Cutler Cleveland of Boston University has reported that the EROI of oil and gas extraction in the U.S. has decreased from 100:1 in the 1930’s to 30:1 in the 1970’s to roughly 11:1 as of 2000 (Figure 1). But beyond the fact that society receives currently around 11 barrels of oil for every 1 barrel that it spends getting that oil, What does this mean?

Figure 1. Plot of three estimations of EROI for U.S. oil and gas.

In August 2007, a post titled Extracting Heavy Oil: Using Toe to Heel Air Injection (THAI) introduced readers of The Oil Drum to a technology for producing an upgraded extra-heavy oil from Alberta Tar Sands without the environmentally messy and energy-intensive surface mining procedures that currently dominate extraction. The post provided a first-look at producing and partially upgrading Alberta bitumen in situ. In this post we make preliminary estimates of the Energy Return on Investment (EROI) of the THAI process.

The Alberta Tar Sands continued to garner interest through the first half of 2008 because of declining conventional oil production in Canada, the apparent success of the Steam Assisted Gravity Drainage (SAGD) process and the increasing price of crude oil. Today they are still of interest as the countries of North America (and around the world) desire cheap, abundant crude oil from politically stable regions (See Unconventional Oil: Tar Sands and Shale Oil - EROI on the Web, Part 3 of 6). However the subsequent financial collapse during the second half of 2008 has caused many tar sand projects to be deferred. In fact, Canada's oil-sands industry has hit the skids, spreading a deepening gloom over Alberta's economy, and to some degree, across the country. Some expansion projects that were under way in the Fort McMurray region have been put on the shelf, as oil companies slash their budgets to reflect the new economic environment in which they operate – that is – a world of lower oil demand and, at least compared to the summer of 2008, low oil prices.

The below post/letter is very important to me, as it brings together much of what I have worked on the past few years. We are at a major crossroads in the history of our nation and our world - the juncture where financial capital no longer can function as an effective marker for real capital. The crisis we face is the product of our own success - therefore it is highly unlikely to be fixed with the same policies and thinking that steered us to the present precipice. There are dozens if not hundreds of salient aspects of our supply and demand situation, each with its own cheerleaders, opponents and unaware. Unless one casts a wide boundary net, myopic focus on any particular issue runs the risk of creating more long term harm than good. In this letter, I attempt to highlight our situation's most critical components, not claiming other issues are unimportant, but that the following principles likely trump/supercede the others:

1) It is energy, not money, that powers our economies. Money is only a marker for real capital.

2) All energy is not equal- each energy investment entails different input costs, and has different output quality, often not recognized by the market system, nor by many environmentalists. We are at peak oil globally and are likely approaching the net energy cliff (oil and gas) for the USA

3)The highest odds for arriving at a better energy future lie in exploration of, understanding of, and ultimate jettisoning of our cultural addiction/habituation to conspicuous consumption. Ends and then means.

We welcome all readers to the newest TOD sub-domain: "The Oil Drum: EROI" – or Energy Return on Investment. This sub-domain will be administered by Professor Charles Hall and his Ph.D. Student, David Murphy (EROI Guy) as well as by many of the other editors and contributors from TOD that write about net energy analysis and biophysical economic concepts.

We have at our school (SUNY – College of Environmental Science and Forestry) an “EROI Institute” (web site is operational, but still undergoing development) which is basically three offices, two relatively large, and a bunch of books and computers. There are roughly 8 graduate students at any one time and usually about half a dozen undergraduates hanging around. We all work on sweating out various analyses related to energy. We have only quite minimal funding and work on a shoestring although many students are supported by NSF fellowships, teaching assistantships or funding that we do have for tropical research. So with that introduction, let us turn our attention briefly to describing why we think EROI is important.