It is impossible for and unsophisticated observer to understand the dynamics of what is going on in the petroleum market and extremely difficult for a sophisticated observer to follow the trends in supply/demand given the sheer number of voices reporting their opinions.
In this post I want to announce a stunning new opinion first reported on the blog “Cassandra’s Legacy” authored by Ugo Bardi who resides in Florence. See: http://cassandralegacy.blogspot.com/2016/07/some-reflections-on-twilight-of-oil-age.html.
In his July 12 2016 blog, Ugo reported on the work by the Hills group
(http://www.thehillsgroup.org). , who are a group of engineers who have been studying the decline in net delivered energy to society from petroleum. They posit the shocking opinion that the end of the oil age as we know it could be upon us in just a decade. They base their opinion of the steady decline in net energy available since the first well was drilled in Pennsylvania in 1859 to where we are now with various unconventional sources of oil whose extraction and delivery are demanding ever more energy to deliver the end product to the consumers. Simply put, it takes oil energy to get oil energy and when we reach the point where the amount of energy expended matches the energy obtained, the game is over. Let me post a segment from Ugo’s first of three posts from the Hills group which illustrates their alarming conclusion:
The end of the Oil Age is now
If we had a whole century ahead of us to transition, it would be comparatively easy. Unfortunately, we no longer have that leisure since the second key challenge is the remaining time frame for whole system replacement. What most people miss is that the rapid end of the Oil Age began in 2012 and will be over within some 10 years. To the best of my knowledge, the most advanced material in this matter is the thermodynamic analysis of the oil industry taken as a whole system (OI) produced by The Hill’s Group (THG) over the last two years or so (http://www.thehillsgroup.org).
THG are seasoned US oil industry engineers led by B.W. Hill. I find its analysis elegant and rock hard. For example, one of its outputs concerns oil prices. Over a 56 year time period, its correlation factor with historical data is 0.995. In consequence, they began to warn in 2013 about the oil price crash that began late 2014 (see: http://www.thehillsgroup.org/depletion2_022.htm). In what follows I rely on THG’s report and my own work.
Three figures summarize the situation we are in rather well, in my view.
Figure 1 – End Game
For purely thermodynamic reasons net energy delivered to the globalized industrial world (GIW) per barrel by the oil industry (OI) is rapidly trending to zero. By net energy we mean here what the OI delivers to the GIW, essentially in the form of transport fuels, after the energy used by the OI for exploration, production, transport, refining and end products delivery have been deducted.
However, things break down well before reaching “ground zero”; i.e. within 10 years the OI as we know it will have disintegrated. Actually, a number of analysts from entities like Deloitte or Chatham House, reading financial tea leaves, are progressively reaching the same kind of conclusions.
The Oil Age is finishing now, not in a slow, smooth, long slide down from “Peak Oil”, but in a rapid fizzling out of net energy. This is now combining with things like climate change and the global debt issues to generate what I call a “Perfect Storm” big enough to bring the GIW to its knees.
I would urge the interested reader to read the posts and go to the Hills group website to explore the details of their methodology. To say that their conclusions are earth shattering would be an understatement.
I have spent time analyzing their data and conclusions and implicit in their work is that it applies on the margin for new supply. There are legacy oil fields where the energy expended to deliver the oil is low because of sunk costs and infrastructure constructed decades ago but for new sources it is a different story. The Hills Group does not say that we will have no oil in 10 years. They just state that the energy costs of acquiring new oil are steadily climbing and as time goes on society gets less and less energy and less exergy, or the ability to perform work from each bbl of oil.
From my reading I understand that they are talking about the energy available just in oil to get oil energy. Other energy sources like coal or gas or nuclear energy can and is utilized to obtain oil. Their point is on the net oil energy available after expending oil energy to explore, drill, process and distribute that oil. In most cases oil energy is the only feasible energy available.
I would like to add a few points some of which were covered in the Cassandra’s Legacy blog and some not. Fossil fuels supply 86 % of world energy and the Hills group state that 88% of oil energy is “wasted”. The percentage breakdown of that “waste” was not broken down in any of the data I was able to examine but the largest waste was unavoidable thermodynamic waste inherent in the conversion from the chemical energy in the oil into thermal energy and mechanical energy as it is burned or oxidized. I assume that the thermodynamic losses relate to the enthalpy of the reaction combusting the hydrocarbons. Energy is consumed breaking bonds and energy is released forming new bonds in the products of combustion. For example cleaving the carbon/hydrogen bond is an endothermic process. It requires energy to break that bond. The products are CO2 and H20 which bond formation releases more energy than breaking the C/H bonds. Most of the energy consumed in an engine or power plant is wasted and dissipated as heat. Gas engines can be as low as 20% efficient and diesel engines can approach 40%. It is much the same with power plants whether burning oil or coal. Older plants are as low as 30% efficient and as high as 40% but that is still a lot of waste. After exploration, production, refining, and delivery energy costs have been deducted, then that oil is burned in an engine which is only 20-40% efficient. It is pretty shocking how much we waste. In the case of a 4000 lb automobile, most of the energy is used to get the mass of the car down the road with the human occupants only a tiny percentage of that car’s mass. The blog and the monographs also failed to mention the fact that since about the mid 60’s, the amount of new discoveries of oil failed to keep pace with world consumption. In 2014 or 2015, if memory serves ,the world used about 31 billion bbls of oil and new discoveries totaled a bit less than 3 billion bbls and the cost of finding those 3 billion bbls has been going up about 7% a year since about 2000. Clearly business as usual(BAU) cannot continue with these numbers. Either we are going to have to use a whole lot less oil or find a whole lot more. If what new oil we find is too expensive for society, it will crash the economy. But sustained low oil prices will crash the oil industry. If the Hills group conclusions are right that the loss of this resource will be driven by thermodynamic factors and not financial or debt factors then we are entering a new paradigm. My draw from the work of the Hills group is that oil availability will be rapidly diminishing in the next 10-15 years and if net energy declines as they propose, this rodeo will be over. The end of the oil age may be sooner than we think.