Peak oil, declining EROI and the new          economic realities:          New limits to growth? Charles Hall, Stephen Bal...
I. IMPORTANCE OF ENERGY TO    ECONOMIES
The dirty secret to wealth production:           Use more energy                                  ?
SBB6        Can we learn anything from ecology?       In ecology, succession occurs after a disturbance. Production       ...
Slide 4SBB6      lose the slide or simplify and label          Steve Balogh, 3/21/2012
What if these guys were right?          Revisiting the Limits to Growth After Peak Oil          Charles A. S. Hall and Joh...
II. THE GROWTH RATE OF MANY     ECONOMIES IS DECLINING
The evidence:                                                      declining growth rate of US GDP        20%          20%...
Another way of looking at the same data               20%             10%                  8%                   15%       ...
Falling per capita GDPStagnation in middle   class incomes
Why is this the case?Why is the economic growth in the US (and OECD and maybe the world) slowing down?Are we just in an ec...
If it is a slope (and it seems to be) what         might be the cause of that? Our candidates:      Peak Oil (or rather de...
III. PROBABLE CAUSE:     DECLINING RESOURCE     AVAILABILITY   (QUALITY AND QUANTITY)
Hypothesis: Declining Non-renewable Natural Resource                   Input --->>   Declining Economic Output (GDP) --->>...
Global petroleum                             Annual Rate of Change (all petroleum liquids)60%50%40%30%20%10% 0%       1850...
Annual Rate of Change (Dry NG)           20%Global           15%           10%            5%            0%                ...
III.a PEAK OIL
King Hubbert• Geophysicist at  the Shell lab in  Houston, Texas• In 1956, he  wrote a paper  with predictions  for the pea...
• It happened
Peak oil? Then Peak petroleum? Courtesy of Colin Campbell)
The important thing (so far) is NOTpeak 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 societyEROI...
Best First Principle• Humans use high quality, low cost  resources before low quality, high cost  resources     (Ricardo)•...
US Oil Field SizeMillions of barrels   80                      60                      40                      20         ...
Petroleum production in Norway in                       1970 – 2008       250                                            1...
Energetic cost of petroleum           production in Norway in 1991 – 2008.                        Leena Grandell       5  ...
EROI of Norwegian petroleum                production in 1991 – 2008       70       60       50       40EROI              ...
EROI              0                  5                       10                            15                             ...
EROI for Oil: US and other     50    50     40    40         30    30  EROIEROI         20    20         10    10         ...
Natural Gas   120   100       80EROI       60       40       20       0        1980   1985          1990            1995  ...
Coal: US and China  120  100       80EROI       60                                                                        ...
Consolidated Global EROI for all Fuels                            1919-2006  60  50  40                                   ...
Energy Prices                http://econ.worldbank.org
Metals Prices
FOR UK
United Kingdom                    (Low-DP50-5 - 2012 scenarios N)                         1500                            ...
Gains and costs of UK oil and gas                                 300                                                     ...
EROI of UK oil and gas       45       40       35       30       25EROI       20       15       10              EROI for U...
III.c DECLINING EROI FOR     IMPORTERS
Pakistans Energy Intensities             WBE/WBGD         40                                                    05"       ...
Bangladeshs Energy Intensities         20         15MJ/US$         10         5          -              1970   1980      1...
25                              Indonesias EROI (Imported)       20                                                       ...
Chinas EROI (Imported)       14       12                                                                             WBE/W...
If, when, UK domestic petroleumresources are gone, what will they  be able to produce that will give   them a favorable ER...
IV. ECONOMIC IMPLICATIONS
CONCLUSIONS1. Economic growth in the past has been highly   dependent upon growth in fossil fuels2. We cannot assume this ...
-
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 qualitydifferences among fuel typesindicates causality runningfrom e...
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 CurveDecrease 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 CostMcKinsey 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 findi...
What about England ?
Google : US EIA petroleum reserves 2011Pick : Maps: Exploration, Resources, Reserves,and Production - EIA (second page)Pic...
