Robert Samuelson: "Peak Oil in Retreat" - Don't Believe It!

As I've shown in numerous earlier blog posts, WaPo Neoliberal hack Robert Samuelson generally gets more things wrong than he does correct. For example, on the issue of deficits under JFK, see:

http://brane-space.blogspot.com/2012/07/thats-right-now-blame-60s-jfk-for.html

We also know Samuelson has frequently played fast and loose with economic facts, e.g.

http://brane-space.blogspot.com/2011/08/more-ridiculous-lies-from-robert.html


So, it should be no surprise to those of us who've followed his career of PR hijinks that he'd also dissemble and spin about one of the most important energy milestones in recent human history: Peak Oil.   For reference and perspective, let's recall  peak oil theory was developed in the 1950s by oil geologist Marion King Hubbert, who predicted domestic U.S. oil production would peak by 1970 and decline steadily thereafter. In exploiting an individual oil field, Hubbert contended, production ramps up quickly and hits a peak at about which time about half the recoverable oil has been extracted. As the oil becomes increasingly difficult and costly to pump out, the field goes into decline.

More importantly, Hubbert maintained that his theory was applicable to the continental U.S. oil production and even the entire world, which he predicted would peak around 2000.In fact the evidence shows that global Peak Oil occurred around 2005-06. But what about the so-called "oil boom" due to fracking etc. It's all bogus!  It arises by conflating all oil sources as having the same efficiency to deliver energy.

This is exactly the error made by Samuelson in his article, as when he writes ('The Retreat of Peak Oil', Denver Post, June 15, p. 17A):

"Supply and demand have unexpectedly expanded the global surplus, reducing prices. The increase in U.S. shale oil unexpectedly boosted supply....the world now used 93 million barrels daily but can produce 95 mbd or a bit more"

The problem is that cheap shale oil is a mirage, which doesn't detract from the validity of Peak Oil. Let's examine this at length. The shale oil, from drilling into shale rock to get kerogen, is in fact evidence of grabbing near BREAK EVEN oil NOT high EROEI oil!  It is a sign of defeat and desperation.  not success - just like deep sea drilling for oil.

The planet was endowed with ~ 3,000 billion barrels of oil  – of which we’ve consumed one third and another one sixth of relatively cheap oil remains, after 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 deliver 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

 

Thus, there is no net gain in energy given the quantity that must be used to obtain it.

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.

 

Contrary to Samuelson's descriptor, shale oil at an EROEI currently of 4-5 EROEI is not "cheap oil"  The reason is that its low EROEI relative to earlier more accessible light sweet crude (at 22-30 EROEI) makes it necessary to consume more of it to get the same jobs done. That ALSO includes exploration, drilling for new, degraded oil sources. So one is effectively squandering higher EROEI oil to extract lower EROEI shale oil- resulting in a radical lowering of efficiency which ultimately affects energy consumption across the board, and the GDP. See e.g.

 

http://brane-space.blogspot.com/2015/05/cheap-oil-turns-out-not-to-be-economic.html

 

And while shale oil is currently "cheap" in the monetary sense, this doesn't mean that the condition will be sustained. It can't be since we are adding more people every day who use more energy and a low EROEI source is not tailored to incessant demand on account of population growth.

 

This error leads to an inevitable compounding of confusion as when Samuelson asserts (ibid.):

 

"Peak oil would occur when new oil discoveries no longer offset annual consumption and provide for future growth. This seems unavoidable. Oil is a finite natural resource  There's only so much of it- when it's gone it's gone. The trouble is that this compelling logic has yet to play out in the real world"

 

But in fact, it IS playing out in the real world!  As noted in the previous link, the London -based brokerage firm Tullett Prebon (whose customers are mostly investment banks). already warned in a Strategy Insight report that: energy costs would absorb as much as 15% of GDP (at an EROEI of 7.7 to 1)  by 2030."

In other words, the low EROEI is adversely impacting economic growth into the future! This is exactly meeting Samuelson's criteria but he can't see it on account of mistaking the shale boom for a true energy boom that contributes to economic growth.

