A Positive And Uplifiting Post About The Economy, The Future, And Oil


Economies are fueled by energy produced in excess of the amount required to drive the energy production process. Any successful society’s energy resources must be both abundant and exploitable with a high ratio of energy return on energy invested (EROEI). Anything less than the break-even ratio of 1:1 means that the source provides no net energy, and anything less than 3:1 is generally considered not worth pursuing for energy purposes.

Oil's EROEI has been steadily decreasing from about 35:1 in 1999 to 18:1 in 2006[1] and with some estimates now having it down to as low as 6:1[2]. For comparison, meta-analysis of EROEI values for nuclear energy suggests a mean EROEI of about 14:1[3]. And wind power has a high EROEI value, with the mean perhaps as high as 18:1[4], although wind power is heavily dependant on location.

Solar photovoltaics (PV) have a much more contested EROEI. Calculations on PV EROEI can have wildly different assumptions and methodologies employed and the EROEI values calculated. But Bhandari et al.[5] calculated the mean value using data from 231 articles and gave PVs an EROEI of around 11:1.

Anyway, a rapidly declining EROEI for oil is obviously bad news for oil companies. This is all compounded with a sharp decrease in oil demand due to [waves arms in the general direction of 2020], where at its worst, global demand dropped by 29 million barrels a day[6].

We've hit peak oil.

Even BP expects that we'll never hit pre-2019 levels of oil demand ever again[7]. And because pandemic is expected to affect demand for a long while, companies are expected to start going belly up[8].

Neat huh? I bet you're thinking something like this now:

"Oh cool! We're becoming less dependant on oil and fossil fuels in general! I bet we're going to start seriously investing in renewables which have an even higher EROEI! What a fun and positive post this is."

Unfortunately for you, it isn't so simple.

Renewable technology is currently in high demand and is expected to become higher, but the construction of this infrastructure requires energy, and energy is a commodity that looks like it will soon be in very short supply.

By the time energy demand starts to grows again, many oil companies will have either gone bankrupt or had to start cutting costs, which means our oil production abilities will have plummeted. Unless there's a massive breakthrough in renewables and they start giving us much better EROEIs over shorter periods of time, we can't expect renewables to be able to replace fossil fuels without severe losses in energy, let alone keep up demand.

EROEIs are calculated over the lifespan of the resource (for PVs, a common measurement is 30-40 years). So since it can be estimated that PV requires 3-4 years worth of its own energy output to fabricate, including the frames and associated electronics systems[9]. Then, we can use some basic math to get an EROEI of 10:1. Note that all of the energy invested is for the initial production of the PV, and it does not require any more energy after it's set up. So it's sort of like an investment that needs time to pay itself back.

Let’s say that our nation (or world) uses 100 units of fossil fuel energy one year, and expects to get only 98 units the following year. We need to come up with 2 units of replacement energy within a year’s time to fill the gap. If, for example, the replacement:

  • has an EROEI of 10:1;
  • requires most of the energy investment up front (solar panel or wind turbine manufacture, nuclear plant construction, etc.);
  • and will last 40 years,

then we need an up-front energy investment amounting to 4 year’s worth of the new source’s output energy. Since we require an output of 2 units of energy to fill the gap, we will need 8 units of energy to bring the resource into use.

Of the 100 units of total energy resource in place in year one, only 92 are available for use—looking suddenly like an 8% decline. If we sit on our hands and do not launch a replacement infrastructure, we would have 98 units available for use next year. It’s still a decline, but a 2% decline is more palatable than an effective 8% decline. Since each subsequent year expects a similar fossil fuel decline, the game repeats. Where is the incentive to launch a new infrastructure?

This is the energy trap.

Another aspect of the trap is that we cannot build our way out of the problem. If we tried to outsmart the trap by building an 8-unit replacement in year one, it would require 32 units to produce and only dig a deeper hole. The essential point is that up-front infrastructure energy costs mean that one step forward results in four steps back, given EROEI around 10:1 and up-front investment for a 40 year lifetime. Nature does not provide an energy financing scheme. You can’t build a windmill on promised energy.

Conventional economists do not readily recognize the tight coupling between energy and the economy primarily because of the perceived abundance of fossil fuels that has allowed energy to be considered a necessary economic factor of production but in sufficient reserve quantities, that, like oxygen, can be accessed as necessary.(1)

(1) Conventional economists seem to conveniently not think about a lot of things. Hmm... maybe I should be writing that rant on the entire field of economics.

We've been on an energy binge for the past 200 years and now we're at the end. With our previous surplus of energy made by energy sources with much higher EROEIs than they are now, our current up-front energy investment in renewable infrastructures have not been an issue. People have been expecting "peak oil" and the energy trap for years, but it's been delayed once before by fracking increasing the EROEI on some reservoirs, and again by shale oil picking up as a potential abundant source of oil whenever the price of crude oil rises.

But these are just delays, it's still going to happen. Oil (and other fossil fuels) are finite, we will run out (or rather, run out of sources that are economically viable). And if we don't have the renewable infrastructure to replace it, this can only mean sky-rocketing energy prices and a global recession.

The easiest way to stop it is to reduce the energy demand, create another surplus, and (this is the most important part) start increasing investments in renewables dramatically.

Sgouridis et al.[10] determined that in order for a sustainable energy transition to occur, a "significant increase in the renewable energy investment ratio (ε), ranging from 4 to 10 times higher than its current value", and to help "the concept of a 2000 W society (per person) has been proposed as a target for industrialized countries implying a reduction from 50% to 90% of per capita energy consumption from current figures."

