-climate-crisis-honesty-forget-about-a-2-future-it-will-be-4-6-c-degrees-and-soon