 

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."

 

Also:

 

"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"

As I noted, energy costs absorbing as much as 15% of GDP by 2030 means our present energy-intensive civilization with its HDTVs, Nooks, Ipads, Smart phones, F35 bombers, Dreamliner jets,  drones and SUVs is literally on life support.  Other costs from degraded oil production are hidden, such as the clean up costs and devastated environment arising from exploding shale oil trains, oil leaks from pipelines, as well as escape of oil effluent such as benzene, xylene etc. into the air and water.  These costs, exacted over time in cleanups and health costs - also limit GDP.

Now, let's affix our heads on straight. In the real world, the top part of the oil production curve for the high EROEI we've been conditioned to use  is nearly flat (cf. A. Bartlett, Physics Today, op. cit. p. 54)  In more practical terms – what it means is that if 2005  was the actual year of peak oil production then the worldwide oil production in 2025 will be the SAME as in 1985, demanding that Q(net) > 0.   Also, it means that 2045 will be the same as 1965, and 2065 will be the same as 1945, and 2085 will be the same as 1925!

In fact, the situation is likely much worse than this given we are desperately trying to substitute degraded oil to do the earlier work of high EROEI oil!   Hubbert predicted U.S. oil production would peak around 1970,  which it did (at 2.2 liters per person per day). He also predicted world production would peak around 1995, which it would have – had the severe OPEC-induced oil crises not created an artificial supply problem in 1973, thereby pushing this critical peak back 10 years (to 2005).

So when someone like Samuelson offers this micro-byte of misinformation:

"Oil is not inexorably fading from the world stage. Peak oil remains distant"

Stop and think - and read - about the declining EROEI aspect before you buy into the bullshit that cheap oil prices mean Peak Oil is in retreat or 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.
 

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

$44 TRILLION in Deficits by 2024? Minus 15% Growth Per Annum? The Hidden Energy Degradation Factor

In one of the more disturbing articles in The Financial Times ('West's Debt Explosion Is Real Story Behind Fed's  QE Dance' ), Gillian Tett ties the addiction to quantitative easing by the Federal Reserve to ongoing credit and debt imbalance. As she puts it:

" Faced with the choice of curbing the addiction or providing more of the QE drug the FED chose the latter..... One way to interpret this week’s dance is that policy makers are propping up a system which is at best peculiar and at worst, unstable......Western economies have become hooked on ever expanding debt."

 

 

She adds that:  “Total credit keeps rising, as the productivity of money is falling and an over-leveraged system too prone to booms and busts”.   She then cites Lord Turner who sees the same dangers, and "wants a radical overhaul of the models economists use and for policy makers to deliberately reduce credit."
 

Gillian Tett's piece is admirable, as are Lord Turner's prescriptions, but it is clear neither really grasps what is at the root of expanding debt which is projected to metastasize across the globe multifold times in the next ten years. What is the hidden basis? To sum up as succinctly as possible, it is the decreasing energy return on energy invested (EROEI) of fuel sources. In other words, our energy-dependent civilization is becoming ever more impoverished as the efficiency of the energy to run it diminishes over time.

 

 

Essentially, a civilization which had become addicted to energy delivering 20 to 30 or even 40 times as much energy as it cost to extract, now faces a future with energy return 5 to 8  times less. This spells monetary-economic disaster because at the end of the day it is energy which  determines wealth of nations- money is only a medium to represent it.

 

 

One of the most scarifying revelations I've seen in the past year was cited in Richard Heinberg's new book, Snake Oil: How Fracking's False Promise Imperils Our Future', on p.115. This is from a report issues 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".

 

 

Cease to become viable? 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?  Think he'd survive? Guess again. His body - starving of protein  (the equivalent of high EROEI energy)-  would begin to consume itself.  This gluttonous guy is 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 which tab is now up to nearly $500m each (and the U.S. plans to build 2, 400 of them)

 

 

Nor is the oil shale -fracking option the way out. As Heinberg observes, 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. Readers who wish to see the detailed arguments and facts would be well served by reading it. Especially the chapter in which he notes that while the EROEI of oil and gas are declining, the EROEI for wind and solar photovoltaic are increasing. For this reason, Heinberg advocates much more investment attention to the latter, and not pinning our future energy hopes to the myth of "100 years of natural gas".


