Download Declining Energy Return on Energy Invested (EROI)

Declining Energy Return on Energy
Invested(EROI):
The submerged rock that threatens to scuttle
the global (and Australian) economic ship.
Brian Bloom,
Tea Gardens, NSW. January 2014
The US accounts for +-23% of the Global Economy.
Y.O.Y. rate of US GDP growth has been in a declining
trend for decades - in particular since the mid 1980s.
(Source: Presentation by Dr Charles A. Hall)
The declining global rate of change in liquid fuel output has tracked the declining
rate of change in US GDP. This is only one side of the coin. Above are “gross”
numbers. EROI has also been declining. Growth in net overall energy output has
probably been negative. That is very likely what caused the Global Financial
Crisis
If one of government’s primary objectives is to create a jobs-friendly environment, then
we have to look beyond the old economic paradigms of central banking and “unfettered”
free enterprise. What is happening in the US has not happened for 40 years. The world
economy is sailing in the shallows over submerged jagged rocks.
Governments need to embrace new thought paradigms!
The “Asian Century” is a flawed
concept.
•
•
•
•
•
Conventional wisdom has it that the centre of gravity of the global economy
is shifting to Asia in general and to China in particular.
The reality is that Western CB policies provided the capital to facilitate a
shift of legacy industries from high cost countries to low cost countries.
This created economic “noise” but did not address the core need to build a
new, more powerful, non fossil-fuel-centric, economic engine . More
“stuff” became available at cheaper prices and the consumption of that stuff
was funded largely by debt, supposedly backed by security of CB facilitated,
price inflated assets. There was no paradigm shift in thinking. Just more of
the same.
The end result has been almost US$50 trillion of global sovereign debt,
around $6 trillion of debt-funded ghost cities in China, and around $3 trillion
of local government debt in that country post 2008, as the emphasis
switched from exports to domestic activity. The Chinese economic growth
statistics should not be accepted a face value.
Bottom line: Australia cannot sensibly plan to hitch its economic caboose
to an Asian locomotive that emerged to capitalise on 20th Century legacy
technologies. We need to become forward thinking and self-sufficient.
Looking at Oil as an example: Right now,
Australia is strategically vulnerable
Blue crosses and grey diamonds: Projected oil consumption. Purple dashed line: Conservative
production case. Blue dashed line: Base Case. Green dashed line: optimistic case. Red circles
and black crosses: Actual and projected based on actual. Source: Hallock J., Wu W., Hall C.,
and M. Jefferson. 2014. “Forecasting the limits to the availability and diversity of global
conventional oil supply: Validation.” Energy. Vol. 64, pp.130-153.
This is an extraordinarily risky situation!
And it is also illustrative of where the mindless
and doggedly dogmatic commitment to
management of “everything” by Private
Enterprise might lead. If something happened
to the refineries in Singapore, for example, the
entire Australian economy could come to a
standstill!
This presentation has 2 objectives
• 1: To communicate
the critically important
implications of
globally declining
EROI
• 2: To take a long-term
forward view of where
the economic puck is
going to be in 25 – 50
years, so that
Australia might
position itself to
become a global
economic leader. It
will be a function of
energy policy.
Of paramount importance: Fossil Fuels are
rapidly approaching their use-by date.
1. It is not solely about CO2 emissions,
although minimising CO2 is certainly
important in terms of 3 below
2. It is about EROI – which has been declining
since the 1980s.
3. It is also about managing and husbanding
environmental assets – which should be
regarded as precious: “of great value; not to
be wasted or treated carelessly”.
Husbanding: “To use sparingly or
economically; conserve.”
It is also about “ethics”
Definition of ethical: “relating to moral principles or
the branch of knowledge dealing with these”.
For example: Regardless of the “environmental
conditions” that have been imposed, the approval
of an expanded coal port at Abbot Point in north
Queensland (Dec. 10th 2013) was inconsistent
both with husbanding Australia’s precious
environmental assets (Barrier Reef) and with
ethical behaviour - from the perspective of the
global human population that needs to reduce its
dependence on coal.
