[The Practician]

Ok, So most of us are familiar with the idea that almost all alternative energy technologies and their projected costs are subsidized by oil, i.e. if the cost of oil goes up, the cost of building your wind farm goes up. (and if the EROEI of that oil goes down, the EROEI of your wind farm goes down)

What I am wondering is how much of a subsidy unconventional sources like tar sands and ultra deep get from the fields pumping the light sweet crude. When these unconventional resources are discussed, statements like "the tar sands need $90 a barrel to be profitable" are thrown around. That doesn't sound so bad; the world economy could probably handle that. All the cheap and easy oil gone, but tar sands oil "just" $90. Doesn't sound so bad, right?

You can probably see where I am going with this, and that is that I think its obvious that there needs to be lots of oil that costs much less than that to extract lying around for companies to make those claims, and that without the subsidy from the cheap and easy stuff the cost would skyrocket, and as the proportion of conventional to unconventional oil on the market continues to decrease that is what we would to see, and maybe even have seen.

So what do you guys think?

*note* I am assuming a fairy tail scenario of steady world economic growth and demand for growing supplies of Oil, not the real world where when oil gets over $130 a barrel it chokes off demand and creates economic turmoil

[AgentR11]

Its hard to make this comparison work because its hard to factor in the subsidy that cheap oil itself gets in the form of military protection of trade routes and foreign production facilities.

What would the price of oil be if Iran could safely blow up Saudi and Iraqi oil terminals and production systems?

Would that price increase further incentivize the grain->fuel conversion using coal generated electricity?

Its no simple problem, and it involves way to many what-if guesses to know.

[Serial_Worrier]

We're addicted to oil. We're like a baby at the teat!

[babystrangeloop]

Tar sands requires more resource inputs than just energy inputs and more energy inputs than simply petroleum.

Never mind the obvious ones like natural gas and clean water, it takes petrochemical solvents to thin the crude, etc.

Even if solar has better EROI (EROEI) than tar sands we want the oil because it means not having to replace our existing power-consuming infrastructure.

[Pops]

You can probably see where I am going with this, and that is that I think its obvious that there needs to be lots of oil that costs much less than that to extract lying around for companies to make those claims, and that without the subsidy from the cheap and easy stuff the cost would skyrocket, and as the proportion of conventional to unconventional oil on the market continues to decrease that is what we would to see, and maybe even have seen.

Hey Practician, thanks for the post.

I think the idea to ponder is that all oil (or whatever the commodity) is priced at the value of the last unit needed to meet demand. There is no "cheap" oil based on cost, just more profitable and less profitable oil.

Look at it this way, if there isn't enough $10/bbl oil available to meet demand, the market "substitutes" $20/bbl oil to satisfy the additional demand - - but - - all the barrels then are priced at $20. Even the $10 barrels.

So just because Syncrude is an "oil" company doesn't mean they get a discount from people with $10 oil to make their $20 "sorta-oil". They gotta hope the market can support $20 oil.*

The other place the EROEI argument falls down is that if nat. gas or coal is cheaper than oil, and oil is valued sufficiently higher, it makes no difference if the energy return from the oil is negative - oil companies are in business to make money, not energy.

Look at an oil refinery for example, they start with 100 BTUs of oil, add x number of BTUs of energy to refine and deliver a finished product that contains less than (100 + x) BTUs of energy - that is negative EROEI yet they somehow remain in business.

If EROEI were the rule instead of a theory, the much more efficient use of oil as a heat source (instead of heat as waste) would prevail. Oil as heating fuel gives a hugely better EROEI. But the economic value of wasting 98% of the energy in an ICE to go vroom vroom gives gasoline a MUCH better economic return.

Eventually EROEI may be a problem, but personally, I think that is a long way off and way down the economic ladder.


* The fact is Syncrude was developing their business long before the market could support their costs way back in the '60s, I think they actually started construction right around the time of the US peak sometime in the '70s - funny.

[The Practician]

You can probably see where I am going with this, and that is that I think its obvious that there needs to be lots of oil that costs much less than that to extract lying around for companies to make those claims, and that without the subsidy from the cheap and easy stuff the cost would skyrocket, and as the proportion of conventional to unconventional oil on the market continues to decrease that is what we would to see, and maybe even have seen.

Hey Practician, thanks for the post.

I think the idea to ponder is that all oil (or whatever the commodity) is priced at the value of the last unit needed to meet demand. There is no "cheap" oil based on cost, just more profitable and less profitable oil.

Look at it this way, if there isn't enough $10/bbl oil available to meet demand, the market "substitutes" $20/bbl oil to satisfy the additional demand - - but - - all the barrels then are priced at $20. Even the $10 barrels.

