Sunday, July 17, 2016

what it is ain't exactly clear

Don't know if I'm going up
or down
 -Jimi Hendrix
Golden years
Shu bop , shu bop
- David Bowie

      The big story in American politics seems to be that both parties have lost touch with middle america.    And middle america isn't happy.   Now they are looking for someone to blame.   But you can blame the government, the plutocrats, or the Chinese, but that won't bring things back the way they were.   What's missing?  The surplus.   See Surplus - What is wealth
           But that surplus has at its root  - high eroi fuel.  And in particular high eroi oil, because after all America runs on oil. 
       Eroi for oil has been dropping for years, and it's been no problem.   The transition from 50 eroi fuels to 25, was not significant.    But recently its down around  10:1, and things are changing.
     This concept was illustrated by Murphy in the so called "energy cliff".    See  The Implications of the declining energy return on investment of oil prodcution
" This exponential relation between gross and net energy flows has been called the ‘net energy cliff’ [53] and it is the main reason why there is a critical point in the relation between EROI and price at an EROI of about 10 (figure 4).
Figure 4.
Figure 4.
    So a change from 26 to 25 is not noticeable, but a change from 11 to 10 makes a big difference.
     So, where are we?     Here's what Hall and Lambert said in 2014.  See EROI of Different Fuels and Implications for Society
"The EROI for petroleum production appears to be declining over time for every place we have data. Gagnon et al. (2009) were able to generate an approximate “global” EROI for private oil and gas companies using the “upstream” financial database maintained and provided by John H. Herold Company. These results indicate that the EROI for publicly-traded global oil and gas was approximately 23:1 in 1992, 33:1 in 1999 and 18:1 in 2005 (Fig. 4). This “dome shaped” pattern seems to occur wherever there is a long enough data set, perhaps as a result of initial technical improvements being trumped in time by depletion.
Gagnon et al. (2009) estimated the EROI for global publicly traded oil and gas. ...

Fig. 4.
"Gagnon et al. (2009) estimated the EROI for global publicly traded oil and gas. Their analysis found that EROI had declined by nearly 50% in the last decade and a half. New technology and production methods (deep water and horizontal drilling) are maintaining production but appear insufficient to counter the decline in EROI of conventional oil and gas.

So, in 2005 it was 18 and dropping a rate of 50% every decade and a half.   So if the trend continued, it would be now it would be about 12 and by 2020 it will be about 9.  
    These numbers may be conservative.  EROI is  generally measured   "at the well head"   Thus they do not always include the energy needed for refining and transportation.   But these activities are necessary before the oil can provide any benefit to society. .  Additionally, the "curve" may not be a straight line (see below) 
        So, if we were reaching the energy cliff, what signs should we loo for?   I, like many "peakists",  had long assumed that Peak Oil would lead to higher prices.   After all, economics 101 teaches that when supply goes down price goes up.    And between 2000 and 2008, the market seemed to confirm that view.     
         But when looked from the eroi perspective, things look different.   When eroi goes down,  oil  provides less useful surplus energy to society.  more energy that used to go to society is spent producing the oil.    Without that surplus, there is less economic activity, and  demand would go down.   And economics 101 says that when demand goes down , price goes down.
        So which is it, up or down?   Both!   The price goes up as oil becomes more scarce, but only for a while.   As long as eroi is above a critical threshold, eroi can be ignored.     But, as Eroi drops past 10:1, society willingness to pay drops too.  At  taht point the price is no longer controlled by scarcity, but but affordability.
     The Hills Group has a nice graph which illustation this.   I haven't bought the report, so I can't really see whether the particular numbers make any sense, but the idea makes sense to me.   
         They show two curves, one is an unconstrained price curve, which shows how the price would rise as oil becomes more difficult and more expensive to produce.   It slopes up.     The second curve is the affordability curve,    what the economy can afford to pay, as eroi falls.   It slopes down.   The Hills  Group asserts that the curves intersected in 2012 and that therefore the price of oil will fall, lower and lower.      ( And in fact, the price did fall starting in 2014, but it will take a while before we know what the longer term trend is.)    The Hills Group asserts that the affordibility curve, (and apparently the EROI curve),  is very steep, so that in a decade or so, there will be no market for oil ! see   here.  This would , of course cause "the Mother of all Seneca curves" see here
     So, what difference would it make to the rest of us?  If this is correct, he price of oil is low and heading lower.  That's nice for Happy Motoring.   In the short term, anyway.   In the longer term, low price means low profit, and this removes incentives for oil companies to find more oil.  Could this mean shortages?  Higher prices later?    Low prices also provide little incentive for the transition away from ICE transport.  There is likewise no incentive for people to walk, ride the bus, buy alternative vehicles .   These are the types of activities that would make an orderly transition away from oil       This approach provides a slightly different view of "peak oil".   Originally Campbell and Laherrere , in their seminal article The End Of Cheapo Oil fried "peak oil"  as a geological phenomenon, that would  cause economic consequences .    It may be more useful to see "peak oil production" as a symptom, of the underlying change - dropping eroi.

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