R. Hersh
. It seems no one wants to hear these things. I believe they are behind theincreasing financial problems we have  in Europ...
II. WE WERE WARNEDH. T. Odum     M. King Hubbert   Jay Forrester
Then one fateful   day I wasbrowsing in theUNC book store and found this:
Production of UK oil and gas                              300                              250Million tons oil equivalent ...
Rate of Growth of GDP and Primary                             Energy in the U.S.                  12%                  10%...
U.S.
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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.

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Energy Return on Energy Investment

  1. 1. 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.
  2. 2. I. IMPORTANCE OF ENERGY TO ECONOMIES
  3. 3. The dirty secret to wealth production: Use more energy ?
  4. 4. SBB6 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.
  5. 5. Slide 4SBB6 lose the slide or simplify and label Steve Balogh, 3/21/2012
  6. 6. 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
  7. 7. II. THE GROWTH RATE OF MANY ECONOMIES IS DECLINING
  8. 8. The evidence: declining growth rate of US GDP 20% 20% 15% 15% 10% 10%Annual percent change Annual percent change 5%5% 0%0% 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 -5% -5% -10% -10% -15% -15% GrossGross domestic product domestic product Linear (Gross domestic product) Linear (Gross domestic product)
  9. 9. Another way of looking at the same data 20% 10% 8% 15% 6% 10%Annual%% change 4% 5% Annual change 2% 0% 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 0% 1935 1945 1955 1965 1975 1985 1995 2005 -5% -2% -10% -4% -15% -6% GDP GDP (10 y.(10 y. avg.) GDP avg.)
  10. 10. Falling per capita GDPStagnation in middle class incomes
  11. 11. Why is this the case?Why is the economic growth in the US (and OECD and maybe the world) slowing down?Are we just in an economic downturn or are we on a slope? ? ?
  12. 12. 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 EROIThere is no longer cheap energy to feed the beast
  13. 13. III. PROBABLE CAUSE: DECLINING RESOURCE AVAILABILITY (QUALITY AND QUANTITY)
  14. 14. Hypothesis: Declining Non-renewable Natural Resource Input --->> Declining Economic Output (GDP) --->>Declining Societal material well being (Material Living Standards)
  15. 15. Global petroleum Annual Rate of Change (all petroleum liquids)60%50%40%30%20%10% 0% 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010-10%-20%-30% Rate of Change (all liquids) Linear (Rate of Change (all liquids))
  16. 16. Annual Rate of Change (Dry NG) 20%Global 15% 10% 5% 0% 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 -5% Rate of Change (Dry NG) Poly. (Rate of Change (Dry NG)) Annual Rate of Change (Coal) 20% 15%Global 10% 5% 0% 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 -5% -10% -15% -20% -25% Rate of Change (coal) Poly. (Rate of Change (coal))
  17. 17. III.a PEAK OIL
  18. 18. 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 17
  19. 19. • It happened
  20. 20. Peak oil? Then Peak petroleum? Courtesy of Colin Campbell)
  21. 21. The important thing (so far) is NOTpeak oil but cessation of growth in oil (and energy)
  22. 22. III.b DECLINING EROI (FOR PRODUCERS)
  23. 23. EROI: definition, history and future implications
  24. 24. I. DEFINITION of EROI (Sometimes EROEI)Energy return on investment for an activity: Energy delivered to societyEROI = __________________________ Energy put into that activityUsually consider energy invested from society
  25. 25. Best First Principle• Humans use high quality, low cost resources before low quality, high cost resources (Ricardo)• Best-to-worst ordering of resource exploitation
  26. 26. US Oil Field SizeMillions of barrels 80 60 40 20 0 1900 1920 1940 1960 1980
