Around the Coast Mountains

I have been expanding my Thermodynamics page and I have mostly finished an analysis of fossil fuels. I am posting that section here for the benefit of those not frequenting my Thermodynamics page.

Oil

In our quest to sequester ever more sources of low-entropy energy, the Energy Returned on Energy Invested number (EROEI) becomes important. This number describes how much energy you have to expend to get an additional amount of new energy “out of the ground” and ready for use. In our past we had readily available fossil fuels with EROEI’s around 100:1 or even 200:1. Now we have run out of those and conventional oil today is less than 20:1. Non-conventional oil is below 10:1. The inefficiency, effort, and waste necessary to sequester further useful energy from fossil fuels should continue to spiral upwards as the EROEI of our dwindling fossil fuel sources spirals towards 1:1. We of course always choose to harvest the lowest hanging pear fruit first with the highest EROEI, which then leaves us with continually diminishing quality fossil fuel reserves with which to power our economies (and we wonder why there always seems to be an energy shortage…) Once you get below 1:1, well, you don’t have any more energy, at least from that particular source. Because unlike pears on a pear tree, oil doesn’t grow back the next year.

Because of the nature of the EROEI concept (efficiency goes down as the resource becomes scarce, rather than efficiency improving), we can expect the energy crunch to happen exponentially quickly, rather than gradually. And there is nothing that can be done to stop it, once we hit it. To try to fight Peak Oil by extracting more and more fossil fuels at faster and faster rates simply makes the problem worse and worse — this amounts to fighting the laws of thermodynamics. The only way to avert disaster in this situation is to get off fossil fuels as an energy source, and quickly! The Hubbert Curve looks like a nice symmetrical bell shape but the ride down is going to be nothing like the ride up. We will not have ample time to prepare and adapt to new constraints.

One of the major problems that needs to be overcome is the belief widely held throughout the realm of economics that an increasing oil price will stimulate increased oil / energy production and in turn this will foster the development of alternative energy sources, and that because of this, market forces will therefore be able to solve Peak Oil by themselves. Harking back to Econ 101, this free market dynamic would seem to be applicable if one uses an analysis of the industrial production of widgets as an example.

It is understandable to believe that this market dynamic should also apply to any other good as well, if one is operating under the assumption that the good in question is produced by people or companies, and if one has faith in the validity of the supply / demand chart. Wikipedia has a webpage, complete with nice smooth charts, dedicated to showing how Supply and Demand are supposed to work together in that Wonderful World of Widgets to restore and maintain balance in the markets.

From Wikipedia: “in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium of price and quantity.”

Hmm… let’s analyze that with respect to a widget. “If supply decreases and demand remains unchanged, then it leads to higher price and lower quantity.” This higher price should stimulate widget producers to take advantage of the imbalance and make a profit by producing more widgets until the price comes down, at which point the market reverts back to equilibrium. “Firms will produce additional output as long as the cost of producing an extra unit of output is less than the price they will receive.” Okay, sounds reasonable, I guess.

What about energy? As explained previously, in order to do anything in the universe, including “producing” a widget, we have to use energy (let’s just say we “consume” and “produce” energy for the sake of humouring the supply / demand chart, even though that isn’t correct). Therefore, when that company producing widgets decides to produce more widgets, what it necessarily also does is increase its energy consumption.

So now let’s leave behind the Wonderful World of Widgets and come back down to Planet Earth to analyze this same chart, but this time let’s say the good in question is no longer widgets, but energy, and specifically the energy that the widget producer needed more of to produce more widgets. Conventional economic theory dictates that (as with widgets) lower supply results in higher prices, which energy companies then take advantage of to produce more energy so that the equilibrium shifts back to its original position.

But wait … how are these energy companies actually “producing” energy to begin with? In order to “produce” energy, they’d also have to “consume” energy first, just like the widget company had to do. So what is it they are actually doing then? Are they consuming energy or are they producing energy? To make any kind of profit they’d have to produce more energy than they consume. But that is a perpetual motion machine, and since the first law of thermodynamics says that energy can be neither produced nor consumed, the only resolution to this logical hiccup can come from discarding the misleading concepts of energy “production” and “consumption” and moving on to the concept of EROEI. The miracle of energy “production” happens because the energy companies “invest” less energy than they “liberate”. So now we are right back at square one — EROEI.