Abbot Point is 100km away from the
Whitsundays
Link between CO2 and Ocean Acidification 1985 – 2005
(IPCC 2007)
Acidification does not bounce around. The ecological
balance of the oceans is under threat. Humanity needs to
reduce its dependence on coal
From a pragmatic perspective: What are the
EROI ranges of Fossil Fuels?
•
•
•
•
Coal: 50:1 – 85:1 (Murphy, 2011.)
Oil: 17:1 (Murphy, 2013 – Appendix 1)
Natural Gas: 20:1 – 40:1 (Murphy, 2011)
Shale Gas (Marcellus): 85:1 (Aucott and
Melillo, 2013 – Appendix 2). The uncertainties
surrounding this calculation are high
Note: Dr Charles A. Hall was deeply involved in the original research that facilitated the
above numbers. Quote: “..the EROI [of shale gas] will be cut in ?half? by the time it
is delivered, and will be less when you move off the sweetest spots. “ (From a
personal email to Brian Bloom from Dr. Hall)
Two North Pole Views
The left frame shows the North Pole marker in 2000.
The right frame shows the same marker standing in a lake of melt water
on July 22, 2013. Anyone who still doubts climate change might refer to
Appendix 3, which shows a series of charts regarding methane.
EROI of all fossil fuels has been declining
• Oil: “Global average EROI was roughly 30 in 2000 and
has declined to roughly 17 today” (Murphy, 2013
Appendix 1)
• Brown Coal “densification” (upgrading its calorific value)
involves removing the high moisture content which, in
turn, requires greater energy investment  Lower EROI.
• Carbon Capture and Storage requires greater energy
investment  Lower EROI
• The Shale Gas Industry is very young, and early
evidence shows that new shale wells have rapid rates of
decline in daily production. EROI calculations are not yet
meaningful.
Fracked Gas – In Principle
• Canadian and British research warn of low
reclamation percentages of shale gas.
• In principle: “In conventional reservoirs, as
much as 95 per cent of the natural gas can
be recovered. For shales, recoveries are
expected to be around 20 per cent because
of low permeabilities despite high-density
horizontal drilling and extensive hydraulic
fracturing.” Source: “A primer for
understanding Canadian Shale Gas”
http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/nrgyrprt/ntrlgs/prmrndrstndngshlgs2009/prmrndrstndngshlgs2009-eng.pdf
Fracked Gas – Some specific
examples
• Marcellus wells in US show over 50% decline
in daily output over 2 years (See Appendix 2)
• Similar declines have manifested in 1,931
shale gas plays across Barnett, Fayetteville,
Woodford, Haynesville & Eagle Ford. (See
Appendix 4)
• The decline curves are steepening. Annual
rate of decline was 23% in 2001 and 32% in
2011. (See Appendix 5)
Contribution to global energy pie
(Can gas fill the oil gap?)
Total World Shale Gas Resources?
• In a June 2013 report, the US Energy Information
Administration estimated world gas resources at 22,882
Trillion cubic feet. (See Appendix 6)
• Converting this to Barrels of Oil equivalent at around
5,800 cubic feet per barrel, the “resources” are 39.5
Trillion boe
• Current global production of all liquid fuels is around 90
million bpd or 33 billion barrels a year (round numbers)
• Unfortunately the key is not “resources” but Estimated
Ultimate Recovery (EUR) of these resources. i.e.
Extraction must be technically feasible, the gas must
have an EROI above 10-15:1, and financial returns must
be taken into account. EUR is likely to be small fraction of
resources.
Conclusion: The above model is probably near enough
to reality. “Peak Gas” in around 2030.
Source: New Scientist Magazine, 2 May 1985
Looking Forward
• Clearly, it’s also about “jobs”. We cannot just abandon
known facts for hopeful dreams or paranoid fears.
• Nevertheless, if we can develop a high level of
confidence regarding future trends, then jobs can be
created in a more permanent manner than by
supporting geriatric legacy industries. Also, unethical
projects like Abbot’s point will not get off the drawing
board. That behaviour must be stopped in its tracks.
• We need to support economically relevant emerging
industries.
• The core driver of all economic activity is “energy”.
