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Oil Is Facing The Perfect Storm

Offshore rig

Since at least the end of 2014 there has been increasing uncertainty over oil prices, from whether so-called “Peak Oil” has already happened, to matters of EROI (or EROEI) values for current energy sources and for alternatives, to climate change and the phantasmatic 2oC warming limit, and the feasibility of shifting rapidly to renewables or sustainable sources of energy supply. Overall, it matters a great deal whether a reasonable time horizon to act is say 50 years, i.e. in the main the troubles that we are contemplating are taking place way past 2050, or if we are already in deep trouble and the timeframe to try and extricate ourselves is some 10 years. Answering this kind of question requires close attention to system boundary definitions and scrutinizing carefully any assumptions.

It took over 50 years for climatologists to be heard and for politicians to reach the Paris Agreement regarding climate change (CC) at the close of the COP21, late last year. As you no doubt can gather from the title, I am of the view that we do not have 50 years to agonize about oil. In the three sections of this post, I will first briefly take stock of where we are oil wise; I will then consider how this situation calls upon us to do our utter best to extricate ourselves from the current prevailing confusion and think straight about our predicament; and in the third part I will offer a few considerations concerning the next ten years – how to approach it, what cannot work, what may work, and the urgency to act, without delay.

Part 1 – Alice looking down the end of the barrel

In his recent post, Ugo contrasted the views of the Doomstead Diner's readers with that of energy experts regarding the feasibility of replacing fossil fuels within a reasonable timeframe. In my view, the Doomstead’s guests had a much better sense of the situation than the “experts” in Ugo’s survey. To be blunt, along current prevailing lines we are not going to make it. I am not just referring here to “business-as-usual” (BAU) parties holding on for dear life to fossil fuels and nukes. I also include all current efforts at implementing alternatives and combating CC. Here is why.

The energy cost of system replacement

What a great number of energy technology specialists miss are the challenges of whole system replacement – moving from fossil-based to 100 percent sustainable over a given period of time. Of course, the prior question concerns the necessity or otherwise of whole system replacement. For those of us who have already concluded that this is an urgent necessity, if only due to CC, no need to discuss this matter here. For those who maybe are not yet clear on this point, hopefully, the matter will become a lot clearer a few paragraphs down.

So coming back for now to whole system replacement, the first challenge most remain blind to is the huge energy cost of whole system replacement in terms of both the 1st principle of thermodynamics (i.e. how much net energy is required to develop and deploy a whole alternative system, while the old one has to be kept going and be progressively replaced) and also concerning the 2nd principle (i.e. the waste heat involved in the whole system substitution process). The implied issues are to figure out first how much total fossil primary energy is required by such a shift, in addition to what is required for ongoing BAU business and until such a time when any sustainable alternative has managed to become self-sustaining, and second to ascertain where this additional fossil energy may come from.

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 timeframe 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 

THG are seasoned U.S. 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. 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 1End Game


(Click to enlarge)

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 tealeaves, are progressively reaching the same kind of conclusions.[1]

Related: U.S. Production Is Falling, Why Isn’t Oil Recovering Faster?

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.

In an Alice world

At present, under the prevailing paradigm, there is no known way to exit from the Perfect Storm within the emerging time constraint (available time has shrunk by one order of magnitude, from 100 to 10 years). This is where I think that Doomstead Diner's readers are guessing right. Many readers are no doubt familiar with the so-called “Red Queen” effect illustrated in Figure 2 – to have to run fast to stay put, and even faster to be able to move forward. The OI is fully caught in it.

Figure 2Stuck on a one track to nowhere


(Click to enlarge)

The top part of Figure 2 highlights that, due to declining net energy per barrel, the OI has to keep running faster and faster (i.e. pumping oil) to keep supplying the GIW with the net energy it requires. What most people miss is that due to that same rapid decline of net energy/barrel towards nil, the OI can't keep “running” for much more than a few years – e.g. B.W. Hill considers that within 10 years the number of petrol stations in the U.S. will have shrunk by 75 percent…

What people also neglect, depicted in the bottom part of Figure 2, is what I call the inverse Red Queen effect (1/RQ). Building an alternative whole system takes energy that to a large extent initially has to come from the present fossil-fuelled system. If the shift takes place too rapidly, the net energy drain literally kills the existing BAU system.[2] The shorter the transition time the harder is the 1/RQ.

I estimate the limit growth rate for the alternative whole system at 7 percent growth per year.