The issues with extracting harder and harder oil as Peak Oil progresses are not just economic in nature — they really come down to net energy. While there is a price floor below which extraction of, for example, Alberta oil sand becomes uneconomical (somewhere around $30), and therefore above this price oil extraction will resume and increase, there comes a point above which it doesn’t matter how high the price goes; the limiting factors shift to become more geological in nature, not economic. If the EROEI is only 1.2 to 1, it doesn’t matter how high oil prices go, because so too will the input costs necessary to suck that oil out also rise along with it. It’s all relative, and rising prices simply shift the whole economic analysis further up the price axis; they don’t really change the fundamental EROEI problem. At below 1:1, even an infinite oil price will not bring more oil out of the ground (unless other energy sources like natural gas are cheaper but you can bet that gas prices will be following closely in the heels of oil when energy prices really get going). What happens during Peak Oil is that the supply curve continually shifts up towards a price of infinity, never to return.

Therefore, THE SUPPLY / DEMAND CHART IS NOT VALID FOR ANALYZING ENERGY MARKETS.  Some other kind of analysis will be required.

The Future of Fossil Fuels

Claims are often made in the media that we still have centuries of fossil fuels left, with the development of non-conventional oil resources like Alberta’s oil sands and with new technology like fracking (supposedly) unlocking huge reserves of natural gas and shale oil. The official website for Canada’s oil and gas industry, the Canadian Association of Petroleum Producers (let’s put aside for a moment the fact that there does not exist any company in the world that “produces” petroleum) presents the extent of Canada’s known oil reserves at 175 billion barrels, and notes that this is the third largest in the world next to Venezuela and Saudi Arabia — although the extents of those reserves have arguably been overstated so Canada may indeed be #1, for now. The total deposit is about 1.8 trillion barrels, and this is netted down to the fraction that is technically recoverable (with an EROEI greater than 1:1). Insider sources inform me, however, that the recoverable deposits actually amount to about 350 billion barrels, but the government does not state this so as to not take the stage away from Saudi Arabia, for the time being. If you want to read more about Alberta’s oil sands deposits you can go to the Alberta Energy Resources Conservation Board’s annual report.

If you peruse the CAPP website you will find little discussion of how the size of Canada’s deposits relates to total global reserves and more importantly, to global oil consumption which is currently about 31 billion barrels a year, of which about a fifth goes to the US. If you dig around you can find the numbers if you know what you are looking for and if you bring along your calculator, but CAPP isn’t going to any great lengths to inform people of these basic concepts. Lots of statistics are thrown around which are generally pretty good; at least the historical statistics. The future projections seem a little ridiculous, but that’s part of their strategy, as I will explain.

CAPP does, however, make a frank admission: “Many of the world’s current producing oilfields are running out of oil.” That’s quite a statement, coming from the oil industry itself! Indeed, global oil extraction hasn’t increased over the last seven years. The increased consumption from the developing countries, especially in Asia, has been offset by the economic contraction occurring in the western world. Has global demand for oil been dropping because people have decided that they don’t want to buy a new car and improve their standard of living? Not likely. Even during a recession, oil prices remain high. We are therefore likely at Peak Oil; it would take some miraculous new discovery to be able to increase extraction rates going forward, which of course we haven’t had, as explained by the Do the Math link provided above. Oil discoveries are going down, not up, and because of this, they will soon start their slide down the back side of the Hubbert Curve. But CAPP doesn’t actually call this Peak Oil. The day the oil companies admit to the current reality of Peak Oil will be a historic one.

CAPP’s free admission of the stagnation of global conventional oil extraction might have something to do with the fact that (conveniently) the vast majority of Canada’s oil reserves are not conventional oil… They talk about how energy demand from the world’s growing economy has been and will be increasing over the next few decades, and most importantly, how Canada’s oil sands extraction is going to (conveniently) help meet this demand in the face of stagnating global conventional crude extraction. With current oil sands extraction rates at around 700 million barrels per year the deposit would last centuries! That leaves us with plenty of time to develop alternative renewable energy sources, right?

But you should now be able to see the flaw in CAPP’s logic. They correctly point out how conventional crude extraction has hit a peak globally. Then they argue that Canada’s oil sands are so large that Alberta could plug this gap in supply for the foreseeable future until alternative energy sources are developed (for which they offer nothing more substantial than vague allusions and hand waving). But they will not explicitly quantify either of those two transitions — from conventional crude to synthetic crude, and then from petroleum products to renewables. They will not do this because the numbers don’t add up. They dance around the problem to keep you from thinking about it.

Let’s do a little calculation for a sense of scale to see how long the oil sands deposits would last if they were to hypothetically be needed to power the whole world. 350 divided by 31 is about 11. That is ELEVEN YEARS the oil sands would last if they were needed to power the world! Of course, Alberta oil sand isn’t the only petroleum deposit in the world to be developed over the next few decades. But considering that globally there is a little over a trillion barrels of recoverable oil left, at current consumption rates that works out to about 40 years. Certainly new deposits will be found, but all of the big easy ones already have (rest assured that the planet is being scoured very intensely right now). Future discoveries will be small and / or difficult, with low net energy return — again, that’s what Peak Oil entails. Much fanfare is made of any significant new discoveries but the recent discovery off Norway, as an example, amounts to … are you ready? … ONE MONTH of global oil consumption. Those future discoveries which will undoubtedly be paraded around the media as the solution to our energy woes will constitute the trailing edge at the bottom of the Hubbert Curve.