Primarily, that is where we need to focus.
New thought paradigms!
•
•
•
•
•
•
•
•
Remembering that fallacious reasoning by Central Bankers got us into this mess, we
need to think like industrialists, not like bankers or economists.
We also need to recognise that Private Enterprise decisions must be subject to
ethical rules of conduct. We cannot just defer to Private Enterprise and “get out of the
way”. Look how exposed we are to oil imports!
We also need to recognise that Private Enterprise will not act until it can see short to
medium term returns on investment. (3-10 years)
Governments will therefore need to think like “entrepreneurial” industrialists, taking a
longer term (15-25 year) profit oriented view for the benefit of the public as a whole.
The key words are “profit oriented”. We are not talking socialism.
The profits will flow from arbitrage. Buy low (high risk) sell high (low risk).
And, if we are taking the risk, then the returns we expect should be high! If our
actions are to be funded from public coffers then the results should be for the benefit
of the public.
In thinking about the future, perhaps we might develop a mindset relating to
Collaborative Capitalism rather than the Crony Capitalism of the past.
Okay! Let’s get practical. Where should we be looking?
Wait! Governments can’t manage!
• The idea that Private Enterprise will always do a better job
than Bureaucracy is dogmatic nonsense. There are three
issues:
– Yes, Governments should not compete in the market place
(conflicts of interest)
– Profits from infrastructure management should be for the public’s
benefit
– Management is about HR structuring. Competent teams of
managers backed by appropriately experienced Boards of
Directors need to be recruited in NON-Competitive and/or
infrastructure management areas. Once the businesses have
been commercialised and competition emerges they can be
exited – at a profit
• With regard to energy and associated infrastructure, where
should we be focussing? What follows is the “what”. The
“how” can be discussed at a later date, if necessary.
What are the EROI’s of alternate energies?
(See Appendix 7)
Which energy paradigms?
(With a mindset of Collaborative Capitalism)
• Nuclear, because it has potentially the highest EROI
(which will grow substantially when Generation IV has
been perfected) and “safe” nuclear may eventually
replace coal completely
• Subject to high EROI, biofuels can replace oil and gas,
and also be e feedstock for animal feeds and
pharmaceuticals. These should be targeted because
they are CO2 neutral and can be used as a means of
recycling high nutrient wastewater
• Wind, because technological advances will lead to
increased EROI
• Solar, for the same reason
• Energy Storage – to augment wind and solar
What is “safe” nuclear?
• Analysis of the nuclear industry leads to the conclusion that
profits have trumped safety. Corners have been cut (eg
Fukushima’s back-up generators were located in the
basement instead of on the roof), maintenance has been less
rigorous than it should have been (rusting pipes and leaking
valves) and licences for several old plants have been
extended past the plant’s originally contemplated use-by. date
These issues flow from a mindset of maximising profits.
Nuclear should not be managed by Private Enterprise.
• Generation IV nuclear promises to yield little radioactive
waste. At the current rate of R&D (because Private Enterprise
is profit oriented) , we may be 30 years away from
commercialisation. Government involvement in the
commercialisation process would be constructive because the
time period might be significantly shortened.
Q: Which biofuel? A: Algae
•
•
•
Biological plants convert solar energy to mass. Over hundreds of thousands
of years, the process has been perfected by natural evolution.
Algae seems to have the highest reproductive rate – some strains in line
with bacteria. Under ideal conditions, some algae strains can replicate
several times a day. This promises to yield extraordinary high EROI.
Appendix 8 shows that there are many reasons why algae will “never” become
economically viable. But the reality is that the core issues associated with algae
cultivation are all technically addressable. For example:
–
–
–
•
Nutrients needed can be extracted from sewage water. This will address another thorny
water management problem. (2 birds with one stone)
The “cooking” of algae in high temperature environments may be manageable by using solar
energy powered technology to cool the water
The turbidity issue (prevention of the sun’s rays from reaching the algae) has been solved by
the UV disinfection industry.
The real reason that algae will “never” become a viable source of biofuels
is that an algae  biofuel industry will require significant infrastructure,
which is the responsibility of government. It will require long term planning
so that all the vectors will eventually align. “Never” is an emotive word.
