Energy Return on Energy Invested
Much political discussion has addressed the fact that oil companies have not been drilling for oil on leases they presently have available. Despite the efforts of many politicians, such as, Sarah Palin who consistently urge companies to “drill baby drill” there has not been a significant move to drill on these leases.
As we have noted in earlier blogs the difficulty lies in the fact that the easily produced, high quality crudes have already been produced. Remaining oil reserves require much more effort and expense and will only result in the production of undesirable heavy-high sulfur crude oil. Additionally, decline curves of newly produced discoveries are quite step and production lasts for only a short time. As a result, without unrealistic price increases for crude oil the historical Return on Investments (ROI) do not warrant developing many of these leases.
More importantly, what is happening in many cases is the energy spent to extract a barrel of oil exceeds the energy provided by that barrel. This concept, as discussed by William R. Clark in his book “Petrodollar Warfare” is called Energy Return on Energy Invested (EROEI). As he points out, years ago super-giant oil fields were still being discovered and could produce EROEIs of 200, or energy returns 200 times greater than the energy actual expended to extract the oil. Comparatively, oil wells in deep water, such as, the Gulf of Mexico, currently incur EROEIs of less than 5. The Canadian tar sands, while having vast reserves, have an EROEI of 1.5. If these numbers are accurate, we will eventually reach a point when all remaining oil reserves will require more energy to produce than the energy returned. In other words it will no longer be logical to expend the energy to extract this oil. In such a scenario, the EROEI for those oil fields becomes an energy sink and the oil will simply remain in the ground. Unlike the traditional Return on Investment (ROI) calculations, the amount of money invested in a mature oil field is completely irrelevant if the energy required to extract the oil is greater than the return. In these cases increasing oil prices to improve ROI is just a short term fix.
Despite the social, economic, and geopolitical implications of global Peak Oil many governments, including the Cheney consortium, are reluctant to address or publish information regarding EROEI and continue in the unfounded belief that more drilling will result in satisfying increased demand to further economic growth.
Our newly elected officials need to aware of the fallacy inherent in the “drill baby drill” philosophy and begin to develop an oil policy which makes more long range sense.