Another problem not addressed by CAPP concerns the approximate EROEI of 3:1 for oil sands operations. This means that it takes about 1 unit of external energy to extract, refine, and distribute 3 units of oil sand energy into gasoline ready for your car. This external energy comes primarily in the form of natural gas which is needed to heat the bitumen in the ground to get it to flow, as well as to upgrade it afterwards into something equivalent to what typically squirts out of a conventional oil well (more hydrogen has to be added to the hydrocarbons).

The Royal Society of Canada recently put out a report addressing the “Environmental and Health Impacts of Canada’s Oil Sands Industry“. On page 47 it states that the natural gas used for in situ steam generation alone “accounts for 20% of the energy contained in the produced bitumen”. When you add in the upgrading processes necessary to turn the bitumen into a salable synthetic crude product, and then to further refine this into gasoline, my overall EROEI estimate of 3:1, or 33%, seems about right.

Pages 47 to around 58 discuss why so much natural gas is required and what potential innovations and alternative energy sources could be substituted to reduce demand for gas. Beyond the efficiency improvements from the initial innovations that constitute “good housekeeping”, these alternative energy sources basically mean burning the less valuable fractions of the bitumen as a source of energy, in which case we can say good-bye to our 350 billion barrel deposit and net it down to something closer to 200 billion. The energy has to come from somewhere.

It is also noted on page 17 of the National Energy Board’s 2006 Energy Market Assessment that “going forward, as existing projects expand and new projects are initiated, it is likely that operators will be facing declining quality of bitumen reservoirs, with a resultant increase in energy required”. Huh. Even the NEB admits to the inevitable decline in EROEI, even for the oil sands.

Unfortunately, the Royal Society of Canada report doesn’t discuss the supply end of where this natural gas comes from. Is there enough available? According to CAPP itself, “The easier-to-produce sources of natural gas [in Canada] are in decline, so our industry is turning to sources that are more difficult and expensive to develop.” (translation — fracking). Let’s do another little calculation to see how much natural gas would actually be required for the whole oil sands deposit. At 350 billion barrels and a conversion factor of 5800 cubic feet of natural gas per barrel of oil equivalent, divided by an EROEI of 3:1, you get 670 TRILLION cubic feet. How does this compare with natural gas supplies? If we go to the official natural gas website, we find that there is about 6.2 quadrillion cubic feet of known natural gas deposits in THE WHOLE WORLD! This means that it would take a full 10% of (known) global supplies of natural gas to extract and refine the oil sands into usable products! The question must therefore be raised: when Peak Oil really starts to get into full swing, is the world’s demand for natural gas for uses other than for oil sands processing going to be increasing or decreasing? Will the world really be willing to give up this amount of natural gas for such an energy INefficient application?

So let’s assume the oil sands could hypothetically be counted on to chug along for a few decades to make up for the shortfall in global conventional crude extraction, after which the deposit would be finished. At around that time the world will be running really low on oil. A possible solution would be to use Gas-To-Liquids technology, which takes natural gas (methane) and strings together the molecules to make long chain hydrocarbons — essentially, synthetic oil. The overall efficiency of this process is around 50%. Cost-wise, well we know that it can’t be competitive with current oil sands operations, otherwise the natural gas being used by Alberta would instead be going directly into GTL facilities to make synthetic diesel. An EROEI of 0.5 to 1 can’t compete with 3:1.

CAPP reassures us that “North America has over a century of natural gas supply at today’s consumption levels.” But what about when consumption levels increase to offset Peak Oil? How long would total known global reserves (6,200 trillion cubic feet) last if they were to hypothetically be needed to ramp up to supply, oh, let’s say, half of today’s global oil consumption via GTL? 30 billion barrels a year divided by 2 is 15 billion. Multiply by 5800 to get cubic feet of natural gas, then multiply by 2 again for the 50% conversion efficiency, and we get 174 trillion. Add to this the current global use of natural gas of 55 trillion cubic feet and we get 230 trillion. Divide this into 6,200 and we get TWENTY SEVEN YEARS.

Now, lots more natural gas is going to be found, and therefore this number should be increased by some factor. What that factor is, I don’t know. But this calculation doesn’t even consider the EROEI of extracting that gas, which we know will get lower over time as the lowest hanging pear fruit is always picked first. And just because it is known that 6,200 trillion cubic feet exists underground doesn’t mean it can all be recovered. So there is a lot of wiggle room in these numbers, in both directions, but they give an idea of the general magnitude of the problem.