  27. 27. Petroleum production in Norway in 1970 – 2008 250 10 200 8 150 GAS 6Mtoe NGL Cond. EJ 100 4 Gas Oil 50 OIL 2 0 0 1970 1980 1990 2000 2010
  28. 28. Energetic cost of petroleum production in Norway in 1991 – 2008. Leena Grandell 5 200 4 Embodied energy 150 3Mtoe Direct fuel for drilling PJ 100 2 Diesel for production 50 1 Gas for production 0 0 1991 1996 2001 2006
  29. 29. EROI of Norwegian petroleum production in 1991 – 2008 70 60 50 40EROI total petroleum 30 EROI for Norwegian oil has oil only declined by half in 11 years  20 10 0 1991 1996 2001 2006
  30. 30. EROI 0 5 10 15 20 25 30 35 40 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960Year 1965 U.S. oil and gas 1919 -2008 1970 1975 1980 1985 EROI and Drilling Intensity 1990 1995 2000 2005 2010 0 20 40 60 80 100 120 140 160 Million Feet Drilled
  31. 31. EROI for Oil: US and other 50 50 40 40 30 30 EROIEROI 20 20 10 10 0 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 1900 1910 1920 1930 1940 1950 Year 1960 1970 1980 1990 2000 2010 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) 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)
  32. 32. Natural Gas 120 100 80EROI 60 40 20 0 1980 1985 1990 1995 2000 2005 2010 Year Canada (Freise 2011) Pennsylvania (Sell 2011)
  33. 33. Coal: US and China 120 100 80EROI 60 Move to Western sub- bituminous coals 40 20 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 US Coal (Cleveland 1992) Year US Coal Bitum/Sub-bitum. (Balogh, Guilford, Arnold 2012) China Coal [washed] (Zi-Feng and Balogh 2012)
  34. 34. Consolidated Global EROI for all Fuels 1919-2006 60 50 40 ?EROI 30 ? 20 ? 10 0 1910 1930 1950 1970 1990 2010 2030 Global EROI: 1919-2006 Linear (Global EROI: 1919-2006)
  35. 35. Energy Prices http://econ.worldbank.org
  36. 36. Metals Prices
  37. 37. FOR UK
  38. 38. United Kingdom (Low-DP50-5 - 2012 scenarios N) 1500 Actual Demand Projected DemandMillion barrels / year "Production Forecast - High-EUR 1200 "Production Forecast - Mid-EUR Production Forecast - Low-EUR Actual Production 900 600 300 0 80 85 90 95 00 05 10 15 20 25 30 35 40 45 19 19 19 19 20 20 20 20 20 20 20 20 20 20 Our projections for UK oil production make sense only if low EUR -- Analysis by John Hallock
  39. 39. Gains and costs of UK oil and gas 300 12 250 10Million tons of oil equivalent Million tons of oil equivalent 200 8 150 6 100 4 50 2 - - 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Production (left axis) Effort (right axis)
  40. 40. EROI of UK oil and gas 45 40 35 30 25EROI 20 15 10 EROI for UK oil and gas has 5 declined by half in 10 years 0 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)
  41. 41. III.c DECLINING EROI FOR IMPORTERS
  42. 42. Pakistans Energy Intensities WBE/WBGD 40 05" 35 EIAE/IMFGD P 05 30 EIAE/WBGD P 05 25MJ/US$ WBE/IMFGD 20 P 05 15 10 5 - Pakistans EROI (Imported) WBE/WBG 1970 1980 1990 2000 2010 35 D 05" Year EIAE/IMFG 30 DP 05 25 EIAE/WBG DP 05 EROI 20 WBE/IMFG DP 05 15 10 5 - 1970 1980 1990 2000 2010 Year
  43. 43. Bangladeshs Energy Intensities 20 15MJ/US$ 10 5 - 1970 1980 1990 2000 2010 Year Bangladeshs EROI (Imported) 80 70 60 50 EROI 40 30 20 10 - 1970 1980 1990 2000 2010 Year
  44. 44. 25 Indonesias EROI (Imported) 20 WBE/WBGD 05" EIAE/IMFGDP 05 15 EIAE/WBGDP 05EROI 10 WBE/IMFGDP 05 5 - 1970 1975 1980 1985 1990 1995 2000 2005 2010 Malaysias EROI (Imported) 60 50 WBE/WBGD 05" 40 EIAE/IMFGDP 05EROI 30 EIAE/WBGDP 05 WBE/IMFGDP 05 20 10 - 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year
  45. 45. Chinas EROI (Imported) 14 12 WBE/WBGD 05" 10 EIAE/IMFGDP 05 8EROI EIAE/WBGDP 05 6 WBE/IMFGDP 05 4 2 - 1970 1975 1980 1985 1990 1995 2000 2005 2010 Indias EROI (Imported) 25 20 WBE/WBGD 05" EIAE/IMFGDP 05 15EROI EIAE/WBGDP 05 10 WBE/IMFGDP 05 5 - 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year
  46. 46. If, when, UK domestic petroleumresources are gone, what will they be able to produce that will give them a favorable EROI through trade ??
