Oil Economics Made Easy

Afterburn Society: Beyond Fossil Fuels

Richard Heinberg (2015)

Film Review

Afterburn Society is about the economics of energy, specifically the energy produced by fossil fuels. The subject of economics is like bad-tasting medicine for a lot of people. However Post Carbon Institute Fellow Richard Heinberg’s jargonless, down-to-earth delivery makes the experience quite painless and even pleasurable.

Heinberg begins by tracing the history of agriculture and manufacturing. Prior to the late 19th century, there were only two sources of energy. People either relied on their own muscle power or they employed traction animals or slaves (ironic, isn’t it, how fossil fuels replaced slavery?).

In contrast, our modern-day food industry relies heavily on fossil fuels to run farm machinery, for plastic packaging (derived from oil), to transport food to market, for nitrogen fertilizer (derived from natural gas) and as a source of herbicides and pesticides (derived from oil).

It takes 350 gallons of oil a year to feed one American and seven Calories* of fossil fuel to produce one calorie of food.

The Law of Diminishing Returns

Heinberg goes on to explain the law of diminishing returns as it pertains to oil production. Over the last eight years investment in oil production has soared, while output per dollar invested has steeply declined. From 1997-2005, oil companies spent $1.5 trillion to produce 86 million barrels of oil a day. Between 2005-2013, they spent $4 trillion to produce 3 million barrels a day.

Industry data reveals conventional oil production peaked in 2005 and has been declining ever since. Most of the new oil production has come from more costly and risky technologies, such as fracking and deep sea oil drilling. The use of these new technologies has increased the cost of oil extraction. This, in turn, has led the price of oil to skyrocket from $27 a barrel in 2000 to $100 a barrel in 2014.

The higher price of oil means a higher return for oil companies. This, in turn, enabled more costly and controversial technologies, such as fracking and deep sea oil drilling have come onboard. They only became economically viable when the price of oil passed $70-80 a barrel.

EROEI

Oil production costs aren’t only increasing in dollar terms, but in terms of the energy required to extract new oil. Heinberg predicts that by mid-century, it will require as much energy to extract a unit of oil and natural gas as that unit will produce when it’s burned. At that point, fossil fuels will cease to be a viable energy source, though they may continue to be useful in producing plastics, synthetic fabrics and other petroleum byproducts.

Overall surplus energy will steeply decline when this happens, as renewable energy technologies have a much lower EROEI (Energy Return on Energy Invested) than fossil fuels. For example, solar energy has an EROEI of 2.5-5 to 1 (2.5-5 units returned for every unit invested), in contrast to oil’s EROEI of 30 to 1. Biofuels, with an EROEI of 1 to 1, are even worse. Their only purpose is to return a profit to government subsidized biofuel merchants like Archer Daniels Midland. They’re useless as an energy source.

The steep decline in surplus energy will translate into major social change, as nearly all of our energy use will be geared towards producing new energy (i.e. food production).

The Recent Drop in Oil Prices

In my view, the only shortcoming in this presentation was Heinberg’s failure to address the steep drop in oil prices that began in June 2014 (from $100 to $48 a barrel, recently leveling off around $60 a barrel). He does discuss it in a December 19, 2014 article The Oil Price Crash of 2014

In brief he attributes the temporary price drop to a decrease in demand (due to deepening recession in China, Japan and Europe), coupled with increasing supply (due to the frantic pace of fracking in the US). Normally when there’s a mismatch in supply and demand, it falls on Saudi Arabia (the world’s top oil exporter) to ramp down production. This time the Saudis have refused to cut back production.

Their motivation is a matter of speculation. According to Heinberg, the most likely reasons are a desire to destroy the US fracking industry (small fracking companies are going bankrupt in droves – they’re up to their eyeballs in debt and fracked oil is only profitable above $70-80 a barrel) – and to punish Russia and Iran (whose economies are totally dependent on oil and gas exports) for meddling in Syria and Iraq.


*A measure of energy, a Calorie is the amount of energy needed to raise 1 kilogram of water 1 degree Centigrade.

