Energy Math and What to Expect

The basic premise of all living beings is that they have surplus Energy all the time. This surplus energy is the net remainder of energy invested against energy received. For humans the energy received is mainly through food we eat against the energy we invest in our daily lives at office, home and otherwise.

The calorie intake minus calorie burned needs to have a positive balance for us to remain alive. Some have a high positive balance and often end up being obese!!! Same principle can be applied to the world we see around. Our world also suffers from obesity, having 7 billion people and plenty of waste around.

All modern activities are funded by energy, mainly fossil fuels. It is quite evident that we have a current surplus of energy and thus are able to feed 7 billion people plus invest heavily in modern technologies and infrastructure expansion. The dense, rich source of fossil energy has provided tremendous leverage to humans to live life king size. However, it is worth estimating how long will the party continue and what indicator seems most promising to tell us when the lights are gonna go dim.

Energy Return on Energy Invested (EROEI)

The current Energy Return on Energy Invested for Crude Oil is in the range of 20 (State of the World 2013, pg 107) implying for every 1 barrel of oil energy invested we get 20 barrels back.  Now if the EROEI starts coming down, which it will because finding new oil is becoming increasingly difficult owing mainly due to geological reasons, the math says that oil prices would continue to go up, stay at high levels and arrest world economy growth. Lets take an example.

The relation between Profitability and EROEI for oil production.

As we write this, the prices of oil (WTI & Brent Crude) are in range from $100-110 per barrel (www.oil-price.net) with global average cost of production (excluding energy cost) being $40 a barrel[i]. For every 1 barrel of energy invested we are getting 20 barrels back, thus a revenue of $2000 (20*$100)  for every 1 barrel of energy input. The other costs for extracting and processing 20 barrels is around $800 ($40*20), add to this the 1 barrel of energy input $100.

So a total investment of $900(800+100) fetches $2000 of revenue, making for a profit margin of around 125 percent. At such prolific rates of return we have close to $50 trillion world economy growing at modest rates of 2-3% annually (Wikipedia).

Now as the easy oil available in the wells is used up what remains is the deep, heavy, viscous oil which requires more energy to extract and process. So we will have a higher energy input, higher operating costs resulting in higher selling prices. Now let’s see what happens to profitability if EROEI falls from 20 to 15, estimating cost of production increases to $50 per barrel keeping the selling price constant.

At EROEI of 15 barrels for every 1 barrel, the revenue would be $1500 (15*$100)  for every 1 barrel of energy input, with other costs of $750 (15*$50) plus $100 of energy cost. So the total investment of $850 would fetch a revenue of $1500, making for a profit margin of around 75 percent.

To sum up, profitability falls by 50 percent with a 25 percent fall in EROEI.

This indicates that a falling EROEI has a high degree of negative impact on profitability which then puts pressure on oil prices to go up. Now in order to maintain the same levels profitability, the prices of oil has to be adjusted upwards. Thus, in the above case, to maintain a desired profitability of 125 percent, the oil prices would have to soar and reach $130 a barrel. With every fall in EROEI the oil prices would keep increasing, further if EROEI falls to 10 then in to maintain a 125% profitability the prices would have to go up to $175 a barrel (estimating cost of production to increase to $60 a barrel).

This implies that oil prices may never be able to come down and the world would have to accept inflating oil prices.

With the more difficult forms of oil produced from tar sand, shale oil etc. coming online for supply, the EROEI would definitely witness declines. Soon Light Sweet Crude will be a thing of the past and the world would have to submit to the heavy, waxy and viscous quality of oil which may not yield the same amount of net energy. This indicates that cheap oil era is coming to an end.

Under such circumstances, maintaining economic growth at current rates seems rather difficult since there is hardly any potential substitute close enough to replace crude oil which currently represents 35 percent of the world’s primary energy source and contributes 90 percent fuel to the world transport industry.[ii]

Relying only on monetary/economic indicators to understand the state of the world may not enable us to take proactive steps to adapt to the decline in energy curve and an uncertain economic future.