He observes, for example(p. 110), that "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 much ballyhooed "oil shale" or kerogen, Heinberg is blunt (ibid.):

"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."

We now examine the issue in more detail.

At the heart of the preceding considerations is the net energy eqn. (cf. Physics Today, Weisz, July 2004, p. 51): 

Q (net) = Q (PR) – [Q (op) + E/T]

 In effect, for break-even oil one would find Q(net) = 0    This is the phase at which it costs as much energy to extract the oil (or natural gas) as the energy extracted provides. Thus, there is no net gain in energy given the quantity that must be used to obtain it. For the last 700 billion barrels, of hard to obtain oil (such as oil shale, or tar sands, or deep sea sources):

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. Thus, the problem in a nutshell is not “running out of oil’ but running out of cheap, accessible oil.  Bottom line, we need not run out of the stuff before the world economy runs into problems of untold, unspeakable proportions.

Heinberg forecasts we will see the initial effects in terms of "an ongoing maintenance crisis" in which we will enter a race to keep basic services  (water, electricity) available  "as energy and capital contract in a self -reinforcing loop". So look for power blackouts, and not just in the summers, as well as water shutoffs, not to mention ever more frequent water mains bursting, bridges collapsing and highways crumbling - even if massive storms (such as struck Colorado) don't strike each year. (But with ramping up climate change we know they likely will)

Obviously, each such feedback cycle will create and reinforce more debt, even if we are bright enough not to engage in stupid wars - wasting more high EROEI energy - or debt ceiling face offs.

For people that have a hard time fathoming a $44 trillion deficit in 11 years, let's put it in temporal perspective.  In the last 13 years the deficit has essentially doubled from $8.3 trillion to $16.7 trillion and this was in an environment with (still) high EROEI energy sources - which we largely wasted on unprovoked wars, and building new weapons such as drones and now F 35s. Thus, it is a no brainer that the deficit can easily double in another 13 years. Now add to that the Tullet Prebon Strategy Insight  report  of an approximately 30%  projected increase in energy costs (as proportion of GDP)  and you easily reach $44 trillion in just 11 years, and that's assuming no more stupid wars or massive storms wreaking havoc on our already crumbling infrastructure.

Here's the connection: lowered EROEI translates to increased debt - nationwide as well as for (most) individuals, since it will cost more and more to obtain the same services, products one currently depends on, in the future. Raise the per barrel oil prices by even 15%  - say from $100 to $115, and watch the impact on food prices, not to mention gas, or electricity. Eventually, as Strategy Insight   notes, the economics becomes "non-viable" and that means the only way people can access the food or services is to go into debt, i.e. using credit cards or other means. This is what Gillian Tett was getting at but she didn't interject the energy factor, which is the hidden,  dirty little secret behind the Fed's quantitative easing.  Sure, there's a credit problem, and certainly millions are attempting to compensate by leveraging debt and expanded credit. But at root it's an energy degradation problem: as the energy to run our society becomes ever more expensive, so do all the devices and services that energy helps produce. Lower the EROEI of that energy to a threshold far below that to which the production process (and society at large) has become accustomed, and you toss a major spanner into the works. A "spanner" treacherous enough to take the society down, or at least degrade to the point it can't provide the basic necessities of life and services for most of its citizens.

Fed QE or not,  unless we either downscale our societies in the West - to match the forthcoming drop in EROEI for our energy sources- or find new high EROEI sources, we are going to be screwed-  of that there is no doubt. That means whopping deficits in our future  that will make today's pols' heads explode. It also means cumulative negative growth, since there simply won't be the capital to drive it - it will all have to go into energy development, extraction, searches and trying to keep the crumbling water mains, bridges and highways from total  inaccessibility.