free html hit counter Peak Oil Debunked: 4. EROEI MISCONCEPTIONS

Tuesday, August 16, 2005


Dating back to Hubbert, a misconception has been floating around that fuel production will halt when EROEI drops to or below 1, i.e. when the energy invested in harvesting the fuel equals or exceeds the energy obtained. This is incorrect for a number of reasons:

1) We're already doing it:
"David Pimental, a leading Cornell University agricultural expert, has calculated that powering the average U.S. automobile for one year on ethanol (blended with gasoline) derived from corn would require 11 acres of farmland, the same space needed to grow a year's supply of food for seven people. Adding up the energy costs of corn production and its conversion into ethanol, 131,000 BTUs are needed to make one gallon of ethanol. One gallon of ethanol has an energy value of only 77,000 BTUS. Thus, 70 percent more energy is required to produce ethanol than the energy that actually is in it. Every time you make one gallon of ethanol, there is a net energy loss of 54,000 BTUs."Source
Hubbert says we won't do it, but we already are. So Hubbert is wrong.

2) Cross-energy exchanges can certainly be rational and profitable. If fuel A is plentiful and cheap, and fuel B is in high-demand and expensive, money can be made by harvesting B with A, even at a net energy loss.

3) Even when using oil to recover oil, money can still be made with an EROEI of 1 if inflation is high enough. Oil projects take a long time. You make all the oil investments when oil is at, say, $40, and sell the product when oil is at $80. The net energy gain is 0. The net monetary gain is %100, minus the rate of inflation. Depending on the economic climate, this could even work with an EROEI<1.

4) Expanding on 3) above, how would you even *know* if you had crossed into an EROEI<1 ? No one is doing the energy acccounting, and due to the entrenched resistance of traditional economists, no one will be. So why would production stop due to a variable that no one is calculating?

5) Consider a parable: You have a root in your hand, and if you eat that root, you will have just enough energy to find and dig up the next root. Your EROEI is 1. Would you stop eating and digging? Of course not. Most animals have always lived on an EROEI=1 basis, and that never stopped them. In fact, they still keep going even when EROEI drops below 1. They get frantic and desperate, and continue to operate as long as possible, despite the deficit.

6) Now suppose you have a reserve of oil, and using it, you can produce another reservoir of the same size, would you do it? Hubbert would say no, it's irrational. You might as well just consume the oil, or hold and sell it later because it amounts to the same thing. But that is incorrect because there are beneficial side effects to producing, even though the EROEI=1. If you produce, lots of people can remain employed in the production effort, and get paid and eat, while you use up the first reservoir. And when it's exhausted, you have a whole new reservoir to use or consume, so you haven't lost anything. The situation is analogous to the parable in 5). Therefore, producing oil with an EROEI of 1 is rational.

7) Production with an EROEI of 1 or less can also be rationalized through accounting chicanery. Subsidies and tax breaks are good examples. You socialize the input energy costs, and privatize the output energy profits. Here's a more extreme example: You live in a last-dregs world where oil is virtually non-existent, and worth an astronomical sum. So you capture some people, and work them to death pumping out a barrel of oil from an old well. You don't feed or care for them in any way, so you have minimal costs, and in the end you get a priceless barrel of oil. In short, it's rational to produce oil even with an EROEI of 0.001 if you can force or trick someone else into paying the costs.

The point is pretty simple: If energy prices inflate, you can profit by buying your inputs low now, and then selling your output later at the inflated price. Of course, this won't give you any traction if the price of everything is inflating at the same rate, but generally that isn't the case. For example, oil has inflated by around 35-40% this year, while CPI inflation is about 3%. If the energy inflation is high enough, and the differential with the CPI is wide enough, you can run an EROEI<1 process and turn a real profit.
For example, suppose that your input is (1.1)X and your output is X, so EROEI<1. Suppose also that energy inflates by 50% between the time you purchase your inputs and sell your output. So you purchase at price p and sell at price 1.5p. Then your profit is: (1.5p)X - p(1.1)X = .4pX. So your original investment has increased by a nominal 36%, and it would take 36% inflation in the CPI to wipe that out. If CPI inflation is, say, 3% over the same period, you have a real profit of about 32%.
In this case you're wasting energy, but you're definitely not wasting money. Is it sustainable? Yes, as long as the following conditions prevail:
1) Energy prices are rising
2) But not so fast that they completely saturate the CPI
3) There is some energy left
Why is producing oil at EROEI=1 better than hoarding?
Producing oil with an EROEI=1 is rational, provided human beings are fed somehow by the extraction process. For example, make the following assumptions:
1) We will pump oil out of a well using only human labor.
2) We will feed the people by growing their food in caverns under the ground which are lit by grow lamps, and those lamps are driven by oil.
3) The oil pumped out of the well is put into the fuel tank for the grow lamp generator, to produce more food.
4) The people are isolated and have no other food options.

