The Oil Drum: Europe

This is a guest post by Adam Dadeby (Adam1). Adam is currently studying towards an MSc in Renewable Energy and the Built Environment with the Centre for Alternative Technology in Wales, UK.

What is EROEI?

Energy returned on energy invested (EROEI or EROI) is a concept that mirrors the financial metric, return on investment (ROI). In order to make an energy gain or “profit”, energy or work must be consumed or exerted (Cleveland, C.J., 2001, p.1¹). The energy gain or profit often referred to as “net energy”. EROEI is usually expressed as a ratio, or occasionally as a percentage. EROEI can also be represented diagrammatically in simplified form (Fig. 1).

Figure 1: EROEI
(Charles Hall, Pradeep Tharakan, John Hallock, Wei Wu and Jae-Young Ko, Advances in Energy Studies Conference, Porto Venere, Italy, September 2002)²

The energy referred to in EROEI can be energy to run technology, such as liquid fuels for transport or electricity for lighting. It can however refer to energy in a form that can be taken in directly by living organisms: food.

When I first went to talk to someone about investing in stocks, it was carefully explained to me that I should not be concerned over daily fluctuations but rather should look at longer-term outcomes of events. So it has been with the recent price fluctuations with fuel, in that I haven’t really been that concerned with the causes of daily, or even weekly ups and downs, since those moves were often in reaction to transient events, but have rather tried to pick out more long-term changes that will have more of a permanent impact. Thus it was just over a month ago that I wrote about a quote from the CEO of Gazprom, which is perhaps (given recent events) worth repeating:

Gazprom forecasts that Russian gas prices will reach 500 U.S. dollars per 1,000 cubic meters by the end of 2008. "If oil prices exceed in the future 250 dollars a barrel, then gas prices will grow to 1,000 dollars per 1,000 cubic meters," Miller said.

I then went on to talk about the visit of the new Russian President to Turkmenistan, Azerbaijan and Kazahkstan to ensure that their supplies of natural gas and oil traveled to the west via Russian pipelines (with appropriate fees along the way) rather than being routed through alternate pipelines, where those fees and the concurrent flow-rate controls would not be available to Russia. If nothing else then, as Gail caught in Open Thread #4 the benefits of investing in alternate pipelines, such as Nabucco for which Turkmenistan gas must first cross the Caspian and then pass through Azerbaijan and Georgia in the Trans-Caspian Pipeline have suddenly become a whole lot less attractive.

The August 2008 edition of Oilwatch Monthly can be downloaded at this weblink (PDF, 1.34 MB, 26 pp). In this edition I have added more demand, oil stock and production revision data.

Figure 1 - OECD crude oil stocks from January 2002 to June 2008.

A summary and latest graphics below the fold.

_{Annual rates of total drilling for and production of oil and gas in the US, 1949-2005 (R² of the two = 0.005; source: U.S. EIA and N. D. Gagnon). Since drilling and other exploration activities are energy intensive, other things being equal EROI is lower when drilling rates are high.}

As oil prices increase and the presidential campaigns heat up there is a lot of discussion about increased drilling for oil. In economic theory higher prices will give market signals to increase exploration and exploitation of resources and hence deliver more to society, although at a higher price. Will this in fact occur with oil for the United States? Of course we will not know until we do it, but we can look to the past for hints. The enclosed figure represents the history of drilling and production for oil and gas in the United States. The answer seems inescapable: the rate of drilling for oil in the United States has been unrelated to finding or producing oil and gas, which is determined principally by geology. Mother nature, not market theory, determines resource availability, at least in this case and probably many more. (Source: Hall, Powers and Schoenberg (in press))

It seems to me that there is likely to be a very short path from petroleum shortages to electricity shortages. There are a lot of issues involved, from the fact that the fuels used in electricity production are themselves dependent on petroleum for their extraction and transportation, to the current state of the US electricity infrastructure, to the impact of peak oil on debt financing. I have written about most of these issues before, but since the petroleum/electricity link is such an important one, I thought I would devote an article to putting the pieces together.

Fuels used for electricity generation

In the United States, the primary fuel used for electricity generation is coal, at 49% of electricity production. Natural gas follows at 22%; nuclear at 19%; hydroelectric at 6%, and petroleum at 1.6%. The newer renewables are all quite small: wood at 0.93%; wind at .77%; waste at .41%; and solar (for electricity generation) at 0.01%.

Figure 1. Distribution of fuel supplies used in US electricity generation, based on EIA data.

Predicting the future of Saudi Arabian oil production is a rather daunting endeavor, given the limited amount of information available upon which to base a prediction. Presented here is an appraisal for Saudi production through 2015 based on an informed analysis of past production data and a simple extrapolation into the future. It is found that the oil production trend from the early 1990s through the present is driven more by the addition of new producing areas than by "peak and decline" in the Hubbertian sense. This trend will likely continue for the next few years leading to a new "peak", although more rapid decline in mature areas of Ghawar will eventually overwhelm both mitigation efforts therein and added production elsewhere.

This is a guest article by Jeremy Wakeford. Jeremy is an economist specializing in energy and sustainable development and is Research Director of ASPO South Africa.

South Africa has been in the news a lot recently because of its electricity supply problems throughout 2008. Most South African electricity comes from coal-fired power stations. Jeremy discusses the role of coal in South Africa's energy mix, long-term trends in production and consumption, and how underground coal gasification might help solve South Africa's energy problems.

This is a guest article by Dudley Stark, Reader in Mathematics and Probability in the School of Mathematical Sciences, Queen Mary, University of London.

Bentley introduced the following model of oil production on page 204 of Global oil & gas depletion:an overview, and it is dicussed in the book The Last Oil Shock by David Strahan. This posting is meant to explain his model and some results I obtained for it. Consider the following oil production curve:

It rises quickly to it's peak at time t=1 and decreases slowly until no oil is produced at time t=6. The idea is that the natural pressure of the oil field causes rapid production initially, after which decline is more gradual. Before and after the peak the curve is linear, so it looks like a triangle.

Yesterday, August 6, the EIA published new International Petroleum Monthly data. The new data revised downward previously published estimates, all the way back to 2002, with the biggest revisions in 2007 and 2008. With the revisions, the latest month, May 2008, shows new record-high oil production. Other recent months which had previously set records are now 67,000 barrels per day to 417,000 barrels per day lower than reported just a month ago. In this post, I offer a few thoughts on what the new data suggests.

Figure 1. World crude and condensate production, based on August 2008 EIA International Petroleum Monthly

Tropical storm Edouard continues westward towards Texas. While likley not even a 'cane, there is still uncertainty regarding impact. Though it never reached hurricane level in the Gulf, there is potential for refinery flooding but this is currently being offset by futures contract flooding...;-) Below the fold is the latest estimates on the storms potential impact on shut-in production and refineries.