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.

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. I. IMPORTANCE OF ENERGY TO
ECONOMIES

3. The dirty secret to wealth production:
Use more energy
?

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. Slide 4
SBB6 lose the slide or simplify and label
Steve Balogh, 3/21/2012

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. II. THE GROWTH RATE OF MANY
ECONOMIES IS DECLINING

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. 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. Falling per capita GDP
Stagnation in middle
class incomes

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. 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

13. III. PROBABLE CAUSE:
DECLINING RESOURCE
AVAILABILITY
(QUALITY AND QUANTITY)

14. Hypothesis:
Declining Non-renewable Natural Resource
Input --->>
Declining Economic Output (GDP) --->>
Declining Societal material well being (Material
Living Standards)

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. 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. III.a PEAK OIL

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. • It happened

20. Peak oil? Then Peak petroleum? Courtesy of Colin Campbell)

23. The important thing (so far) is NOT
peak oil but cessation of growth in oil
(and energy)

24. III.b DECLINING EROI
(FOR PRODUCERS)

25. EROI: definition, history and future implications

26. 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

27. Best First Principle
• Humans use high quality, low cost
resources before low quality, high cost
resources
(Ricardo)
• Best-to-worst ordering of resource
exploitation

28. US Oil Field Size
Millions of barrels 80
60
40
20
0
1900 1920 1940 1960 1980

29. Petroleum production in Norway in
1970 – 2008
250
10
200
8
150
GAS 6
Mtoe
NGL Cond.
EJ
100 4
Gas Oil
50
OIL 2
0 0
1970 1980 1990 2000 2010

30. Energetic cost of petroleum
production in Norway in 1991 – 2008.
Leena Grandell
5
200
4 Embodied energy
150
3
Mtoe
Direct fuel for drilling
PJ
100
2
Diesel for production
50
1
Gas for production
0 0
1991 1996 2001 2006

31. EROI of Norwegian petroleum
production in 1991 – 2008
70
60
50
40
EROI
total petroleum
30 EROI for Norwegian oil has
oil only
declined by half in 11 years 
20
10
0
1991 1996 2001 2006

32. EROI
0
5
10
15
20
25
30
35
40
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
Year
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

33. EROI for Oil: US and other
50
50
40
40
30
30
EROI
EROI
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)

34. Natural Gas
120
100
80
EROI
60
40
20
0
1980 1985 1990 1995 2000 2005 2010
Year
Canada (Freise 2011) Pennsylvania (Sell 2011)

35. Coal: US and China
120
100
80
EROI
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)

36. 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)

37. Energy Prices
http://econ.worldbank.org

38. Metals Prices

40. FOR UK

43. United Kingdom (Low-DP50-5 - 2012 scenarios N)
1500
Actual Demand
Projected Demand
Million 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

47. Gains and costs of UK oil and gas
300 12
250 10
Million 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)

48. EROI of UK oil and gas
45
40
35
30
25
EROI
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)

49. III.c DECLINING EROI FOR
IMPORTERS

50. Pakistan's Energy Intensities WBE/WBGD
40 '05"
35 EIAE/IMFGD
P '05
30 EIAE/WBGD
P '05
25
MJ/US$
WBE/IMFGD
20 P '05
15
10
5
- Pakistan's 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

51. Bangladesh's Energy Intensities
20
15
MJ/US$
10
5
-
1970 1980 1990 2000 2010
Year
Bangladesh's EROI (Imported)
80
70
60
50
EROI
40
30
20
10
-
1970 1980 1990 2000 2010
Year

52. 25
Indonesia's EROI (Imported)
20 WBE/WBGD '05"
EIAE/IMFGDP '05
15
EIAE/WBGDP '05
EROI
10
WBE/IMFGDP '05
5
-
1970 1975 1980 1985 1990 1995 2000 2005 2010
Malaysia's EROI (Imported)
60
50 WBE/WBGD '05"
40 EIAE/IMFGDP '05
EROI
30 EIAE/WBGDP '05
WBE/IMFGDP '05
20
10
-
1970 1975 1980 1985 1990 1995 2000 2005 2010
Year

53. China's EROI (Imported)
14
12
WBE/WBGD '05"
10
EIAE/IMFGDP '05
8
EROI
EIAE/WBGDP '05
6
WBE/IMFGDP '05
4
2
-
1970 1975 1980 1985 1990 1995 2000 2005 2010
India's EROI (Imported)
25
20 WBE/WBGD '05"
EIAE/IMFGDP '05
15
EROI
EIAE/WBGDP '05
10
WBE/IMFGDP '05
5
-
1970 1975 1980 1985 1990 1995 2000 2005 2010
Year

54. If, when, UK domestic petroleum
resources are gone, what will they
be able to produce that will give
them a favorable EROI through
trade ??

55. IV. ECONOMIC IMPLICATIONS

58. CONCLUSIONS
1. Economic growth in the past has been highly
dependent upon growth in fossil fuels
2. We cannot assume this growth will continue
3. 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

59. -

61. II. Stability theory:
• from General Systems Theory

62. Systems science has often been concerned with STABILITY

63. Figure 1. A system with a stable (A) and unstable (B) equilibrium point.

64. Limit Cycle Behavior

65. III. Does this apply to our
current economic system?
• We make 8 assumptions:

66. 1. When oil consumption grows, so
does the U.S. economy

67. 2. 50% of the variation in GDP is explained
simply by oil consumption

69. Is oil the chicken or the egg?
Karanfil 2009

70. 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)

71. 3. But its not just energy that grows
the economy

72. Oil Prices are Lower During Expansions
Average Real Oil price from 1970 - 2008

74. 4. Every recession since 1970 has been
preceded by a spike in the price of oil

75. 5. Supply Curve
Decrease of ~2 mbpd lowers price to $30 bbl

76. 6. Supply didn’t increase with Price

77. 7. We are finding less oil globally

78. 8. The oil we do find is in hard to reach
places (i.e. expensive)
% DEEPWATER

79. Break-Even Cost
McKinsey GEM, 2010 using IEA, Wood Mackenzie, Interstate Oil and Gas Compact Commission

80. Where are we finding oil?

81. 10 mbpd

82. 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

84. What about England ?

92. Google : US EIA petroleum reserves 2011
Pick : Maps: Exploration, Resources, Reserves,
and Production - EIA (second page)
Pick Updated 9/30/2011: Bakken Shale
Production from 1985 to 2010

99. R. Hersh

100. . 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.

102. II. WE WERE WARNED
H. T. Odum M. King Hubbert Jay Forrester

103. Then one fateful
day I was
browsing in the
UNC book store
and found this:

115. Production of UK oil and gas
300
250
Million 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

116. 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.)

117. U.S.