Energy Returned On Energy Invested: Real(ish)Things That Don’t Matter, Part Trois

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Guest Seinfeld routine by David Middleton

In Part One of this series, we looked at Peak Oil and its irrelevance to energy production and also discussed the relevance of Seinfeld. In Part Deux, we looked at “abiotic oil,” a real(ish) thing that really doesn’t matter outside of academic discussions and SyFy blogs.

Part Trois will explore perhaps the most meaningless notion to ever come out of academia: Energy Returned On Energy Invested (EROEI or EROI depending on spelling skill). EROEI is like what Seinfeld would have been if it was written by Douglas Adams.

EROEI

EROEI is the preferred energy metric for Malthusians, environmental activists, Warmunists and proponents of uneconomic energy sources. Invention of this concept is generally credited to an ecology professor…

The energy analysis field of study is credited with being popularized by Charles A. S. Hall, a Systems ecology and biophysical economics professor at the State University of New York. Hall applied the biological methodology, developed at an Ecosystems Marine Biological Laboratory, and then adapted that method to research human industrial civilization. The concept would have its greatest exposure in 1984, with a paper by Hall that appeared on the cover of the journal Science.^[6][7]

Wikipedia

Surprisingly, I find it unsurprising that an ecology professor would come up with such a “brilliant” concept.

While I understand why Malthusians, environmental activists, Warmunists and proponents of uneconomic energy sources would embrace EROEI, I was disappointed to see that the World Nuclear Association was embracing it, although, they do seem to recognize the pitfalls…

The economics of electricity generation are important. If the financial cost of building and operating the plant cannot profitably be recouped by selling the electricity, it is not economically viable. But as energy itself can be a more fundamental unit of accounting than money, it is also essential to know which generating systems produce the best return on the energy invested in them. This energy return on investment (EROI), the ratio of the energy delivered by a process to the energy used directly and indirectly in that process, is part of life-cycle analysis (LCA). Since any energy costs money to buy or harvest, EROI is not divorced from economics. An EROI of about 7 is considered break-even economically for developed countries, providing enough surplus energy output to sustain a complex socioeconomic system. The US average EROI across all generating technologies is about 40. The major published study on EROI, by Weissbach et al (2013, since the early editions of this paper) states: “The results show that nuclear, hydro, coal, and natural gas power systems (in this order) are one order of magnitude more effective than photovoltaics and wind power,” particularly when any energy storage is factored in for intermittent renewables.

Analysing this energy balance between inputs and outputs, however, is complex because the inputs are diverse, and it is not always clear how far back they should be taken in any analysis. For instance, oil expended to move coal to a power station, or electricity used to enrich uranium for nuclear fuel, are generally included in the calculations. But what about the energy required to build the train or the enrichment plant? And can the electricity consumed during uranium enrichment be compared with the fossil fuel needed for the train? Many analyses convert kilowatt-hours (kWh) to kilojoules (kJ), or vice versa, in which assumptions must be made about the thermal efficiency of the electricity production.

World Nuclear Association

I love nuclear power. It is the most dependable way to generate electricity at a relatively low cost… apart from the cost of building the power plant. Figure 1 lists the Energy Information Administration’s latest estimates for the levelized cost of electricity from various sources. I did not include the tax credits for wind and solar because electricity consumers and taxpayers are often the same group of people. I converted the costs from $/MWh to $/mmBtu (million British thermal units) to make it easier to compare to the value of petroleum and natural gas, and sorted from lowest to highest cost.

While nuclear power might have a great EROEI value, it’s nearly twice the cost of the least expensive generating source and even more expensive than onshore wind and solar PV. Although the fact that nuclear power plants generate electricity when “the wind don’t blow, and the Sun don’t shine” is very important.

Note that only natural gas combined cycle and geothermal are within 20% of hydroelectric. Geothermal and hydroelectric are great… But they only work in specific locations.