So just because Syncrude is an "oil" company doesn't mean they get a discount from people with $10 oil to make their $20 "sorta-oil". They gotta hope the market can support $20 oil.*

The other place the EROEI argument falls down is that if nat. gas or coal is cheaper than oil, and oil is valued sufficiently higher, it makes no difference if the energy return from the oil is negative - oil companies are in business to make money, not energy.

Look at an oil refinery for example, they start with 100 BTUs of oil, add x number of BTUs of energy to refine and deliver a finished product that contains less than (100 + x) BTUs of energy - that is negative EROEI yet they somehow remain in business.

If EROEI were the rule instead of a theory, the much more efficient use of oil as a heat source (instead of heat as waste) would prevail. Oil as heating fuel gives a hugely better EROEI. But the economic value of wasting 98% of the energy in an ICE to go vroom vroom gives gasoline a MUCH better economic return.

Eventually EROEI may be a problem, but personally, I think that is a long way off and way down the economic ladder.


* The fact is Syncrude was developing their business long before the market could support their costs way back in the '60s, I think they actually started construction right around the time of the US peak sometime in the '70s - funny.

Ok, Ok. I definitely could be wrong about tar sands needing abundant cheap oil to subsidize it, but I'm pretty sure it does need loads of other resource imputs to remain "cheap" (water, nat gas, etc.) The energy resources especially are bound to to become less affordable in real terms as cheap and easy oil dries up. What can I say, the world is COMPLICATED!

I am going to have to take issue with your EROEI math, however. Its true that in the grand scheme of things, the "return" on "investment" is going to be negative- in energy terms. At least, that is, if your objective is to store energy. That's the second law of thermodynamics and neither you nor I can get around that. It appears, however, that you are focusing simply on OUR energy investment In fossil fuels and neglecting the millions of years of work performed by the sun that went into creating all that oil in the first place. In comparison to that, our investments are negligible. Its not "negative" EROEI when you START with 100, Invest 40, loose 60 to entropy and end up with 80!

[AgentR11]

Negative EROEI is perfectly fine if you are converting from non-portable to portable.

If you could develop a sure fire way to convert NG to gasoline or diesel (without relying on limiting feedstocks like grain, etc), even if you lost half the energy in the process, you'd become the richest human on the planet almost overnight.

You'd also become the most hated person on the planet by the folks that believe we can stop climate change.

[The Practician]

Negative EROEI is perfectly fine if you are converting from non-portable to portable.

If you could develop a sure fire way to convert NG to gasoline or diesel (without relying on limiting feedstocks like grain, etc), even if you lost half the energy in the process, you'd become the richest human on the planet almost overnight.

You'd also become the most hated person on the planet by the folks that believe we can stop climate change.

I don't disagree that negative EROEI non-portable to portable conversion has the potential to be economically viable, but I do have my doubts you could run full scale industrial society this way.

On the second part, merely LOOSING half the free energy in NG doesn't put it "negative" EROEI territory. Do you intend to dispute my math at the end of my last post? I am a mere layman, and open to corrections and new information when I am wrong.

Edit: just to be clear, the 100 at the start of my little made up equation is energy you can't get to do the useful work you want it to until you invest in it, and you accept that you are not going to get the full 100 out because you only have to invest 40.

[kublikhan]

You might want to check out this article Practician. It deals with "The Law of Receding Horizons" and how it applies to tar sands.

For those who missed my previous articles on receding horizons, it is a simple concept: as the cost of energy rises, the cost of everything else made with energy (like building materials) also rises. So an energy project which was expected to be profitable when energy costs were x amount higher than today, turns out to still be uneconomical when you get there. And the tar sands of Alberta are shaping up to be the oil industry's poster child of this phenomenon. With oil well over $60 today, the low-grade sludge called kerogen that we recover from tar sand--actually more like a putty, at room temperature, which is why I refuse to use the whitewashing term "oil sands--should be highly profitable.

But paradoxically, the impending decline of global crude oil production, which is now coming clearly into view, has led to a mad rush to produce the tar sands. And this, in turn, has led to skyrocketing costs...such that now, the real "profit" in producing the tar sands seems to be in government tax breaks, not in actual profit on the resource itself. If the royalties on the tar sands were allowed to rise to anywhere near the normal levels for oil-around 40%, not 1%-the entire industry would cease to be. The profit would vanish, simple as that.

Perhaps the most paradoxical part of the tar sands receding horizons problem is the need for energy. At the current production level of about 1 mpbd, the tar sands operations consume about 4% of Canada's natural gas supply. So quadrupling production would consume fully 16% of the supply, and completely max out the gas market. Nearly all estimates for tar sands operations over the next ten years exceed the projections for available amounts of natural gas!