This pandemic would have been (and maybe still is since it's still going on) a good time to go all in on renewables, but I don't think anyone's done that (or will).

And we certainly aren't going to lower demand any time in the future once it's over, especially if we keep an economic and political system that requires constant growth.

Joseph Tainter, author of "The Collapse of Complex Societies"(2), has said that "it is usually not possible for a society to reduce its consumption of resources voluntarily over the long term." He has explained this in a 2009 speech at the 94th Annual Meeting of Ecological Society of America in New Mexico. This is an extract of the transcript(3).

(2) I'm mentioning this, because it's a great book and you should read it.
(3) I also think you should read this.

Many advocates of sustainability will find it disturbing that long-term conservation is not possible. Naturally we must ask: Are there alternatives to this process? Regrettably, no simple solutions are evident. Consider some of the approaches commonly advocated:

  1. Voluntarily Reduce Resource Consumption. While this may work for a time, its longevity as a strategy is constrained by the fact that societies increase in complexity to solve problems. Resource production must grow to fund the increased complexity. To implement voluntary conservation long term would require that a society be either uniquely lucky in not being challenged by problems, or that it not address the problems that confront it.

  2. Employ the Price Mechanism to Control Resource Consumption. This is currently the laissez-faire strategy of industrialized nations. Since humans don’t commonly forego affordable consumption of desired goods and services, economists consider it more effective than voluntary conservation. Both approaches, however, lead eventually to the same outcome: As problems arise, resource consumption must increase at the societal level even if consumers as individuals purchase less.

  3. Ration Resources. Because of its unpopularity, rationing is possible in democracies only for clear, short-term emergencies. This is illustrated by the reactions to rationing in England and the United States during World War II. Moreover, rationed resources may become needed to solve societal problems, belying any attempt to conserve through rationing. Something like this can be seen in the fiscal stimulus programs enacted recently.

  4. Reduce Population. While this would reduce aggregate resource consumption temporarily, as a long-term strategy it has the same fatal flaw: Problems will emerge that require solutions, and those solutions will compel resource production to grow.

  5. Hope for Technological Solutions. I sometimes call this a faith-based approach to our future. Members of industrialized societies are socialized to believe that we can always find a technological solution to resource problems. Technology, within the framework of this belief, will presumably allow us continually to reduce our resource consumption per unit of material well-being. Conventional economics teaches that to bring this about we need only the price mechanism and unfettered markets. The flaw here was pointed out by William Stanley Jevons: As technological improvements reduce the cost of using a resource, total consumption will actually increase.

In conclusion, sustainability is not the achievement of stasis. It is not a passive consequence of having fewer humans who consume more limited resources. One must work at being sustainable. The challenges that any society (or other institution) might confront are, for practical purposes, endless in number and infinite in variety. This being so, sustainability is a matter of solving problems.

"Wow, this doesn't look very good at all. I thought you said this was a positive post?! Did you lie to me?"

No, of course not, I've LITERALLY never told a lie in my entire life before. This post does have a happy ending, bear with me.

It's my birthday.today and every year instead of food, or money, or anything I actually need, I've always wished people would just give me OIL.

Crude oil is actually my favourite fossil fuel BY FAR. I understand that just having a favourite fossil fuel(4) at all might sound strange considering half the posts on this blog are rants about climate change, but who cares when this black gold will one day make me RICH.

(4) And since I'm Australian, you'd think it would be coal.

No matter which way we go in attempt to solve this problem (if we even attempt it), either way, you're going to need oil in the future so where will you get it from?


With oil's diminishing EROEI and plummeting demand, I'm going to get in while prices are low and buy up a MASSIVE reserve of oil. So when demand comes back, and the poor little oil companies STRUGGLE to produce oil for a profit because their infrastructure has ROT and all the easy to access oil spots have DRIED up, I'll be the only able to satisfy the demand of the MARKET because my reserve is "pre-energy-invested". And you can be sure that I'm going PRICE GOUGE THE SHIT OUT OF EVERYONE.

Oh boo hoo, you'll have to go through a severe economic recession in an increasing hostile climate, probably leading to the complete collapse of civilisation all together. Why should I care, if GOD EMPEROR ELON MUSK will take me an every other RICH person to MARS? Because unlike you PEASANTS, us RICH people actually have class consciousness.

Besides, us RICH people are going to SOMEHOW save you from all this anyway even if WE caused it. DON'T WORRY! Reusable rockets that can land in the middle of the OCEAN are ABSOLUTELY what you NEED instead of just having no rockets because that idea is STUPID.

Screw GME, all my mates invest in OIL.

[1]: https://www.mdpi.com/1996-1073/2/3/490/htm

[2]: https://www.nature.com/articles/s41560-019-0425-z

[3]: https://www.sciencedirect.com/science/article/pii/S0301421513006447

[4]: https://www.sciencedirect.com/science/article/abs/pii/S096014810900055X

[5]: https://www.sciencedirect.com/science/article/abs/pii/S136403211500146X

[6]: https://www.iea.org/reports/oil-market-report-april-2020

[7]: https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/energy-outlook/bp-energy-outlook-2020.pdf

[8]: https://cnbc.com/2020/04/21/the-oil-industry-shakeout-is-just-beginning-with-more-production-cuts-and-bankruptcies-ahead.html

[9]: https://www.nrel.gov/docs/fy04osti/35489.pdf

[10]: https://www.mdpi.com/2071-1050/6/5/2601/htm