<Goldman Likes Wind. The Kennedys and DoD Don't? The Oil Drum Plateau background>
<DrumBeat: June 13, 2006 DrumBeat DrumBeat: June 15, 2006>

192 comments on DrumBeat: June 14, 2006

Comments can no longer be added to this story.

Show without comments | PDF version

Nate Hagens on June 14, 2006 - 9:56am Permalink | Subthread | Parent | Comments top
if the total oil in the ground is X, and Hubbert method suggests that world Qt is ultimately 2 trillion barrels, what % of X is 2 trillion? Not 100%.

There will still be alot of oil left untouched, and new methods may be able to tap that. 2 trillion doesnt suck dry the entire planet, only the oil that is 'suckable' through a straw - the slushy parts of the margarita will still be down there...

Comments can no longer be added to this story.
oilmanbob on June 14, 2006 - 11:37am Permalink | Subthread | Parent | Comments top
That's certainly true, there will still be lots of stranded oil. The question is the perpetual Energy Return on Investment. I don't know at what point all burning of oil for energy will become uneconomic, but it is starting to show in such things as GM cancelling the big Hummers
  The Seminole field in Gaines County ,Texas was put on CO2 recovery about 1981 or 1982. The wells in the center of the field are showing increased CO2 production indicating that this first generation tertiary recovery is going to be uneconomic for the operator fairly soon. I'm sure higher prices will extend the life, but still, at some time it will be uneconomical for Amerada Hess to continue to produce. Likewise at Saratoga in Hardin County the fireflood has been abandoned by Mobil. There is only so much oil in any reservoir. I hope that these tactics will buy a little time for the US to start conserving, but they will do no good if we don't get the word out and use level heads.
Comments can no longer be added to this story.
Todd on June 14, 2006 - 1:17pm Permalink | Subthread | Parent | Comments top
My guess is that governments will attempt to obfuscate the issue as long as possible regardless of how much hardship it untimately causes.  I can certainly envision a goverment suit getting up at a press confernece saying, "There really isn't any need to worry.  Alternate fuel production has already grown 50% in the last year."  Yea, from 1.2% to 1.8% (or whatever).
Comments can no longer be added to this story.
Jack on June 16, 2006 - 5:46am Permalink | Subthread | Parent | Comments top
Does the issue of EROEI assume a mispricing of, or subsidy for, certain energy types? If all energy was priced correctly, wouldn't it make the EROEI calculation superfluous?

In order to believe that any rational investor could take on a project with a negative EROEI you have to believe that they are:

  1. Using a cheap form of energy to get a more expensive one in return
  2. Are not paying the full price for their energy input, or
  3. Are going to lose money

Am I missing something?

*

Comments can no longer be added to this story.
step back on June 16, 2006 - 9:48pm Permalink | Subthread | Parent | Comments top
Jack,

EROEI is a form of accounting.
But it has nothing to do with money.

Instead we are measuring the amount of useable energy that society has at the end of a process compared to the amount it had at the beginning of the process.

First note in the equation to the right that both the top and the bottom values are always POSITIVE. There is no negative energy and there is no negative value for EROEI.

We want to know if EROEI is greater then 1.0 or not.

Let's make up a simple example.
Suppose you own a coal pit.
Suppose that your truck consumes 10 gallons of gasoline to make the round trip from town, down to the bottom of the coal pit to pick up a load of coal and bring it back to town. (The gasoline station is in-town and useable energy for our example means in-town energy.)

Suppose the amount of energy in each truck load of coal you bring up is equivalent to 9 gallons of gasoline. So in terms of in-town useable energy, you are inputting 10 gallons of gas and getting back 9 with each trip. Is that a wise move? The answer is not an automatic no. There can be other factors. But your EROEI in this example is 9/10 (it is less than one). And the question is how long can you keep playing this game, how many round trips?

Comments can no longer be added to this story.
Jack on June 17, 2006 - 12:57am Permalink | Subthread | Parent | Comments top
I understand that EROEI does provide a useful measure of the net energy output of a project and that it does not make sense to put more energy into something than you get out, unless there is a reason not accounted for by EROEI. The same applies for financial ROI, adjusting for time and risk, you wouldn't put more into money into a project than you expect to get out.

However, my question is this:

If energy is priced correctly, is there ever a case where EROEI and ROI diverge? If so why?

In your example, if each input and output were priced correctly, the project should be rejected on either ROI or EROEI terms.

In conclusion, I can not see any circumstances in which EROEI adds to project analysis except for identifying situations in which subsidies or mispricing fool ROI.

So if EROEI is applied to say corn ethanol or tar sands and finds that the EROEI is negative, but financially (ROI) positive, what does it mean?

My claim is that it only identifies a pricing problem.