Australia has plenty of unproductive land in sunny areas. Yet another
problem might be solved. Algae  biofuel may be an extraordinary opportunity
Which wind technology?
• All emerging technologies go through a learning
curve.
• Wind technology seems to have reached the
threshold of a new generation.
• Reference to Appendix 9 shows a new “Venturi”
design wind capturing technology which, for
various reasons – including potentially
extraordinarily high EROI – the Australian
Government will be well advised to investigate
with a mindset of collaborative capitalism. (The
“how” will require significant further discussion)
Hydrogen
As an aside: If the EROI of wind can be
increased significantly, the extraction of
hydrogen from seawater might be
facilitated. At present, hydrogen has a
negative EROI.
Which Solar?
• A brand new, next generation (?) solar
technology was recently announced. (See
Appendix 10)
• For similar reasons and with a similar
collaborative capitalism mindset, the
Australian Government would be well
advised to investigate this technology.
But Nuclear is not PC at present.
The Public will never accept it!
Public perceptions can be managed. This can be done by
indoctrination and misinformation – as may now be
happening on the negative side by interested Private
Enterprise parties who may be seeking to gain strategic
control over this industry – or by education, which is once
again Government’s responsibility. It is being done
elsewhere by Government:
–
–
–
–
–
–
Cigarettes
Sunscreen
Macular degeneration
Mammograms
Bowel Cancer
Other “nanny state” activities.
But the Coalition stands for Free
Enterprise and hands-off government!
Does anyone seriously believe that people still
buy into such anachronistic concepts? Adam
Smith’s invisible hand was amputated in 1944
at Bretton Woods. It was replaced by crony
capitalism. When government’s hands are
off the controls, dishonest (unethical) hands
lunge for them. Our world is in trouble. It’s
time to get real. We need to jettison our
losing ideas and run with our winning ideas –
for the benefit of all Australians.
Let’s think the nuclear idea through
• What’s “step #1”?
• If we can agree that the world is inexorably
heading towards nuclear because of its
high EROI, and if we can agree that it is
only a matter of time, then we must also
agree that anyone who corners the
uranium market now will make a killing
later. Here’s the evidence:
Uranium chart
Price per lb fell nearly 75% off its peak price between 2008 and
2013. From an entrepreneurial perspective, now’s the time to buy.
The Gold Price chart looked very similar
between 1984 and 2001
The month end gold price fell from $1764 to $338 or by 80%. Source:
http://www.macrotrends.net/1333/gold-and-silver-prices-100-yearhistorical-chart
UK sold its gold at the bottom
• “The UK government's intention to sell gold
and reinvest the proceeds in foreign currency
deposits, including euros, was announced on
7 May 1999, when the price of gold stood at
US$282.40 per ounce.” (Wikipedia)
• Gordon Brown – then Chancellor of the UK
Exchequer – sold all of the UK’s gold
reserves between 1999 and 2002 (right at
the bottom)
• Are we going to make the same in-principle
mistake with Australia’s uranium?
Uranium
• Australia should not allow its uranium resources to be
sold from under its nose at low prices. From the
perspective of Australian citizens, We should be buying
now, not selling.
• Australia owns >25% of the world’s uranium resources
• If we can agree that nuclear should not be managed by
Private Enterprise, and if we are confident that the world
is heading towards embracing nuclear, then the
Australian Government should move to nationalise the
country’s entire uranium resources ASAP.
• If we do this now, then time will become our friend.
What infrastructure will we need?
• Australia is a dry continent. If we understand that
the world is inexorably heading towards embracing
nuclear, then we can anticipate that one major
application will be seawater desalination.
• Water pipelines should criss-cross the continent at
that time.
• The cost of laying potable water pipelines and
secondary sewage water pipelines, now, side by
side in the same ditch, is unlikely to be double the
cost of laying potable water pipelines only.
In principle, for example, the “back of Bourke”
could become an important agricultural
development area if both desalinated potable
grade water and secondary sewage water are
piped from the major cities to it.
