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Jaccard's book and premise (CTL, etc. profitable at $40) reminds me of every mutual fund ad I've seen.
There is a fatal flaw in every one of these projections, which I have observed before. Yes, if oil today is $20/bbl, then CTL projected at $40/bbl is profitable. However, one of the biggest problems with this kind of projection is that once oil reaches $40/bbl, everything associated with building the CTL plant is now more expensive. So now we say with oil at $40/bbl, CTL will be profitable at $60/bbl. And the cycle goes on.
This is exactly why GTL projects are being abandoned and tar sands projects are facing sky-rocketing costs: As oil prices increased, project costs increased, equipment costs increased, energy costs increased, labor costs increased and suddenly break even moved further away. In my honest opinion, the break even cost for CTL is going to be over $100/bbl.
Robert, I named this the Law of Receding Horizons a few days ago.
What's true for CTL and tarsands is true for just about any form of "alternative" energy I can see. And it's only getting worse. The costs for the MacKenzie Valley pipeline, supposed to feed natural gas into Alberta, are now estimated at $16 billion, 4 times higher than a 2002/3 estimate. A CO2 sequestration pipeline in Canada went from $1.5 to $5 billion in 2 years.
I asked if anyone could come up with numbers to support "my" Law. Your $100 bbl for CTL is the first. Any idea for tarsands? I know, it could gallop way further than today. "At current prices" may not prove much. As you say, the cycle goes on.
Ethanol, corn version, is a prime example. Its production raises corn prices, which in turn raises ethanol production prices. And rising oil prices hurt ethanol production too. At what corn price would the whole thing collapse?
As I said before, supply and demand don't hold here, corn prices can't rise indefinitely, the market is not infinitely flexible. People need to eat.
Are there alternatives which _don't_ obey this law? Wind seems to have reached a _real_ breakeven point, and solar thermal seems to be pretty close also. If (a big if) battery technology continues to improve along 3 dimensions (cost, energy density, power density) at its recent rate, I am expecting that we will be able to _start_ the conversion to renewable-energy powered private transportation in about 5 years (and I don't expect that horizon to recede...)
CW
Global peak: 2007 - 2010
Global decline rate, Post peak: 2%
Economic response: Severe global recession, ~5 years, then slow recovery
Didn't we also have this with the "Synfuels" 'way back in Jimmy Carter's day? IIRC it seems like the price of the "synfuel" was always a little more per barrel than the cost of ordinary oil - no matter how high the price of that ordinary oil.
This is the EROI treadmill that has me very concerned to the point I dismiss peak oil. Not that they are not related but the real problem is peak EROI.
Cheap energy is so deeply embedded in our society its not clear we even know how badly long term rising or even high energy costs effect it. My own take is that even in our present situation a lot of processes are going negative on EROI.
For example consider a existing plastic toy manufacture say his factory equipment was built 15 years ago with cheap oil.
Next consider creating one today with equipment created in a resource constrained world. Unless innovation has allowed the new equipment to work faster better and more efficient the new toy manufacture is not competitive with the old one.
This means you get no new tow manufacture or if you do they use a lot more used recycled equipment.
No problem with this but as you can see this means toy equipment manufactures take a beating and many go out of business maybe the remaining ones have to raise prices to cover manufacturing costs or try to move to a cheaper location.
So the first thing that starts to die is manufactures of equipment for factories. This is exactly the place that the US Europe and Japan compete i.e we still build a lot of the equipment for factories in china. It's almost all imported from abroad. I've toured a few factories in china and very little of the equipment for the factory itself is made in china and what little is made there is generally from a factory controlled by a western or japanese firm. Simple labor costs are not a big issue for this type of equipment.
I brought this up because we focus on EROI issues that directly effect production but its easy to see that it snowball's out and effects every faucet of or society.
In many cases it results in certain actions not taken so its hard to see. In my example a new factory is not built or is built using recycled equipment which may even have higher energy requirements believed to be made up by lower capitol costs. This would and could change rapidly in a environment of rising energy costs.
The systematic risk of moving to a high EROI environment is
large and unknown.
A similar phenomenon is a wage-price spiral. It wouldn't surprise me a bit if you never see CTL/oil sands/shale as economically satisfactory substitutes.
Correct and high commodity prices tend to feed inflation.
The problem is not matter how I model it higher EROI/inflations leads to a downward spiral of positive feedback loops.
I'm beginning to grasp how the Roman Empire fell after so many years. We tend to focus on the big events but the reality is that expansion stopped the economy quit growing since it was the war machine and settlement/trade that drove the economy then EROI dropped. Then the feedback loops strengthen and you collapse.
Note that this is the type of economy people envision as our savior after oil since it was based primarily on renewable energy.