If the original oil is easy to get, these people can live quite comfortably, and build up a surplus of oil and food. But suppose they realize one day that they aren't getting any surplus. Their pumping is producing exactly the amount necessary to produce their food. In other words, they are now at EROEI=1. Then what do they do? Do they decide to stop pumping because they are putting in one barrel of oil to get one barrel of oil, and that is nonsense, like Hubbert says? I say no. I say they keep pumping at EROEI=1 for as long as they can. And when they drop to EROEI<1, they still keep pumping, until they die.

I believe this example applies to the larger world because: a) People are employed in oil production, and hence eat off it because it gives them a paycheck, and b) We eat oil by growing our food with it.

Hoarding is economically rational in the model world, because it is equivalent to food. If I squirrel away a little oil (=rice) in the model world, I can bring it out when everybody is starving, and buy everybody's stuff. Undoubtedly, that would happen to some extent, but there is a limit on it. If everybody is economically rational and squirrels away their little piece of oil (=rice), everyone will die. It's rational to squirrel it away, but it's like a game of seeing who can hold their breath the longest.


At Saturday, August 27, 2005 at 3:25:00 AM PDT, Anonymous Anonymous said...

1/ Of course we are operating negative ERoEI’s in the era of cheap oil. We have the luxury of being stupid and wasting time turning larger quantities of cheap oil into smaller quantities of ethanol. Cheap oil subsidises these stupid activities. After peak oil, we will not have this luxury, as the true energy costs will be revealed financially. You’ve just revealed that you don’t seem to understand the basics of peak oil and how fundamentally it supports the world economy. Hubbert said we could not afford to do it after the peak, and Hubbert is right. Energy will finally cost it’s real value!

2/ Yes, you can operate negative ERoEI’s when you have enough initial energy.
Unfortunately for you, the US Department of Energy HIRSCH REPORT concludes that we have left adjusting to peak oil far too late. A “soft landing” would take a crash program of 20 years, a “rougher landing” could possibly be salvaged in 10 years, but we are already at the peak and there is no crash program. No wartime economy, Apollo Program or Manhattan project weaning ourselves off of oil.

But hey, what would some scientists commissioned to write a report to the DOE know?
It’s only the Department of Energy.

You can find more about the Hirsch report at….

3/ If you REALLY believe this, that you could operate at a negative EROEI from the same source of energy (using oil to extract less oil, again and again) then you have destroyed the credibility of anything on your site. It’s a physical impossibility. Why not just say you have discovered the perpetual motion machine? Oh… you’re into economics? Maybe that explains your understanding of science!

4/ People will KNOW when they have a low EROEI in the future because energy prices are going to hurt. Are we getting it yet?

5/ The animal analogy is charming. The animal is obviously running a “negative EROEI” as you so simplistically put it by burning up it’s stores of fat. Where did they come from? An initial positive ERoEI of course.

Machines such as oil pumps don’t have reserves of fat.

Let me make it simple for you with a hypothetical example. You are standing at the last oil field on earth, and it’s a whopper! You have the last oil crew operating the last oil drills and refinery. The mining & refining is going to run of the energy in the field… there is no gas nearby, no power grid, absolutely nothing else to draw on but the oil… that vast field of oil.

But there is a problem. You can’t get at the oil fast enough. You need a hundred barrels of oil energy to run the pumps and refinery, but due to under investment in your field, (and lets throw in an act of terrorism) your refinery is only producing 90 barrels of oil a day. You are operating a negative EROEI. The refinery will only ever produce 9/10ths of the oil of the previous day… in other words, energetically it will decrease until there is no oil left to mine the oil.