The Anthropological View

So far, EROEI has been a fairly innocuous academic exercise… However, this is what an anthropology professor can do with it:

It is difficult to know whether world industrial society has yet reached the point where the marginal return for its overall pattern of investment has begun to decline. The great sociologist Pitirim Sorokin believed that Western economies had entered such a phase in the early twentieth century ( 1957: 530). Xenophon Zolotas, in contrast, predicts that this point will be reached soon after the year 2000 (1981: 102-3). Even if the point of diminishing returns to our present form of industrialism has not yet been reached, that point will inevitably arrive. Recent history seems to indicate that we have at least reached declining returns for our reliance on fossil fuels, and possibly for some raw materials . A new energy subsidy is necessary if a declining standard of living and a future global collapse are to be averted. A more abundant form of energy might not reverse the declining marginal return on investment in complexity, but it would make it more possible to finance that investment.

Joseph Tainter, The Collapse of Complex Societies, p 215

The phrase “energy subsidy” appears at least 17 times in this book. The general theme is that declining EROEI values forced ancient complex societies to invade other complex societies to steal their energy (an energy subsidy) or collapse. A couple of points:

• Societies don’t produce energy, businesses do.
• Up until the Industrial Revolution, there was basically one source of energy: biomass.

While wind, water, animals and slaves were factors, biomass was *the* energy source from the Dawn of Civilization up until the 1800’s.

Joeseph Tainter also authored a 2012 book on the Deepwater Horizon disaster and its supposed relevance to EROEI.  His coauthor was Tadeusz Patzek, a professor of petroleum engineering. This is from Chapter 2, The Significance of Oil in the Gulf of Mexico, page 8…

Why would a company like BP build such a monument to technology and ingenuity as the Macondo well in the first place? Why was it necessary to drill for oil one mile beneath the surface of the Gulf of Mexico? Hubris among top management may have minimized the perception of risk, but well-informed employees throughout the organization understood the perils as well as the benefits of deep offshore operations. You may think that the need and motivation for these operations are obvious, but any rationale for drilling in these inhospitable environments must take into account the amount of oil (or energy in some form) that is needed to build and maintain an offshore drilling rig such as the Deepwater Horizon, extract the oil, and transport, store, and bring the precious liquid to market. In other words, large offshore platforms are built and operated using vast quantities of energy in order to find and recover even more. The cost is still higher when you consider the complex management and regulatory structures needed to complement the technology, however poorly you may feel that  the responsible people performed in the case of the Deepwater Horizon.

Let us begin with fundamentals. First we need to know how much recoverable oil is waiting for us down there, how this amount of oil measures up against demand and total oil use in the United States, and how big the energy profit is after so much energy is expended in exploration, drilling, recovery, refining, and transportation to your local gas station or power plant. In other words, do the benefits outweigh the risks, for whom, and for how long?

Joseph Tainter and Tadeusz Patzek , Drilling down: The gulf oil debacle and our energy dilemma. p8

A Geological Reply to the Anthropologist

Does anyone else have answers for Dr. Tainter’s questions? Well, I do.

Why would a company like BP build such a monument to technology and ingenuity as the Macondo well in the first place?

Because that’s where the oil was.

Why was it necessary to drill for oil one mile beneath the surface of the Gulf of Mexico?

Because that’s where the oil was.

Hubris among top management may have minimized the perception of risk, but well-informed employees throughout the organization understood the perils as well as the benefits of deep offshore operations.

Dudes!  Five companies bid against BP for an opportunity to drill “Macondo”…  BP’s high bid barely beat out smaller independent oil company LLOG Exploration…

1. BP Exploration & Production Inc. $34,003,428.00
2. LLOG Exploration Offshore, Inc. $33,625,000.00
3. Noble Energy, Inc. $17,225,650.00
4. Red Willow Offshore, LLC $14,075,000.00
5. Eni Petroleum US LLC $4,577,115.00
6. Anadarko E&P Company LP $2,145,950.00

Only one of BP’s competitors for the lease, Eni, was a major oil company. The rest were small, mid-sized and large independents.  Anadarko wound up partnering with BP on the Macondo well.   After the Deepwater Horizon disaster, LLOG Exploration was able to take the lease over and successfully drill the prospect.

LLOG Exploration renamed the prospect “Niedermeyer”… part of an Animal House theme.

Niedermeyer was a nice discovery.