What we have here is arguably the most environmentally destructive activity man has ever attempted, with a compliant government, insatiable demand and an endless supply of capital turning it into "a speeding car with a gas pedal and no brakes." It sucks down critical and rapidly diminishing amounts of both natural gas and water, paying neither for its consumption of natural capital nor its environmental destruction, to the utter detriment of its host. And all to eke out maybe a 10% profit, if it turns out that the books haven't been cooked, and if the taxation structure remains a flat-out giveaway.

All of that, just to produce enough oil to offset the declining conventional oil production in the rest of Canada. Maybe. And that, my friends, is what I call the oil junkie's last fix. An act of sheer desperation to stave off just a little longer that inevitable day when we are forced to realize that the fossil fuel game is truly over. No more rabbits in the hat. Done.

In the July 2006 issue of Rolling Stone, Al Gore called the tar sands "crazy," a huge waste of energy and an eyesore on the landscape of Western Canada. "For every barrel of oil they extract there, they have to use enough natural gas to heat a family's home for four days," Mr. Gore told the magazine. "And they have to tear up four tons of landscape, all for one barrel of oil. It is truly nuts. But you know, junkies find veins in their toes. It seems reasonable, to them, because they've lost sight of the rest of their lives."

Tar Sands: The Oil Junkie's Last Fix, Part 1
Tar Sands: The Oil Junkie's Last Fix, Part 2

[The Practician]

You might want to check out this article Practician. It deals with "The Law of Receding Horizons" and how it applies to tar sands.
Tar Sands: The Oil Junkie's Last Fix, Part 1
Tar Sands: The Oil Junkie's Last Fix, Part 2

"“They believe that oil prices will rise, and yet their costs will magically remain where they were. In fact, what happens is that as oil prices rise, all the costs associated with these various projects rise,”-- Robert Rapier


I hadn't read anything that dealt with this "law" directly when I started this thread, but if anyone wants a bit clearer picture of what I was trying to articulate, you can't do much better than this.

[Pops]

I am going to have to take issue with your EROEI math, however.

Yeah, my math teachers all said the same!

No one ever considers the value of the energy embodied in the oil, we want to go vroom really really badly so we ignore the fact we're automatically wasting 90% of the potential energy in crude when we fill the tank on the 3,000# dually 4x4 to drive home six twelve-ounce beers.

I just throw that out as a way to think about the return in the overall system. Delivered unleaded is about 10% efficient in an internal combustion engine so with your math our 140 units input gets 80 of unleaded resulting in 8 units of vroom - and 72 units of wasted heat.

Now take that same 140 units, refine it at maybe 10 units refining cost and put it in a condensing boiler at maybe 90% efficiency and you get 117 units of warm ((140-10)*.9) That's 14 .6 times the energy returned on energy invested as in the beer run example.

I think you can see why I'n not so concerned about EROEI in extraction having much of an impact anytime soon.


P.S. I got to about the place in school where Dick and Jane were running with Spot, you've just seen the limits of my cyphering ability, so correct me where needed!

[kublikhan]

In addition to the "The Law of Receding Horizons", you also might want to check out embodied energy. Here's a few links discussing the embodied energy in wind turbines, how long it takes to recoup that energy, how rising oil costs are affecting turbine manufacturers, etc.

Wind turbines, used to generate non-fossil fuel based electrical power, are typically considered to take only a number of months to produce as much energy as is required in their manufacture and operation. With a life-expectancy of upwards of 20 years, the renewable energy produced by wind turbines over their life can be many times greater than that embodied in their production.

Energy yield ratios of 21 and 23 were found for a small and large scale wind turbine, respectively. The life-cycle energy requirements were shown to be offset by the energy produced within the first 12 months of operation.

Life-cycle energy analysis of wind turbines

Vestas has kept a close watch on the impacts of oil prices and the energy needs for its business, and estimated in a recent life-cycle analysis of a wind farm using their turbines that of all the input energy, 34% was oil. The bulk of the energy consumption is for materials, such as steel and concrete for the turbine and tower. But shipping is also a significant slice — enough that rising oil prices have pushed the company to shift their manufacturing. Instead of having their blades built in Europe then sending big, heavy parts to China for assembly, and then from there shipping to the US, the company is looking at consolidating its operations closer to where the turbines will be installed.

In the past two years, Vestas has closed factories in Denmark and England, and opened new factories in Colorado. From here Vestas can supply turbines to the US more cheaply, compared with shipping them in from Europe or China. “The wind business is not like sneakers or T-shirts,” Ditlev Engel, Vestas's Chief Executive, told Dow Jones in April. “The transportation costs are massive.”

Case study: Vestas

[The Practician]

I am going to have to take issue with your EROEI math, however.

Yeah, my math teachers all said the same!

No one ever considers the value of the energy embodied in the oil, we want to go vroom really really badly so we ignore the fact we're automatically wasting 90% of the potential energy in crude when we fill the tank on the 3,000# dually 4x4 to drive home six twelve-ounce beers.