Now if you add in financial factors such as paying the salaries of the employees… well, of course the whole thing goes bankrupt immediately. It’s not producing anything… the sum total of the oil gets used up producing slightly less oil the following day.

Please don’t confuse readers on your list with stories about animals running a negative ERoEI… because while they get frantic, you neglect to mention that at the end of a “negative EROEI stretch” they stop being frantic… they die.

6/ Now you are just being funny. Who’s going to pay lots of money to in effect move a million barrels of oil from point a to point b without ever consuming it? Duh! What is the PRODUCT that the company is making money from to pay the employees?

Come on, you must be a peaknik writing a really bad peak oil debunk to discredit the debunkers! DUH! Even I can see the glitch in this one.

As to your ”Why is producing oil at EROEI=1 better than hoarding?” I can only say, get a grip on the real world, will you?

At Sunday, September 25, 2005 at 12:18:00 PM PDT, Anonymous Anonymous said...

Oh… you’re into economics? Maybe that explains your understanding of science!

At Friday, November 23, 2007 at 8:56:00 AM PST, Blogger Ondřej Palkovský said...

You can operate on oil extraction of EROEI < 1. The accumulators have EROEI < 1 - yet we use them all the time.
- oil is used in chemical industry. You don't consider EROEI for these sources
- using electricity to power cars is still extremely inconvenient, using electricity to get oil can still be preferrable. Just see oil extraction as a form of accumulator.

However, the arguments used in the article don't seem correct to me.

At Tuesday, March 18, 2008 at 10:54:00 AM PDT, Anonymous Anonymous said...

As Kenneth Boulding commented, "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."

At Wednesday, April 2, 2008 at 6:19:00 AM PDT, Anonymous Anonymous said...

"Their pumping is producing exactly the amount necessary to produce their food. In other words, they are now at EROEI=1."

This is not eroie = 1. Eroei = 1 would be when the pumping is producing exactly the amount necessary to keep pumping. No food production.

You are correct that energy quality can trump eroi (you cannot run your car off coal even though it has a better eroi than petrol made from coal). THough this might be useful to do even at eroi = <1, it cannot be a solution to providing an entire economy with energy, only a small application within that economy.

You are correct that speculation can still keep Eroi = <1 energy sources profitable, but this would not be the 1st time that speculative profits are parasitic on the productive economy. Such profits are actually a redistribution of wealth, not a creation of it.

At Monday, April 21, 2008 at 1:39:00 PM PDT, Anonymous Anonymous said...

You are certainly incorrect in almost everything you've said.

You are correct when you say that producing and selling energy at ERoEI<1 can be PROFITABLE. But profitable does not mean sustainable. In truth, it's the mentality of making profit without regard to sustainability that will probably be the downfall of the oil economy.

And yes, as someone pointed out, if you're harvesting the same amount of oil as you're putting in, but you can also produce food with the energy, then you have SURPLUS energy, and your ERoEI is less than 1.

For the sake of humanity's future, please stop believing the things you wrote in this post.

At Sunday, May 11, 2008 at 5:56:00 PM PDT, Anonymous Anonymous said...

"Consider a parable: You have a root in your hand, and if you eat that root, you will have just enough energy to find and dig up the next root. Your EROEI is 1. Would you stop eating and digging? Of course not."

I sincerely hope that this is some kind of a joke or satire, if the scratching and digging took up as much energy as the root that you get out of it, then you had better stop because you are wasting your time.

the fact that you are able to digest the first root implies that you had a higher initial energy than zero which must have come from another source with a positive EROEI. The fact that this animal is alive at all means that some energy must have gone into creating it.

your not taking into account the laws of thermodynamics.

any animal with an EROEI of 1 would not be able to grow and would almost certainly be out competed by other animals with a positive EROEI, one with a negative EROEI would die of its own accord.

you seem to have a fundamental misconception about what energy returned on energy invested means, if your putting in the same amount your getting out then all your doing is wasting your time.

At Monday, July 14, 2008 at 4:15:00 PM PDT, Anonymous Anonymous said...

I just cannot belive the stupidity of this post (sorry but its plain simple lack of intelligence)

You still trying to rationalise an energy production/consumption trend with economics.

Ill make it simple for you.

You have a steam machine pumping water from a well, at start for every liter of water steam you pumped out 10 liter of water.

A month later it was down to 2 to 1.