In other words, current growth rates for solar and wind, well above 20 percent and in some cases over 60 percent, are not viable globally. However, the kind of growth rates, in the order of 35 percent, that are required for a very short transition under the Perfect Storm time frame are even less viable – if “we” stick to the prevailing paradigm, that is. As the last part of Figure 2 suggests, there is a way out by focusing on current huge energy waste, but presently this is the road not taken.

On the way to Olduvai

In my view, given that nearly everything within the GIW requires transport and that said transport is still about 94 percent dependent on oil-derived fuels, the rapid fizzling out of net energy from oil must be considered as the defining event of the 21st century – it governs the operation of all other energy sources, as well as that of the entire GIW. In this respect, the critical parameter to consider is not that absolute amount of oil mined (as even “peakoilers” do), such as millions of barrels produced per year, but net energy from oil per head of global population, since when this gets too close to nil we must expect complete social breakdown, globally.

The overall picture, as depicted ion Figure 3, is that of the “Mother of all Senecas” (to use Ugo’s expression). It presents net energy from oil per head of global population.[3] The Olduvai Gorge as a backdrop is a wink to Dr. Richard Duncan’s scenario (he used barrels of oil equivalent which was a mistake) and to stress the dire consequences if we do reach the “bottom of the Gorge” – a kind of “postmodern hunter-gatherer” fate.


Oil has been in use for thousands of year, in limited fashion at locations where it seeped naturally or where a small well could be dug out by hand. Oil sands began to be mined industrially in 1745 at Merkwiller-Pechelbronn in north east France (the birthplace of Schlumberger). From such very modest beginnings to a peak in the early 1970s, the climb took over 220 years. The fall back to nil will have taken about 50 years.

Related: The Hague Tribunal Ruling On South China Sea Raises Tensions

The amazing economic growth in the three post WWII decades was actually fuelled by a 321 percent growth in net energy/head. The peak of 18GJ/head in around 1973, was actually in the order of some 40GJ/head for those who actually has access to oil at the time, i.e. the industrialized fraction of the global population.

Figure 3The “Mother of all Senecas”

In 2012 the OI began to use more energy per barrel in its own processes (from oil exploration to transport fuel deliveries at the petrol stations) than what it delivers net to the GIW. We are now down below 4GJ/head and dropping fast.

This is what is now actually driving the oil prices: since 2014, through millions of trade transactions (functioning as the “invisible hand” of the markets), the reality is progressively filtering that the GIW can only afford oil prices in proportion to the amount of GDP growth that can be generated by a rapidly shrinking net energy delivered per barrel, which is no longer much. Soon it will be nil. So oil prices are actually on a downtrend towards nil.

To cope, the OI has been cannibalizing itself since 2012. This trend is accelerating but cannot continue for very long. Even mainstream analysts have begun to recognize that the OI is no longer replenishing its reserves. We have entered fire-sale times, as shown by the recent announcements by Saudi Arabia, whose main field, Ghawar, is probably over 90 percent depleted, to sell part of Aramco and make a rapid shift out of a near 100 percent dependence on oil and towards “solar”.

Given what Figure 1 to 3 depict, it should be obvious that resuming growth along BAU lines is no longer doable, that addressing CC as envisaged at the COP21 in Paris last year is not doable either, and that incurring ever more debt that can never be reimbursed is no longer a solution, not even short-term.

Time to “pull up” and this requires a paradigm change capable of avoiding both the RQ and 1/RQ constraints. After some 45 years of research, my colleagues and I think this is still doable. Short of this, no, we are not going to make it, in terms of replacing fossil resources with renewable ones within the remaining timeframe, or in terms of the GIW’s survival.

By Louis Arnoux via Cassandralegacy.blogspot.com

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  • Tbone on July 14 2016 said:
    So I have about 10 years left to transition my career into something of a Mad Max mold? Damn.
  • Jack b :-) on July 14 2016 said:
  • Jim Decker on July 14 2016 said:
    One problem with the wonderful theory. There is not an ounce of evidence that we are putting more energy into producing the oil than we get out of it. Fracking is very efficient and it is right here at home.

