Tuesday, September 22, 2009

How Much is that Energy Really Worth?

We have long-passed the point where we can continue to value energy in terms of dollars or any other currency. We lost that luxury when the total global production of energy peaked and began to decline, more specifically when the net energy per person went into decline globally.

As in the case of any commodity, when the availability of supply can no longer keep pace with demand then the availability, from that point onward, dictates the price of the commodity. It is no longer a buyer's market.

Global energy consumption per capita peaked sometime during the 1990s. Since that point the global population increase has been greater than the total global increase in energy production and energy consumption.

Although the rate of growth of per capita energy consumption in the US - which today uses roughly 25% of all energy used globally - has decreased from 2.5% in the early 1990s to less than 1.5% in 2008, it is still on the increase. Obviously, with a total global energy supply on the decline and U.S. per capita consumption still on the rise, the percent of total global energy use by the U.S. is on the increase while much of the rest of the world, particularly the third world, are being priced out of the energy market and are already having to cope with ever-decreasing energy availability.

Energy, unlike almost every other commodity, requires the consumption of some of itself - energy - in the production of itself. The more energy we produce the more energy consume in producing it. That is called EROEI (Energy Returned On Energy Invested). It can be difficult to equate one form of energy to another, especially since the pricing of different forms of energy is not consistent when it comes to the value of the energy produced. You will often see the acronym BOE used in regards to energy. This stands for Barrels of Oil Equivalent. And that is very important when trying to understand EROEI.

Let us take that to the extreme for simplicity's sake. Let us suppose the only form of energy available on this planet is oil, rather than the more complex Barrels of Oil Equivalent. The EROEI, therefore, shows how much energy, in the form of oil, is used in order to produce that oil. Obviously you want to use as little oil as possible to produce that oil because it is only the oil produced in excess of the oil used that is available for other uses than producing the oil in the first place.

At the beginning of the oil age it is estimated that the amount of energy used to produce the readily available, high quality oil with which the oil industry began was about one barrel used for every 100 barrels produced. Ninety-nine out of every 100 barrels of oil produced was available to be used for other than producing oil.

In the time since then, of course, the energy cost per barrel of oil produced has steadily risen. On average, when considering all forms of oil like tar sands and deep water, we get a little more than ten barrels of oil for every barrel of oil invested. In fact, when it gets to tar sands and ultra-deep-water oil and bio-fuels produced from corn ethanol, the EROEI ratio gets very close to 1:1. It takes almost the energy equivalent of a barrel of oil to produce a barrel of oil. If we ever pursue producing oil from the various shale deposits like Bakken it could take more energy to produce every barrel than what we get out of it.

The peak oil theory, contrary to what certain denialists continue to claim, does not suggest we are running out of oil. In fact most knowledgeable peak oil pundits will quickly point out that we will probably never run out of oil completely. What the peak oil theory does say is that we will reach a point where the flow, the rate of production, can no longer be increased, that demand will thereafter be greater than production and that that gap will widen year by year.

Once you pass that peak, as well, the energy gas of the energy produced will increase inexorably, pushing the world ever faster toward depletion. From the peak onward the cheap, easily-accessible, high quality oil has all been consumed. There is still oil left but it is much more expensive, in terms of energy consumption, to produce it. From peak onward, therefore, the amount of oil produced in excess of the amount of oil consumed in its production declines faster than the overall decline in the rate of production.

When the energy consumed in producing a barrel of oil passes the total energy contained in a barrel of oil, it doesn't matter what form of energy is used to produce that oil or what price that energy form is set at. At that point it takes more energy to produce energy than the energy produced. There is no energy surplus, over and above production energy cost, available to do anything other than produce oil.

So how much is our energy really worth, when calculated in terms of energy used in its production? Are we prepared to continue to produce oil and other forms of energy even when it takes more energy to produce it that what we get out of it? It is a question we will soon have to answer if our approach to peak oil continues to be; use as much as we can as long as we can and then figure out what to do for an encore. We don't yet see the net reduction in global energy production, the global energy consumption per capita. That price is being paid by the third world. But reality will soon come home to roost. Soon either the whole rest of the world will have to give up all claims to energy to support North America's energy habit or we will all be in the same rapid race to the bottom, ourselves included. Or we can all fight for what is left.

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