Comments can no longer be added to this story.
step back on June 17, 2006 - 2:32am Permalink | Subthread | Parent | Comments top
So if EROEI is applied to say corn ethanol or tar sands and finds that the EROEI is negative? [err, I meant to say, less than unity], but financially (ROI) positive, what does it mean?
My claim is that it only identifies a pricing problem.

There cannot be a pricing problem. "Price" is whatever "value" two arms-length negotiators ascribe to a certain trade. If they decide, regardless of EROEI being <1 that a certain liquid fuel (say corn ethanol) is worth a given number of currency units (dollars), then that is the price. Period. There is no "problem". The market has spoken.

Is there ever a case where EROEI and ROI diverge? If so why?

Yes of course there is such a case, thousands of them.
Anytime the "consumer" is willing to pay a higher premium for a certain type of useable energy from #2 as opposed to what the consumer is willing to pay for the energy form #1 that was consumed to get energy form #2, then there will be profit (a positive $RO$I).

A simple example is rechargeable cell phone batteries. They have a lousy EROEI per recharge. Yet they provide the convenience of mobile communication. People want convenience and are willing to pay for it. They actually do not care about EROEI.

The ones who care about EROEI are the scientists who are studying whether a given practice is energetically sustainable. So if we are depleting enrgy form #1 (say oil) to obtain another energy form #2 (say corn ethanol) and the EROEI is less than unity, scientist can tell you that all other things being equal, that is a dumb move. Even if EROEI=1 it is a dumb move because what are you gaining for all your effort?

Comments can no longer be added to this story.
Jack on June 17, 2006 - 6:01am Permalink | Subthread | Parent | Comments top
Stepback,

Thank you for two good responses. I don't disagree with much of what you say.

What I am trying to accomplish here is to get a fundamental understanding of exactly what EROEI means and how it can be effectively applied in project analysis. EROEI and ROI will be key tools in making energy decisions in the future. My point is that there is a fundamental connection between the two and that they should be identical except in a finite set of conditions that can be defined. Given how frequently the term is used on this site, it makes sense to better understand it.

In some cases - deep sea drilling, a negative EROEI may doom a project. If the amount of oil required is greater than the amount of oil produced, the project is not viable. In others - cell phone batteries - it would not. In a third category - ethanol - it could imply a misalignment of pricing - i.e. energy is wasted, but financial returns are assured through subsidy.

My original post said that there were three reasons for divergence between EROEI and ROI.

"In order to believe that any rational investor could take on a project with a negative EROEI you have to believe that they are:

  1. Using a cheap form of energy to get a more expensive one in return

  2. Not paying the full price for their energy input, or

  3. Going to lose money"

Your cell phone example meets the first criteria, using one form of energy to produce a preferred form of energy. I expect that the corn ethanol meets a variation of point #2, specifically getting paid more than market value of output. I have modified my list to include this as a new criterion.

So I now claim that divergence between ROI and EROEI can be explained by one of the following:

  1. Using a one form of energy to get a more valued one in return

  2. Paying less than market prices for energy input

  3. Receiving higher than market price for energy output
Comments can no longer be added to this story.
step back on June 17, 2006 - 1:15pm Permalink | Subthread | Parent | Comments top
Jack,

I think we disagree over what I see as a fundamental issue.

"Pricing" and other "Market" behaviors involve men negotiating with men --humans yakking at other humans about mentally contrived concepts like "values" and what is "fair". Mother Nature is not part of this man-o-man negotiation.

EROEI is one of inumerable mathematical expressions that we humans can concot to better understand how Mother Nature works. She does not need our understanding of her. We need it. Desperately. Experiment after experiment appear to verify that Mother Nature does "conserve" this thing we refer to as "energy". Experiment after experiment show that Mother Nature does "conserve" this thing we refer to as "mass". All our economic machinations will not change this.

If we develop a social order that continuously operates on EROEI being less than one (or negative as you keep refering to it), we are simply driving ourselves faster into the abyss.

Mother Nature doesn't "care". There are no "Care Bears" out in the woods. We are the ones who have to care --if we humans intend to continue as a species for a foreseeable future.

Bottom Line: EROEI and $RO$I have almost nothing to do with each other because "$" is a mental fabrication of mankind.

Comments can no longer be added to this story.
phineas gage on June 14, 2006 - 11:47am Permalink | Subthread | Parent | Comments top
If one of these methods could increase URR by just 1 or 2 % that would be the equivalent of finding a few super giant fields.

If 2 trillion is ultimately recoverable, at least that much is unrecoverable and left in the ground.  So a 1-2% increased URR would equal 20 to 40 billion barrels added to the URR side of the equation.  That wouldn't save us from PO, but every little bit helps.  Might be easier to figure out how to get an extra 1 or 2% out of a field than it is to make new discoveries at this stage.

Comments can no longer be added to this story.

192 comments on DrumBeat: June 14, 2006

Comments can no longer be added to this story.

Show without comments | PDF version