A suggestion by the energy companies to ameliorate the large amount of natural gas needed to process oil sands is to instead build nuclear reactors to provide this energy. Another suggestion is to use coal. Okay, let’s analyze that. Coal is the only fossil fuel I haven’t yet addressed, so what is its capacity? The World Coal Association states that there is about 800 billion short tons left. Yearly consumption is about 7 billion tons, leaving us with over 100 years worth of coal at current consumption rates. However, there seems to be some skepticism by other analysts towards these rosy estimates. In any event, the methodology for estimating the depletion time of coal deposits suffers from the same problem that the analyses for natural gas and oil sands do as I previously explained — that when conventional oil extraction rates start sliding down the back side of the Hubbert Curve, then other fossil fuel sources will be called upon to take up the slack. Coal can also be converted into liquid fuels via coal-to-liquids technology (interestingly, this was pioneered by the Germans in the second world war because they had little access to oil). But the thermal efficiency of these substitutions won’t be anywhere near what conventional crude used to provide. Therefore, to maintain current energy consumption rates after Peak Oil will require an exponentially increasing consumption of natural gas, oil sand, and coal. This herculean feat would cut the forecast lifetimes for coal deposits to a fraction. And again, if this process was cheap, easy, and efficient, then it would already be in widespread use. But it’s not, and that tells you something about its economics.

If I may offer an opinion here… I can’t help but notice that when we have reached the situation where previous sources of direct energy (coal and nuclear power plants) are now being proposed to provide secondary energy to simply extract and process additional energy from the ground in order to “produce” something (synthetic crude oil) that only a few decades ago used to squirt directly out of the ground with an EROEI of 100:1 …… well, we just might be approaching the bottom of the barrel. We moved away from coal for transport a long time ago because better energy sources became available. What does it say when we are forced to return back? Desperate situations call for desperate measures. We are in an energy predicament and these last ditch efforts are really just an outright admission of how close our overall energy supplies are to an EROEI of 1:1.

Despite this critical situation, CAPP still manages to maintain a straight face and make the ridiculous assertion that, “We believe that we can and must advance environmental protection, economic growth and a secure energy supply simultaneously.” (emphasis mine).

I fail to see how exponentially increasing the rates of fossil fuel extraction to maintain current energy consumption rates in the face of a spiraling EROEI can in any way be consistent with “environmental protection”. When was the last time you heard of environmentally friendly fossil fuel extraction? And what of the tremendous amounts of carbon released into the atmosphere with the inefficient EROEI’s we will soon be facing? There’s a reason that carbon got deposited into the ground in the first place. Should we have faith in Carbon Capture and Storage? Wake me up when that fantasy becomes reality. And how do you “capture and store” emissions from millions of individual tailpipes? And CCS has significant energy requirements, meaning the overall EROEI will go even lower.

As to the assertion of “advancing a secure energy supply”, it would seem to me that using up our remaining supplies of non-renewable fossil fuels as quickly as possible without any serious consideration of the consequences would be the antithesis of securing an energy supply! Wouldn’t the most secure energy supply be the one that’s still in the ground? Or renewable?

And my analysis up until now assumed that current demand for energy would continue going forward. But if we are going to also factor in exponential demand increases from future economic growth (which CAPP explicitly states “must” advance), then the situation becomes even more dire. Isn’t China building something like one new coal fired power plant every week?

Still another problem not addressed by CAPP is that the oil sands are “slow oil”. It takes a huge amount of engineering effort to extract and refine oil sand. Factories need to be built overtop each deposit. This cannot be ramped up quickly like drilling more oil wells can. Therefore, it’s not really feasible to expect oil sands activities to be able to miraculously ramp up to a rate capable of offering a significant response to Peak Conventional Oil and its imminent steep decline down the Hubbert Curve. And of course, even if it was, then the deposit would only last a few decades.

CAPP does not talk about the rate problem because they don’t want you thinking about the two most important words in the whole world right now — Peak Oil. CAPP wants to paint a picture of a prosperous future, powered by petroleum products of course. A frank discussion of Peak Oil would by definition invalidate such a rosy outlook, because Peak Oil directly implies that not only can the rate of oil pulled out of the ground not be increased, but it will unavoidably decline, and this is simply a function of physics. CAPP wants you to have faith that the oil extracted from Canada will be able to supply increased global demand for a long long time, so there is no immediate need to drop the fossil fuel energy subsidies, curtail energy consumption from general use and instead divert the remaining petroleum reserves into building a renewable energy infrastructure. We just need to get that darn pipeline built out to the west coast to supply the world! Then everything will be fine! Such is the modus operandi of perception management.