• Four wells on MC 208, 209, 252 and 253.  Feb. 2015 through July 2017.
• 21.7 million barrels of oil (mmbo) and 57.5 billion cubic feet (bcf) of natural gas.
• MC 252 SS-1 Well:  6.1 mmbo & 15.6 bcf.  Oct. 2015 through July 2017.  Avg. 9,600 barrels of oil per day (BOPD) and 24 million cubic feet of natural gas per day (mmcf/d).

The Niedermeyer, Marmalard and Son of Bluto 2 fields were completed as subsea tiebacks to LLOG’s “Delta House” floating production system (FPS) on MC 254.

Murphy Oil just bought this and other deepwater assets from LLOG for $1.4 billion. So, I think the industry has a much better grip on the “perils as well as the benefits of deep offshore operations” than an anthropology professor does.

You may think that the need and motivation for these operations are obvious, but any rationale for drilling in these inhospitable environments must take into account the amount of oil (or energy in some form) that is needed to build and maintain an offshore drilling rig such as the Deepwater Horizon, extract the oil, and transport, store, and bring the precious liquid to market.

The “need and motivation for these operations are obvious”… To make money.  No oil company or any other type of business would “take into account the amount of oil (or energy in some form) that is needed to build and maintain an offshore drilling rig such as the Deepwater Horizon, extract the oil, and transport, store, and bring the precious liquid to market,” and remain in business.

I can guarantee that we don’t factor the cost of building the drilling rigs that we contract to drill wells in the Gulf of Mexico. We factor in the cost to contract the rig and drill the well.

Nor is the cost of manufacturing the cars and trucks that we commute to work factored in. Nor is the cost to get the turkey sandwich I am about to eat from the various farms that grew the turkey, cheese, bread, jalapeño peppers and mayonnaise, to the Kroger supermarket where I bought them… Because, if I didn’t eat, I wouldn’t be able to explore for oil very well.

We absolutely do not denominate any of the costs in Btu, joules, Watts or any other units of energy measurement. I don’t spend energy to fill my gas tank. I don’t give energy back to the gas & electric companies in exchange for them being nice enough to heat and light my home. My company doesn’t drill for oil & gas to make energy.

I spend money to fill my gas tank. My company drills wells for oil & gas to make money. My gas & electric bills are paid for with money. My pay check, ChevronTexaco, ExxonMobil & Shell credit card statements and checks to the gas & electric companies aren’t denominated in joules, kilowatts or Btu – They are denominated in $.

I don’t give a rat’s @$$ if 1 barrel of amoeba farts uses less energy to produce than 1 barrel of crude oil… Because the barrel of amoeba farts costs $1,100 and can’t be produced in sufficient quantities to be waiting for me at the Chevron, Texaco, Exxon or Shell station when I need it.

If oil companies (or any businesses) used EROEI to guide their investment decisions, they would go out of business, unless the government was footing the bill… And government could only foot the bill for such foolishness until they ran out of OPM (other people’s money).

The most fracking hilarious thing from Tainter’s and Patzek’s book was this Gulf of Mexico production “forecast”…

I have no idea what “industry projection” they were referring to. Prior to Macondo deepwater production was forecast to increase sharply because a large number of deepwater discoveries, particularly ultra-deepwater Lower Tertiary discoveries were expected to come online. All of these projects were delayed by the Obama maladministration’s unlawful drilling moratorium and “permt-orium” in the aftermath of Macondo .

Here is a plot of actual Gulf of Mexico production overlaid on “Patzek’s Projection”…

Of course, that’s not how the oil industry would plot the production. This is how we would plot it:

We would also include the natural gas production.

The decline in gas production from the shelf has been more than offset by gas from onshore shale plays, particularly the Marcellus. Gulf of Mexico natural gas prospects are extremely unattractive at <$3.00/mcf.

Some energy numbers:

• 1 barrel of crude oil = 5,722,000 Btu
• 1,000 cubic feet of natural gas = 1,037,000 Btu

Current prices:

• Crude oil (WTI) = $65.82/bbl = $11.50/million Btu
• Natural gas (Henry Hub) = $2.52/mcf = $2.42/million Btu

I could “spend” 2 Btu of natural gas to produce 1 Btu of oil and make over a 2:1 return on capital. The bottom line isn’t denominated in joules, watts or Btu… It’s denominated in $$$.