Now by using 1 liter of water steam you pump out 1 liter of water.And you are getting thirsty.

Question: When will you die from dehydration?

At Thursday, August 28, 2008 at 2:10:00 AM PDT, Blogger DB said...

OK so this is not one of JD's better posts.

he is still right from one perspective.

Many (if not most) of the arguments found on peak oil sites are that oil production has to stop when it takes one barrel of oil (or more) to get one barrel of oil out.

This sounds plausible and it is indeed true.

IF we only use oil to get oil out!!!

We DO NOT have to use oil to extract oil.

We can use, lemme see: coal, nuke, wind, nat gas, solar pv, solar thermal, wave, hydro, a team of horses on a treadmill etc etc

The tar sands are an example of this. Right now they are using mainly diesel, natural gas and electricity to extract and process the tar sands into oil.

It *could* be done purely with electricity.

The reason is that (as with oil before low EROEI oil as measured only in oil used to get oil) we can average down the EROEI of the input energy and the output energy to get an overall EROEI that is higher than the output energy if it were done only with the same kind of oil but lower than the input energy we are using IN PLACE OF the oil used to extract oil.

Now the obvious question is this: at what point do we get smart and just use the electricity directly?

Are we there yet? Are we there yet?

At Thursday, October 23, 2008 at 3:18:00 PM PDT, Anonymous Anonymous said...

How are you going to get the coal out of the ground, DB, when the oil that you used to burn to operate the machinery is still in the ground as well? Use electricity instead? If so, then that's the end of oil. It will never make sense to expend energy to get it out of the ground.

For example, if solar energy can be harnessed in sufficient quantities to pump the oil, why would we do so unless we were going to use the oil for something other than energy (which at that point would be sufficiently supplied by the sun)?

At Sunday, February 22, 2009 at 5:25:00 PM PST, Anonymous Anonymous said...

This has got to be the dumbest post I've ever seen. There is so much illogical nonsense in this post that it's not even worth rebutting.

At Friday, June 26, 2009 at 1:13:00 PM PDT, Blogger Ned Baker said...

I can't believe this is on the first page of Google results for "EROEI".

I'll take a bat at items 3 and 4:

3. Inflation:

Is oil extraction always profitable under high enough inflation? If EROEI is <1, e.g. 100 gallons of oil are burned to extract 90 gallons, then why not just buy and hold the original 100 gallons? Poof -- profit!

4. No one calculates EROEI, thus it must not influence our affairs!

The same can be said for all physical laws: Newton's laws of motion, Maxwell's equations, etc

Too bad none of this will influence this post's Google ranking.

At Tuesday, September 29, 2009 at 5:50:00 PM PDT, Blogger DB said...

"For example, if solar energy can be harnessed in sufficient quantities to pump the oil, why would we do so unless we were going to use the oil for something other than energy (which at that point would be sufficiently supplied by the sun)?"

The reason is that the demand may be for the oil, not for the electricity or natural gas.

AND: companies who sell oil, gas and electricity are not in it because of EROEI, they're in it for the MONEY.

Consider this:
The US has a fleet of 240 million vehicles.
Probably less than 100,000 of these are electric.
Maybe a million of these are natural gas powered.

Where is the demand?

Right. Gasoline and Diesel.

So.... if you are an electricity company looking to make money (i.e. buy low, sell high) how do you arbitrage cheap natural gas/cheap electricity vs expensive oil?

Answer is: use electricity and natural gas to make oil and sell it into a market where conventional supplies are declining.

Ultimately, of course, the electric fleet and the natural gas fleet will expand so much that the profit to be made from converting nat gas and electricity into oil will be diminished, but since we're not there yet, it still makes sense to go the other way.


At Monday, April 5, 2010 at 9:52:00 AM PDT, Blogger Unknown said...

Dennis P.E.

This Post is Amazing. The FACT that so many people saw many of the obvious FLAWS is heartening. We do live in a fascinating world where 'educated' people can be so intoxicated and delusional. Oh, while I'm at this, check out Building 7 on 9-11. Does the FACT that it fell at Free Fall Acceleration for 2.5 of its 7+/- second fall ring anyone's bell? Any high school physics student would say that this is impossible without energy being added to do the deformation of any part of the building. Energy similar to explosives which implies 'an Inside Job'. Consider the FACTS.


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