  47. 47. IV. ECONOMIC IMPLICATIONS
  48. 48. 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 EROI4. The U.K. is likely to depend increasingly on the EROI of imported fuels5. Our existing economic approaches and theories are completely inadequate for understanding this situation
  49. 49. -
  50. 50. II. Stability theory:• from General Systems Theory
  51. 51. Systems science has often been concerned with STABILITY
  52. 52. Figure 1. A system with a stable (A) and unstable (B) equilibrium point.
  53. 53. Limit Cycle Behavior
  54. 54. III. Does this apply to our current economic system?• We make 8 assumptions:
  55. 55. 1. When oil consumption grows, so does the U.S. economy
  56. 56. 2. 50% of the variation in GDP is explained simply by oil consumption
  57. 57. Is oil the chicken or the egg? Karanfil 2009
  58. 58. Is oil the chicken or the egg?4. Adjusting energy for qualitydifferences among fuel typesindicates causality runningfrom energy consumption toGDP Cleveland et al. (2000)
  59. 59. 3. But its not just energy that grows the economy
  60. 60. Oil Prices are Lower During Expansions Average Real Oil price from 1970 - 2008
  61. 61. 4. Every recession since 1970 has been preceded by a spike in the price of oil
  62. 62. 5. Supply CurveDecrease of ~2 mbpd lowers price to $30 bbl
  63. 63. 6. Supply didn’t increase with Price
  64. 64. 7. We are finding less oil globally
  65. 65. 8. The oil we do find is in hard to reach places (i.e. expensive) % DEEPWATER
  66. 66. Break-Even CostMcKinsey GEM, 2010 using IEA, Wood Mackenzie, Interstate Oil and Gas Compact Commission
  67. 67. Where are we finding oil?
  68. 68. 10 mbpd
  69. 69. 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
  70. 70. What about England ?
  71. 71. Google : US EIA petroleum reserves 2011Pick : Maps: Exploration, Resources, Reserves,and Production - EIA (second page)Pick Updated 9/30/2011: Bakken ShaleProduction from 1985 to 2010
  72. 72. R. Hersh
  73. 73. . It seems no one wants to hear these things. I believe they are behind theincreasing financial problems we have in Europe and US for we have beenclearly living economically beyond our biophysical means. This is not tonegate greed, corruption and financial malfeasance.
  74. 74. II. WE WERE WARNEDH. T. Odum M. King Hubbert Jay Forrester
  75. 75. Then one fateful day I wasbrowsing in theUNC book store and found this:
  76. 76. Production of UK oil and gas 300 250Million tons oil equivalent TOTAL 200  Total 150 Gas 100 50 Oil - 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 domestic oil domestic gas
  77. 77. Rate of Growth of GDP and Primary Energy in the U.S. 12% 10% 8% 6%Annual % change 4% 2% 0% 1935 1945 1955 1965 1975 1985 1995 2005 -2% -4% -6% Primary Energy GDP Primary Energy (10 y. avg.) GDP (10 y. avg.)
  78. 78. U.S.

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