    OH, by the way, there is no evidence that AGW is happening or would be a problem if it were.
  • Ally on July 14 2016 said:
    The problems I have with this article are many, but the key problem I have is this contention that anthropogenic climate change is going to cause climate changes more costly than its remedy. I've seen a lot of platitudes and hand waving, and I've looked and looked and found only Sesame Street websites to make the case. But nothing solid. And to go to the technical literature and get to the bottom of this would take probably 2 years of full time research. I don't have time for that. I've yet to see a cogent, concise, factual and sound argument for the premise assumed. If anyone has a link with a damning, evidentiary-based presentation please let me know. Until then, show me the data.
  • Manglani on July 14 2016 said:
    The writer should re-write this article in plain English. The OI is delivering about 96 MBPD of Hydrocarbon products each day. So, the writer is asserting that OI roughly uses equivalent energy of 96 MBPD of hydrocarbon products to deliver this to the world. Where is this energy coming from? This article is a waste of time
  • Neil M on July 15 2016 said:
    Wow! This article makes no sense whatsoever....
  • John on July 15 2016 said:
    The author is saying that the price has dropped more or less because we are realizing less and less of the energy in the barrel as net energy available for GDP growth. I have seen this argument before and sadly it is wrong. One has to only keep in mind is that refinery gains over the years have more than offset all losses in the Energy Cost equation.
    The Price of Oil is only dependent on Supply and Demand!
  • ZachAttack on July 15 2016 said:
    Any bets if this author has already been on doomsday preppers?
  • Jim on July 15 2016 said:
    I would be ashamed to show my name or face making so many unfounded assumptions. On another note, as Al Gore said we would all be under water now due to global warming.

    What a waste of a brain.
  • Tave on July 15 2016 said:
    The blue line on on the barrel of figure 1 is wrong. Refineries once used a significant proportion of each barrel of oil for cracking by heat. Now it is a small percentage. Handwaving masquerading as facts.
  • Lee James on July 15 2016 said:
    I agree with the writer's conclusions, but pulling oil out of the ground is full of surprises. Me thinks it is difficult to predict net energy for the enterprise in absolute terms. Only the trend downward seems clear.

    My concern is that the net benefit for extracting oil is declining. The question is, all things considered -- health, earth-impact, national security (war is often over oil, and oil sales fuel the economies of certain petrostates bent on war), water and air quality -- how rapidly is the net benefit from burning oil declining?

    I think the oil industry needs to know that the oil-burning public is increasingly uneasy about their product. Oil was once nothing short of wondrous (even a medicine), with a bonanza around every corner.

  • Matthew Biddick on July 15 2016 said:
    PUHLEEEZE, get over your bureaucrat wannabe use of acronyms!! Next, did Oilprice put this up for fun? I mean, it's not April 1st, right? However, on the useful side of things, the article/author does provide an insight into how the CC/AGW (couldn't resist) folks' minds work. Now, I've got to get back to BAU.
  • Mark on July 15 2016 said:
    What the oil Industry needs if far the Government to stay out of it, how come the main scientist in climate change just revealed it is the biggest hoax on earth, all the government does is rape oil companies of there earnings any way possible by constantly adding new costly policies, like a dam lizard.
  • Charles A Steinman on July 15 2016 said:
    This appears to be market preparation advertising for Dr. Louis Arnoux's company which produces nGeni systems. Dr. Arnoux appears to be the author of this piece and the artwork is labeled nGeni.

    I believe the agenda is to push a philosophy that leads in a direction toward his company's products.

    I wish the writing were not so turgid. I am going to read the whole article again, for better understanding.
  • EdBCN on July 15 2016 said:
    Not sure how they are calculating the "Energy cost of exploration..." but it doesn't seem to correspond to the real world at all. The idea that there is not enough energy available to build out a green utility system and electrified transport also seems way off base by an order of magnatude.
  • Charles A Steinman on July 16 2016 said:
    I have followed the trail indicated in the article and I now understand a key element of the argument. This element appears to me to be bogus. Even if it weren't bogus, the effect or process would be different than is presented, but it also appears to be bogus.

    Here is the gist of it: You cannot expend more energy extracting oil from the ground than you get from the oil. No one would disagree. But somehow this author has latched onto a study that says the amount of energy used to extract, refine and distribute oil is now 50% of the energy received from the oil.

    From this 50% a curve is drawn which shows oil having zero value in few years.

    You can see all of this at www*thehillsgroup*org. The shoestring budget for that website is obvious. Probably necessary because the content is something people won't pay for. There's a bit of sketchy mumbo jumbo in there related to a black box type of model that supposedly took 10,000 manhours to create. But in the end, they compare the US Economy to a Thermal Engine -- such as the engine you might find in your car. They then surmise a magical number of .2054 as the energy efficiency of the economy and in some illogical mathematical processes use that efficiency to identify the cost of producing oil out of the ground and distributing it.

    In addition to this, they take this single cost estimate and somehow (it is a hidden technique) turn it into a curve over time (the curve appears to resemble a half circle). The curve then reveals when the value of oil goes to zero.