So what exactly are you suggesting we fill the tank with instead? Hopes and dreams? Last time I checked, an ICE needed to generate waste heat work, so in a way, that heat is not really "waste." economic value is derived from it. If you know how to power a hummer with a condensing boiler, let me know.

I just throw that out as a way to think about the return in the overall system. Delivered unleaded is about 10% efficient in an internal combustion engine so with your math our 140 units input gets 80 of unleaded resulting in 8 units of vroom - and 72 units of wasted heat.

Just to reiterate: there is no 8 units of vroom without the 72 units of "waste" . Now, Just to be clear, I'm not saying this isn't an incredibly wasteful use of the energy, but shit, thats just the way things work. To put it in your terms, those 72 units of waste get counted right next to the 8 of vroom as far as return in the overall (economic) system.

Now take that same 140 units, refine it at maybe 10 units refining cost and put it in a condensing boiler at maybe 90% efficiency and you get 117 units of warm ((140-10)*.9) That's 14 .6 times the energy returned on energy invested as in the beer run example.

Not to be pedantic about fake math, but the 100 units was the raw crude, the 40 was whatever heat, electricity, anything you do to refine it into your desired product, and the 80 was the usable energy in the end product. Discounting the likelihood that you could probably use a significantly less refined product in a condensing boiler than gas or diesel, 80 is the number you should be using not 130. 80 * .9= 72 units of warm with 8 units of waste! What is this condenser, some sort of bizzaro 4X4? This, funnily enough, is kinda the point. we can't say this condensing boiler is more efficient than the ICE untill they are perfoming the same work, which in this case is propelling a large private vehicle on a beer run. In the case of the 90% efficient boiler, that is probably going to entail conversion into electricity(losses) transmission through power lines(losses) charging a battery(losses) and then powering an electric motor(you guessed it: more losses). at the end of the day, the "vroom!" you are getting out of your boiler is going to be a lot closer to the 8 you get out of your ICE than the 72 of warm that you started with. It might even be less than 8. The variables surrounding these sorts of comparisons are so complex that its almost impossible to know for sure.

I think you can see why I'n not so concerned about EROEI in extraction having much of an impact anytime soon.

EROEI in extraction/refining is important because what it really comes down to is the net energy available to do work in the economy. Yes, if you have trillions of cu. ft. of cheap natural gas thats useless to the economy unless it is converted into gasoline or used to exploit tar sands, by all means, it is economical to put it to those uses. Maybe. Lets not forget though that Natural gas is a fossil fuel its self, and thus the energy contained within it doesn't really count in your EROEI calculation: just the energy to extract, transport and use it. (does that make sense?) You can get away with what in absolute terms might be a very low or even negative EROEI, because you get to use some seriously dubious accounting!

The problems begin in earnest when you start using energy that COULD otherwise be put to work, as is, in the economy. Energy resources like Oil and electricity. These are the energy products our economy is set up to use, and it is somewhat less important how "efficiently" it uses them. when you get 100 units of economically useable energy for every one invested, you net 99 to do productive work. Thats huge. Thats gas up the 4x4 and go pick up a six pack huge. On the other hand, when you have to invest 1 unit to get say, 5 units to do productive work, well, you just not going to be able to get as much done. That is why EROEI in extraction is important.

[The Practician]

http://www.economic-undertow.com/2011/0 ... ard-place/

This is an interesting little article on that gets into the issue of "return on consumption", basically the idea that the economy is built around using cheap oil wastefully, and that "demand" will not support expensive oil. Ties into the idea that even though gassing up the hummer to go grab a sixer of brew is very inefficient in energy terms, thats how the economy works

[AgentR11]

This is an interesting little article on that gets into the issue of "return on consumption", basically the idea that the economy is built around using cheap oil wastefully, and that "demand" will not support expensive oil. Ties into the idea that even though gassing up the hummer to go grab a sixer of brew is very inefficient in energy terms, thats how the economy works

Its funny, but I'm thinking more true than not. By driving that vehicle on tasks that don't require a vehicle, money is moving from hand to hand, and driving other money movers actions; if I walk or ride my bike to the store, the monetary velocity associated with that trip drops to near zero. (not quite I suppose, but very close). If fuel becomes expensive enough that more people join me biking to the store instead of driving, that removes not only the gasoline consumption, but also the high wear&tear short town trips; simultaneously lengthening the life of the owned vehicle and reducing its annual consumption of maintenance parts. I drive much less than most, my truck is 12 years old, van is 10 years old, and they are running perfectly; I honestly don't expect to buy another vehicle this decade. Good for me, not so good for the economy I think.

[kublikhan]

You also might want to check out my posts in the OPEC Cuts Demand Forecast thread. They talk about the same theme of high oil prices destroying demand and economic activity.