Offshore oil production facilities are usually powered by diesel fuel or natural gas.  Most, if not all, of our offshore platforms consume at least some of the produced natural gas as fuel.  Natural gas-fired electricity is cheap.  Most of the cost of natural gas-fired electricity generation is the fuel.  Not having to purchase the gas for fuel makes it even cheaper.

There’s a growing trend in certain “woke” areas to power offshore oil facilities with “green” electricity.

If you subtract the variable O&M costs (mostly fuel) and transmission costs from natural gas-fired generation, you can get an idea of just how much more expensive it is to power offshore platforms from remote “green” energy sources. (Note: This is not meant to be a definitive calculation, just ballpark numbers).

Considering the fact that you can only sell oil for about $11.50/mmBtu, paying over $38/mmBtu for electricity just seems dumb. Even if I used the Brent price ($73.72/bbl), it’s just $12.88/mmBtu.

Inflation Adjusted Energy Prices

Maybe it’s just me, but I don’t see a clear pattern of rising energy prices.

It kind of sucks that we only get about $2.50/mcf for the gas we produce in the Gulf of Mexico, but I have pay about $10/mcf to the fracking utility company.

If the Obama maladministration hadn’t halted the free-fall in electricity prices, it would be free by now… /SARC

GDPROEP

GDPROEP may not be as “catchy” as EROEI, but GDP Return On Energy Production is actually a meaningful metric.

World Bank/IEA GDP per unit of energy use (constant 2011 PPP $ per kg of oil equivalent)

M’kay?

References

“Delta House Field Development, Gulf of Mexico.” Offshore Technology | Oil and Gas News and Market Analysis, www.offshore-technology.com/projects/delta-house-field-gulf-mexico/.

“Energy Returned on Energy Invested.” Wikipedia, Wikimedia Foundation, 1 Apr. 2019, en.wikipedia.org/wiki/Energy_returned_on_energy_invested.

“Energy Return on Investment.” World Nuclear Association, www.world-nuclear.org/information-library/energy-and-the-environment/energy-return-on-investment.aspx.

“GDP per Unit of Energy Use (Constant 2011 PPP $ per Kg of Oil Equivalent).” Data, data.worldbank.org/indicator/EG.GDP.PUSE.KO.PP.KD?view=chart.

Middleton, David H. “Deepwater Horizon: EpiLLOG.” Watts Up With That?, 20 Oct. 2017, wattsupwiththat.com/2017/10/20/deepwater-horizon-epillog/.

“Murphy Oil Acquires Deepwater GOM Assets from LLOG for $1.375 Billion.” Murphy Oil Acquires Deepwater GOM Assets from LLOG, www.worldoil.com/news/2019/4/23/murphy-oil-acquires-deepwater-gom-assets-from-llog-for-1375-billion.

Newell, Richard, and Daniel Raimi. “Despite Renewables Growth, There Has Never Been an Energy Transition.” Axios, 17 Aug. 2018, www.axios.com/despite-renewables-growth-there-has-never-been-energy-transition-e11b0cf5-ce1d-493c-b1ae-e7dbce483473.html.

“Norway: Equinor to Power Oil & Gas Platforms with 88MW OWF.” Offshore Wind, 28 Aug. 2018, www.offshorewind.biz/2018/08/28/norway-equinor-to-power-oil-gas-platforms-with-88mw-owf/.

“Power Generation for Offshore Environments.” Audubon Companies, 1 June 2015, auduboncompanies.com/power-generation-for-offshore-environments/.

Tainter, Joseph A. The Collapse of Complex Societies. Cambridge University Press, 2011.

Tainter, J. A., & Patzek, T. W. (2012). Drilling down: The gulf oil debacle and our energy dilemma. Springer New York. https://doi.org/10.1007/978-1-4419-7677-2

U.S. Energy Information Administration, “Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2019.” Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2019, EIA, 2019.

“U.S. Energy Information Administration – EIA – Independent Statistics and Analysis.” Short-Term Energy Outlook – U.S. Energy Information Administration (EIA), www.eia.gov/outlooks/steo/realprices/.