Upcycyling: Saving the Planet by Design

the upcycle

The Upcycle: Beyond Sustainability – Designing for Abundance

 By William McDonough and Michael Braungart

2013 Northpoint Press

 Book Review

In The Upcycle, American architect William McDonough and German chemist Dr Michael Braungart offer a new improved version of the cradle to cradle (C2C) vision they first introduced with their 2002 book Cradle to Cradle: Remaking the Way We Make Things.

C2C design is an approach to architecture and manufacturing that seeks to lessen environmental damage and the impact of resource scarcity by revolutionizing the way we design products, factories, buildings and cities – as opposed to trying to undo or minimize the negative effects of conventional production. There are no villains in C2C design. McDonough and Braungart are highly critical of the current tendency to demonize carbon, given its role as an essential building block of life. There’s simply too much of it accumulating in the atmosphere when it should be returning to the soil for food production. They also object to labeling incandescent light bulbs, air travel, long showers and disposable diapers as “bad for the environment.” Instead of shaming and penalizing people who use these products for “wasting energy,” we should be trying to find more efficient ways to produce them.

Imitating Nature’s Design Principles

A fundamental precept of C2C design is its emphasis on biomimicry, i.e. copying the genius of nature’s design principles. One of the major drawbacks of conventional industry is a built-in inefficiency in which valuable resources are lost to the landfill, incineration or runoff. In C2C design, as in nature, there is no waste. Instead products, industries and processes are designed in such a way that waste from one provides the raw materials for others. McDonough and Braungart argue that the initial design of any product, building or factory should include detailed planning for the new products that will be made from its basic elements when it wears out or is torn down. For example, a C2C computer would be designed to be returned to the manufacturer and easily disassembled into safe, environmentally friendly components that can easily be put to other uses.

The Cradle to Cradle Products Innovation Institute

With their new book, the authors elaborate on their earlier work by introducing the concept of “upcycling.” This they define as optimizing the materials, ingredients and process pathways in such a way that waste is converted to raw materials for nature or some other industry. By ensuring that scarce natural resources, such as aluminum, copper, water and wood, are continuously reused, there is less pressure to destroy more and more of the environment to replace them.

After consulting with hundreds of businesses and cities on adopting C2C design principles, in 2010 they started McDonough-Braungart Design Chemistry (MBDC) and the Cradle to Cradle Products Innovation Institute. The latter issues C2C certification for companies and products based on five quality categories:

  1. Use of materials that are safe and healthy for humans and the environment
  2. Incorporation of design principles that allow all products to be reused by nature or industry.
  3. Use of renewable, non-polluting energy in the manufacture and assembly process.
  4. Use of production processes that protect and enrich the water supply.
  5. Treatment of all people involved in a socially responsible way.

The Upcycle presents numerous real life cases demonstrating the enormous economic advantages C2C technology can have for business. Lower energy and water processing costs can save tens of millions of dollars in both upfront capital costs and long term operational costs.

The Argument Against Biofuels, Nuclear Energy and Dam-Based Hydropower

A large section of The Upcycle analyzes the cost and desirability of current renewable energy options. Biofuels, nuclear energy and dam-based hydropower are rejected as being incompatible with C2C technology. Not only is the current biofuel industry responsible for massive rainforest destruction in Indonesia, but it offers no significant reduction in CO2 emissions (because they contain the same complex carbon chains, biofuels produce as much CO2 as fossil fuels).

Nuclear technology, in turn, creates a massive amount of permanent waste that can’t be diverted to other safe uses.

Meanwhile large dams, which cause the same kind of environmental damage and habitat destruction as strip mining and nuclear energy, has virtually decimated the wild salmon population in the Pacific Northwest. The authors give much higher marks to small scale high head hydro generation in which water flowing downstream turns a ferris wheel-type generator.

They also feel solar, wind (especially offshore wind generation, which is less aesthetically controversial), geothermal and biogas from manure and landfill waste have great promise. They note that as of June 2 2012 wind-generated electricity is two cents per kilowatt hour cheaper than coal.

Michael Braungart is featured in the following video Pyramids of Waste aka The Lightbulb Conspiracy: