Snake Oil: How Fracking's False Promise of Plenty Imperils Our Future (4 page)

Defining “oil.”
Another complication arises from the definition of the word
oil
. Does it refer only to conventional crude? When the US Energy Information Administration (EIA) releases statistics for current or future US oil production, the numbers always include
refinery gains
. When oil is refined, the volume of the products yielded from it (as measured in barrels or cubic meters) is greater than the volume of the crude oil that entered the refinery because the refined products are lighter and less dense than crude. Yet refining oil into gasoline, diesel, and kerosene requires energy—thus energy has been
lost
in the process, even though product volume has increased. Moreover, in the EIA’s “oil” production statistics for the US, refinery gains for
imported
oil are implicitly lumped together with volumetric gains from the refining of
domestically produced
oil, thus making it seem as though the nation is producing more oil domestically, and importing less, than is really the case.

Further, the International Energy Agency’s definition of “oil” includes
natural gas liquids
(or NGLs).
Natural
gas
is mostly methane, but as it comes out of the ground, it may also contain hydrocarbons with longer molecular chains, including propane and butane. These are typically captured in processing and used for heating and for industrial purposes, including the making of plastics. They are called NGLs not because they are liquid at room temperature and normal atmospheric pressure (they’re not), but because they can be liquefied at lower pressure and higher temperature than methane and are typically bottled and sold in liquefied, pressurized form. (NGLs are not the same as liquefied
natural
gas
—or LNG—which is methane that has been super-cooled and highly pressurized, usually to make it easier to transport by tanker.) NGLs have only about 60% of the energy by volume as crude oil and are, for the most part, used for purposes different from those of crude oil. So why should NGLs be called “oil”?

Then there are biofuels. These
are
used for purposes similar to those of crude oil—principally, as transportation fuels. However, ethanol and biodiesel are not extracted from the ground; they are made from agricultural products in a process that requires lots of oil and natural gas. Their production uses so much energy, in fact, that it is questionable whether they provide a net energy benefit, and, in any case, counting the biofuels along with the fuels that are consumed in their production is an improper double-counting.

When official agencies call NGLs and biofuels “oil,” statistics then show world “oil” production increasing in recent years; when these substances are subtracted from the accounting, nearly all that growth disappears. Thus an important economic signal is often hidden behind statistical noise.

All of this makes it more difficult to answer the question, “When will world oil production begin to decline?” Yet the question loses none of its criticality. Even if forecasting the exact date of the peak is a fool’s errand, only a fool would miss the signs that the world oil industry has entered a new, desperate era. Discoveries are down, costs are up. Production has flatlined, environmental impacts from petroleum operations are soaring.

Is this what peak oil looks like?

It Gets Worse

The actual peak in world oil production will presumably occur over the course of several years, while the decline in production will continue for decades. Given so much time, one might assume that civilization will gradually adapt without too much stress and strain. Two dilemmas make this much less likely by reducing the time available for adaptation.

The first is the
net export dilemma
. Trade in petroleum is integrated and global. Enormous amounts of oil are shipped by tanker from continent to continent or flow from country to country via pipeline. Many nations (such as Japan) produce no oil and import all they use, while others (like Saudi Arabia) are substantial exporters of petroleum. As the price of oil rises, the revenues to oil exporting nations grow (Saudi Arabia makes more money)—and economic expansion within these nations brings more domestic demand for oil. Thus, exporting nations end up using more of their own oil and exporting less, even if production holds steady from year to year. Indeed, oil demand within Saudi Arabia is growing faster than in all but a few other nations.

Since 2005, as world crude oil production has stayed essentially flat, the amount of petroleum exported has declined by about 5%.
3
Competition for these available exports has nudged oil prices higher. Because industrializing nations like China are able to afford a higher price (they haven’t spent decades getting used to using
cheap
oil in large quantities), they have effectively outbid older industrialized nations like the United States and most European countries: China imports more, while the US imports less. In the United States and Europe, high oil prices slow the economy, and in a slow economy motorists cut back on driving. Indeed, US drivers have cut back on gasoline consumption. As peak oil blogger Gail Tverberg has noted, American oil consumption in 2012 was about 20% lower than it would have been if the pre-2005 trend in oil consumption growth of 1.5% per year had continued.
4
Some of this reduction is as a result of improved vehicle fuel efficiency, but Americans are also simply driving less.
5

Figure 11. Oil Net Exports of Top 45 Net Exporters, 2002–2012.
Net exports have declined over 5% since 2005.

Source: Energy Information Administration, June 2013; compiled by Jeffrey Brown and Daniel Lerch.

If this trend toward declining petroleum exports continues, and there is no persuasive reason it won’t, then the amount of oil available on the world export market will shrink rapidly over the next decade. Oil importing nations will increasingly be shut out, and older industrialized nations (the United States, Japan, and Europe) will bear the brunt of disappearing export volumes. Petroleum geologist Jeffrey Brown calculates that if current trends were to persist, the United States and Europe would effectively be shut out of the world petroleum export market by 2025.
6

A second dilemma,
the decline in the energy returned on the energy that’s invested in obtaining oil,
will ultimately affect importers and exporters alike.

It takes energy to get energy. In the glory days of the oil industry, investing a barrel of oil’s worth of energy in exploration and production yielded a hundred barrels of oil or more over an oil well’s lifetime. Today in the US oil patch, the ratio of energy yield to energy investment is closer to 10:1.
7

Clearly, when the overall energy return on energy invested (EROEI) for the process of oil extraction declines to 1:1, then the oil produced will cease to be an
energy
source
in the true sense. It may still be useful as raw material or lubricant, but it will no longer serve to increase the amount of net energy available to do work for society.

The math of EROEI reveals what has come to be known as the
net energy cliff
. At first thought, it might appear that a 100:1 EROEI is 10 times more beneficial to society than a 10:1 energy profit. But it turns out that there’s a practical turning point at around 10:1 (the cliff). Above that ratio (from 11:1 to 200:1 and beyond) each incremental increase in EROEI delivers relatively smaller benefit. Below 10:1, each increment of decline is much more decisively detrimental.

Figure 12. The “EROEI Cliff.”
This chart shows
the
energy available to do useful work as a proportion of total energy expended for various resources.

Source: Adapted from J. David Hughes, "
Drill, Baby, Drill
," Figure 38.

Think of net energy in terms of the number of people in society engaged in energy production. If EROEI = 1:1, then everyone is involved in energy production and there is no one available to take care of society’s other needs. If the EROEI is 100:1, then 1 person is involved in energy production and 99 are able to do other things—build houses, teach, take care of the sick, cook, sell real estate, and so on. If we have 2 energy workers and 98 folks doing other things, then EROEI = 50:1; similarly, with 4 folks getting energy and 96 doing other things, EROEI = 25:1. With 8 getting energy and 92 doing other things (EROEI = 12.5:1) there may begin to be problems finding enough folks who are trained at getting energy to provide for all the others, whose every activity uses energy. With 16 getting energy and 84 doing other things (EROEI = 6.25:1) serious problems may become apparent, and an industrial-style organization of society may be only marginally viable.

Agriculture, education, health care, defense, entertainment, transportation, and manufacturing are all
users
of energy. A modern industrial nation needs a big surplus of energy from its energy-production efforts in order to power all these enterprises. White’s Law, arguably as important in the field of human ecology as the laws of thermodynamics are in physics, states that the level of economic development possible in any society is determined by the amount of
net
energy available per capita.
8
We ignore EROEI at our peril.

EROEI is crucial to considerations of the potential economic benefits of tar sands, oil shale, and biofuels, because each of these fuel sources has an EROEI of 5:1 or less. Their production can be financially profitable in certain economic and regulatory environments: government subsidies support the production of ethanol, gullible investors can sometimes be persuaded to fund the production of marginal resources like oil shale, and high oil prices can create incentives for the expansion of tar sands operations. But by themselves—if we were to remove the contributions of energy from conventional oil, gas, coal, hydropower, wind, and solar and ramp up tar sands, oil shale, and biofuels instead—these energy sources would be unable to power a complex society.

Figure 13. Characteristics of Energy Resources.

Source: Data compiled by David Murphy, from Tom Butler and George Wuerthner, eds.,
ENERGY: Overdevelopment and the Delusion of Endless Growth
, (Healdsburg, CA: Watershed Media, 2012).

Since the EROEI of oil is declining rapidly due both to the depletion of easy-to-produce deposits and to the increasing use of tar sands and tight oil, it would seem sensible for energy policy makers to promote an equally rapid transition to wind and other energy sources that have higher energy returns. However, in reality, renewable energy sources are making only small and slow inroads except in a very few countries (such as Germany and Denmark). That’s partly because of the political influence of the fossil fuel industry, but it also results from our enormous sunken investments in the current energy infrastructure of highways, internal combustion engines, gas furnaces and stoves, natural-gas-burning power plants, and so on. Replacing these takes time and money. These sunken investments ensure we will probably continue using oil and gas for decades, despite their deteriorating economics.