A look at the map shows that Bourke is roughly equidistant from
Melbourne, Adelaide and Brisbane (+- 750 – 850 km) and a couple of
hundred kms closer to Sydney. A total of 3000 – 4000 km of pipelines
(X 2) will be required.
Mass Transportation
• In principle, (again by way of conceptual
example) if we have access to cheap
energy, Bourke could be linked to all the
major cities including Darwin and Perth via
magnetically levitated bullet trains.
• All the east coast cities, including
Canberra, would be <1.5 hour bullet train
journey away, and Perth and Darwin would
be a 5 hour bullet train journey away
This is all theoretical nonsense! How
would we pay for all this infrastructure?
• Remember that carbon tax you were so quick
to want to wind back? In principle, that could
provide the equity. Joint Venture and other
financing could be structured around that.
• The Joint Venture partners would be other
industrially/commercially oriented entities
who see long term strategic benefits
(Collaborative Capitalism); as opposed to
financial investors.
And the economic impact?
• The laying of thousands of kilometres of water pipes and thousands
of kilometres of mag-lev railway lines – in the confident anticipation
of cheap energy – would create large numbers of jobs. The
economy would be “stimulated” & the multiplier effect would kick in.
• Some of the additional tax revenue might be diverted to funding
R&D into 4th generation nuclear and algae  biodiesel.
• Some of the additional tax revenue might be diverted to
commercialising next generation wind and solar power throughout
Asia, as a principal.
• Within 25 years, Australia might emerge as a potential major
exporter of liquid fuel, algae based animal foods, nuclear, wind and
solar technology and high priced uranium (which at today’s price
constitutes around 0.5% of the retail price of electricity)
• We might even consider developing the expertise to reclaim the
160,000 tons of nuclear waste that is lying in cooling ponds next to
nuclear power plants across the planet. A reprocessing plant might
be located a few hundred km away from Bourke in a remote
location, but accessible via one of the new railway lines.
What will be required?
• A decision to stop thinking in terms of 20th century economic
paradigms.
• The courage to face up to the high probability that nuclear will
eventually replace coal, and that oil and gas have limited life
expectancies – by reason of declining EROI, in addition to
carbon pollution issues
• A shift in mindset from crony capitalism to collaborative
capitalism
• Moving to ensure an emphasis on “ethical behaviour” of
government and business relative to the population as a
whole
• A jettisoning of dogmatic beliefs regarding the relative
competence of Private Enterprise and Government. Human
capital is embodied in individuals not the organisations which
house them. Inefficient organisations need to be restructured.
CONCLUSION
For the Global Economy to stand still (and not
go backwards whilst all the sovereign debt is
being either written off or repaid) we need to
embrace higher EROI energy paradigms than
fossil fuels. And there is an urgency to act.
Fossil fuel EROI’s are falling; in oil’s case,
precipitously. The models show we have
maybe 15 – 20 years to get our act together.
Nuclear is coming. Australia’s uranium
resources should be regarded as a precious
asset that needs to be husbanded.
Acknowledgements
Grateful thanks to the following people who had significant input to my understanding of the subjects
discussed herein:
•
Dr .Charlie Hall, retired, Professor Emeritus State University of New York, Syracuse, New York
13210. Dr. Hall was one of the world’s pioneer researchers into the subject of EROI.
•
Dr. Anselmo Pedroni, Physicist, Geo- and Cosmo-chemist, now retired for health reasons. Dr.
Pedroni was active as a research scientist and university teacher at several renowned European
institutions, such as the SIN, the ETHZ (Switzerland), the MPI and the Free University Berlin
(Germany). He has mentored me specifically in the subjects of Physics , Energy and Climate
Change.
•
Mr. Steven B. Kurtz, retired and lecturing part time on global matters that might impact on
humanity’s future. Mr Kurtz’s extensive personal network has enabled me to have any question on
any subject of interest to me answered by a world-class expert in the appropriate field.
•
Dr. Michael L. Aucott, environmental scientist. Adjunct professor of chemistry at the College of
New Jersey, Ewing, NJ and also teaches at Temple University, Philadelphia, PA.