    I would think the better way to go about the identification of costs for obtaining petroleum from the ground, refining it and distributing it would be to sample several large companies from each of these industries, detect the amount of fuel and electricity expense (converted to BTU) used in each industry, extrapolate that to the whole industry, add the sum and then divide that into the amount of BTU produced by the oil extracted (or extracted and imported in the case of refining and distribution).

    Then too, this would need to be done over time to obtain a curve reflecting the rate of change in this figure of merit.

    I suspect that if you did this you would find that energy consumed as a ratio to energy produced in the Oil industry is roughly flat. It might even be declining. And it is probably very very small.

    In any case, the method used in the study that is behind this article seems pretty much nonsense.
  • EH on July 17 2016 said:
    Well let's see, ya got tankers parked at sea as temporary storage to the tune of I believe I read, 500'000,000 barrels of crude with no place to put it, Cushing's is filled to her brim, refinery s are full of shelf life fuel and on slow output consumption, Tesla is halfway to completion of its giga battery factory inq
    Nevada solar is taking over grinds in California and elsewhere in the world and yeah, "Oil," is face it with courage , and blind optimistic certainty. I know the feeling, been made a fool many times myself because,,,sometimes that's our only choice short of quitting. Winners are losers who keep moving on, so go on, roll the dice, you only live twice, do it or die. But, I think oil has been as done as the Dinosaur and you're wearing those blinders.
  • DiscoStu on July 17 2016 said:
    What a road of clap.
  • zorro6204 on July 19 2016 said:
    I like it where he just casually mentions that the Ghawar is probably 90% depleted. "Probably", in this context, apparently allows you to say anything you want.
  • Amvet on July 20 2016 said:
    An interesting article.

    Regarding the reduction of energy contained in a bbl of oil. look at the stats.

    Often production stats on crude oil often include Crude, Gas Liquids, chemicals added during refining, and molecular expansion during refining.

    Gas liquids contain much less energy than crude.
    Chemicals and expansion contribute no energy.
    Certainly the energy reduction is there.
  • Dave Hrivnak on July 21 2016 said:
    We already made the conversion and will never go back. Our roof top solar powers our home and both plugin cars.
  • Change We Can Recede In on July 23 2016 said:
    This article sacrifices economics for vague academic arguments peppered with scientific facts and sweetened with irrelevant literary allusions.

    Here's a magic trick for you. Want to get the price of a barrel of oil up $20 in a couple of days? Simply get the ECB to raise interest rates to 2% and get the Bank of Japan to do the same. Get Draghi to stop firing QE bazookas and bring an end to Abenomics on steroids. The dollar index would fall from 97.5 to 80 and oil would rocket higher. Dollar index in 2008 was close to 70 and oil got to $150. In 2013, dollar index was at 80, while oil got to $112. Today it is 97.5 and oil sits at $44. The petrodollar and central bank policies are 50% of the oil equation with supply-demand the other half. I can almost guarantee you the market would be much more rational had the U.S. listened to Keynes and at least attempted the bancor at Bretton Woods in 1944.

    As for this author's assumptions, here is a simple solution. Use renewable energy sources to explore, extract and produce oil. This would reduce the amount of energy expended in production and thus solve those pesky thermodynamics problems presented in the article. No need to retrofit the whole world to renewable energy, just the oil industry. The greenest industry in the world would then be the one pollution it most. Ironies don't get better than that.
  • Ronald Wagner on July 28 2016 said:
    Totally forgetting about natural gas and methane hydrates resources. There is far more than we can even imagine. Natural gas can replace oil far less expensively than current solar or wind technology can.
  • Rob Levesque on August 11 2016 said:
    True, Billions of small daily fires must stop.

    I just don't get some of these commenters fighting for their bullshit patriotic right to pay huge $$$ to energy firms and burn fuel...WTF are you thinking???
    You live on a closed ball in space. Wake THE F up! You little human can't possibly change the environment? Billions together can. Everything is already changed and polluted.

    The electron will win, not hydrocarbon atoms. It's had it's run.

    Watch Tony Seba on Youtube.

    Even Ford says by 2025 you will not be able to buy a new gasoline or diesel powered vehicle. The transition is underway like the article states, it's a pretty deep analysis that I think will be solved not by bankruptcies and net energy, but by the marketplace offering a better product with less cost to consumers, meaning EVs with free charging and 10 times less maintenance costs.

    How about self driving EVs with on demand service?
    Get ready. 10 years or less, something will change...for the better I hope.
    Thanks Oil for our health and prosperity, now F Off, we need something different.
  • Violet on December 18 2017 said:
    The oil majors have been in negative cash flow since 2012. They are borrowing to pay stock dividends. It’s over. Learn how to hunt (better than those around you).

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