Peak energy: it’s worse than we realize
June 23rd, 2009 by Jim JustPeak oil is about more than the peaking of the rate of gross oil production. More important is net energy realized from oil.
Nate Hagens at The Oil Drum points to the work of Cutler Cleveland of Boston University, which finds that the EROEI of oil and gas extraction in the U.S. has decreased from 100:1 in the 1930s to 30:1 in the 1970s to roughly 11:1 as of 2000.
As EROEI (energy returned on energy invested, also abbreviated as EROI) declines, we must burn an ever-increasing amount of the energy we find simply to extract and process more energy, in an ever more vicious cycle.
As Hagen points out:
More importantly, declining EROI also means that the amount of discretionary energy available to society is FAR less than that predicted by a Hubbert curve . . . declining EROI means that there will be much less net energy extracted post-peak than pre-peak on the Hubbert curve.
This implies that the expense of extracting energy resources will begin to rise exponentially as the amount of energy required to do so rises. This prediction of the theory is being borne out, as Rigzone reports:
The U.S. oil and gas industry’s costs of finding resources rose 35 percent last year amid the wild rise and fall in commodity prices, an Ernst & Young study released Thursday showed.
The three-year average cost per barrel of oil equivalent, excluding acquisitions of proved reserves, was $27.22. But in 2008 that spiked to $51.96.
Rising costs affect stated reserves, too:
But oil reserves fell 7 percent to 15 billion barrels, largely because regulatory reporting rules required companies to book reserves that can be produced economically at the closing price on the last trading day of the year. . . The same rule forced reductions of 6.7 trillion cubic feet of booked natural gas reserves as well.
Starting at the end of 2009, an accounting rule change will allow companies to book reserves based on average annual price rather than a one-day snapshot. Strange how geological realities, which one might think would be hard, objective facts, are rather creatures of accounting methodology.