You can look at China which generally can be considered a large closed economy it followed a boom/bust cycle.
This says that renewable sources are not a solution.
I think we need to do a lot more thinking about our future.
Memmel, I think it says that all energy sources with low EROi are no solution, and only look to be as long as externalities are ignored. Something we're every good at.
In our present state, there seems to be a connection between EROI and capital costs that remains a bit ill-defined, but it has to be there, even though in the end energy can only be correctly priced in energy cost.
I have also thought about the connection between low EROI and capitol costs. The simple example I use is that if energy is expensive you actually spend more on capitol investment to lower long term energy costs.
The example is buildings from the middle ages and earlier still standing in Europe. It worth it to build really well once. So to me the connection is that you quickly move towards a society of thrift or more correctly well spent money.
A throw away society like ours would burn itself up quickly in a low EROI environment. In a sense its a bit strange that you have to start looking back 500 years and earlier into history to try and understand how our ancestors lived and often thrived at the energy levels that existed at the time.
So I think you can see capitol cost rising quite a bit from todays levels since your building to last.
Hi memmel,
re: "You can look at China which generally can be considered a large closed economy it followed a boom/bust cycle.
This says that renewable sources are not a solution."
If you have a chance, could you possibly expand on this a bit more? (What time period, how do you define "closed" and "large", what about the role of leadership?, how do you see the boom/bust cycle?) (Or any other way you might find to explain a little more.)
Thanks.
Time period about 5,000 years :)
No China is physically isolated by mountains and deserts and to the north Siberia. So it has real constraints on how far it could expand. If you read the history China rose and fell many times in wealth. The same with Eygpt and India all three can be considered reasonable isolated civilizations. The thesis holds for all three. China and India are much larger and more diverse than Eygpt so they better represent a region less impacted by regional weather patterns. India never really unified like China did so constant warfare had a bigger effect. Overall China pre 1800 is I think the best example of a long lasting advanced civilization built on low EROI.
China went through numerous dynasties and periods of warfare and peace and growth through its long history. If you read the trigging event for warfare was increasingly heavy taxes in a lot of the cases. Wealth would concentrate at the center and excess consumption would lead to a increase in taxes which eventually lead to revolt. The treasury would be drained a new Emperor installed and the cycle starts again.
The problem is the rich tend to get richer and in a fixed EROI society this eventually leads to revolt and conditions become unbearable.
None of our ancestors managed to convert this incremental yearly wealth into long term wealth for all the people.
Not that this could not have happened but the tendency tends to inexorably lead to the creation of a wasteful and inefficient ruling class that at some point collapsed under its own weight. This points to the real need for socialism like concepts in the face of low EROI. You can look at Israeli Kibbutz's for a example of socialism done well or even farmers co-ops in the US. It does not have to have negative connotations. I'm not advocating socialism but the facts seem to indicate that it could help dissipate the wealth away from the central elite which is whats critical.
Notice the only reason we have escaped this fate so far is that oil/coal extraction has continuously pumped the economy so even though we too have seen the rich get richer enough money is flowing in in the form of oil and product made from and with it that we don't collapse.
Since we have already primed the pump so to speak by having a wealth concentrated about as much as possible now before we move to a low EROI society my thesis points to a rapid collapse once the prop of oil is removed. Lets hope we have mitigating factors that offset 5,000 years of history I'm not exactly confident. I guess you could say that regardless of EROI or resources mans greed is infinite so without a basically infinite energy source collapse must happen since the wealthy cannot stop accumulating wealth.
Just like the black holes at the centers of galaxies have a effect on the evolution of the galaxy far greater than their size so does the infinite greed of our small ruling class effect all the people in the world.
To be honest I'd rather be one of the elite near the middle of a cycle so I'm not some sort of anti-rich. I think I'd make a great super rich person given the chance :) This does not change the facts.
Oh come off it. Everyone is doing the doomster cheerleading on this but CTL is profitable today, and will continue to be profitable while oil is over $40/bbl. We see companies making tentative moves towards CTL but we dont see a big rush because:
1. The capital is very expensive and people still fear a price crash.
2. Oil still isn't expensive enough that you cant make more money somewhere besides CTL. The opportunity cost is still too high. People would rather stick it in gas fields, conventional oil, even the tar sands.
But big CTL projects are being built now where they would never have been considered a decade ago. As people become more comfortable with a price floor well above 40-50 dollars per barrel, we'll see more of a funds commited towards CTL, GTL, tar sands and the rest.
Dez: Since you seem to know, when will people become "comfortable" that oil will stay above $40? When it breaks $100, $200, $300? Just wondering.
Its not a matter of price, but a matter of time. Allready large CTL projects are being commissioned.