The Other Problem With Oil

"We are here to awaken from the illusion of separation" Thich Nhat Hanh.

While climate change is caused by oil consumption, oil production also has problems. Oil is a finite resource, which was created over millions of years. We have been extracting it for less than 200 years and have already burned most of the easy oil. There is plenty left, but we are running low on affordable oil.

Before oil can be used to power and grow the economy, wells must be drilled, and the oil pumped, transported, refined, and distributed. Workers at each level must be paid, housed, and transported; associated infrastructure must be built and maintained. Materials used in each process require additional energy for fabrication. Exploration is needed to find new sources of oil as existing pools are depleted.

Each step of the production process uses energy. The system efficiency can be represented as the ratio of the energy in a barrel divided by the energy costs to produce that barrel. This is called Energy Returned On Energy Invested (EROEI).

All living systems are constrained by this energy ratio. An individual needs to ingest more energy than is required to find food. The surplus supports life activities: growth, leisure, and reproduction. Societies have similar requirements.

Before the industrial revolution, agriculture had EROEI of 2.5:1, essentially harvesting the annual solar energy collected by plants, and civilization expanded slowly. Early forestry societies had EROEI of 7:1, harvesting the energy stored by trees over decades, or centuries. The larger surplus allowed the beginning of industrialization and metals production.

These plant based solar powered societies were limited by soil fertility and solar exposure. When production exceeded the soil/solar capacity, the societies declined, or collapsed.

The widespread use of the exceedingly compact energy sources of fossil fuels, allowed these earlier limitations to be surpassed. The first oil wells had EROEI of 60:1. This vast energy surplus unleashed a massive expansion of industrial development and population. However, the most accessible oil, with highest EROEI, was used first, and has been mostly depleted. As wells got deeper, and moved into deep ocean, the EROEI has declined. Hydraulic fracking, which has revolutionized land based oil production, recovers smaller distributed pools, but requires more energy in the process.

The global production of "conventional" oil (not fracked, deep water, or tar sands) peaked in 2005. While total oil production has held steady, it requires more energy per barrel to obtain, so there is less surplus energy for the rest of the economy. Our current society needs EROEI of between 20-30:1. Some Saudi fields still produce EROEI of 30:1, but tar sands have EROEI of 5:1, and the global average EROEI is now about 17:1, contributing to sluggish economic growth. The quality of the crude oil is declining, requiring 50% more to produce the same volume of gasoline, over the last decade.

As the energy cost of production goes up, economic costs must increase. In 2008, oil peaked at $146/ barrel. This high cost contributed to popping the inflated housing bubble. The global economy went into recession and oil consumption declined, creating a glut on the world market. Currently, oil is trading in the mid $40's. Despite lower prices, US production has increased, trying to service the massive loans made during the fracking boom.

This squeeze between what the sluggish economy can afford, and the increasing cost of oil production, leads to economic distress. Many of the fracking companies have gone bankrupt. Profits of majors like Exxon have declined over the last few years. There has been a strong retreat from oil exploration, due to the high cost/risk involved. The depletion rate of existing fields exceeds new discoveries, and has for decades, which foretells a future supply crisis. Massive loans and wishful thinking have kept the system in place for now, but EROEI will continue to decline.