 

[i]Oil and Gas, Global Cost Study by BMO Capital Research, Fall 2007 http://energypolitics.org/view.htm

[ii]http://www.oildepletionprotocol.org/getinformed/oilandtransportation

INDIA’S MESSAGE TO THE WEST

India stands for living Humanity as against inert matter; for more equitable distribution of wealth ; for less luxury and more  brotherhood ; for less industrial conflict and more co-operation; for wealth as a means as against wealth as an end; and for finding happiness not in restless self-serving but in the consecration of life to the welfare of Society and Humanity – The Foundations of Indian Economics Pp. 459-61, 465-7- (year 1916)

What an unbelievably short, precise yet holistic narration of what Indian economy is made up of. Nearly 100 years hence, we struggle to save our culture and strive for sustainability by trying to redesign our economy, while the truth is we started from being sustainable, moved towards unsustainable ways in great hurry and exuberance, and now sit in the progress trap. A learning worth preserving so as to create a space from where new thinking should emerge.

Energy Leverage in Agriculture

While human beings lived as hunters and gatherers, 500 calories of human effort yielded 2000 calories of food produce giving a ratio of 1:4 (Beyond Civilization by Daniel Quinn). In our endeavor to leave nomadic life we moved from tribal to agriculture age although it resulted into lower return on food energy. During the transition supplementary requirements for survival, like shelter, clothing, domestication of animals etc., laid the foundation for occupations other than growing food. This resulted in drop of human effort to food yield, but we still managed not only to survive but also to grow. This growth was due to the external source of surplus energy which we found in form of Fossil Fuels.

Before the industrial era, farming was a net producer of energy. Today the food system has turned into a net user of energy, it takes 7-10 calorie of fossil energy to produce 1 calorie of food produce (Searching for a Miracle, Richard Heinberg). Fossil energy is a onetime gift, in a span of 3.5 billion years of earth’s formation, which will start running dry during lifetime of most of us alive today. The effects will be felt on food production and supply, one of the non negotiable for our existence. If Maharashtra exports 90% of its tomato produce to places all over the country (from Gujarat to Delhi) then it is worth thinking on how many miles does our basket of food items travel before landing on our table??

It’s time we proactively prepare for Peak Oil and strive for sustainability by moving from Globalization to Localization forms of living. Many such small movements have started where people with a purpose have started developing spaces which have low environment footprint and are more local. (Van vadi, Acres Wild, SuryaGram)

With time closing on us, lets hope such movements keep getting intensive and extensive.

 

 

Going Small for a Big Change

The paradigm of economics and its emphasis has created the problem of blinded consumption of the masses. What we consume and how we consume leads to an impact on people and environment, often at distance places which cannot be seen by naked eyes or felt without knowing.

The consumer and producer are distant in time and space. The cause and effect are distant in time and space. Hence, in order to behave in an “eco-friendly” manner there has to be a wave of fashion about it or an element of guilt, for the masses to follow. Some examples – Low Impact Denim – Low water, energy , 8 bottles for 1 jeans – made out of progress (feel good about it, feel good in it), save water save earth, “one touch to change the future” (new air conditioners) etc.
But this approach only suffices to fix the emergent behavior patterns and not the paradigm. And the behavior can only be as good as it is allowed to be.
At a deeper level in order for sustainability to kick in and public/individual behaviors to change the blindness needs to be removed and proper incentives need to be designed.
Incentives
If this is already happening with corporate and governments becoming more socially, environmentally responsible then why is Alternate Energy prices more expensive than Mainstream energy?? Why a low impact denim costs more than a “High” impact denim?? Why for saving water no one gets a reward?? Why are 5 star air conditioners more expensive than 2 star air conditioners??
Because it is a business fit. Sustainability is the new wave of business and economy. It is a proposition which gets transformed into a product/commodity which creates a brand and initiates a new wave of consumption – A responsible behavior or low guilt behavior.
If we dream of having a sustainable society and culture, then there needs to be rewards for changing public/individual behavior patterns which move towards more just and sustainable consumption and production. Not subsidize but incentivize has to be the mantra. And this does not include carbon credits!!! Because they allow non emitting entities to emit and pay for it.
Remove Blindness
The consumer and producer have to come close in time and space. The impacts of production have to be felt by the consumer and vice versa. This is possible if they live in close vicinity and the planetary boundaries are shrunk at a local level. There is an element of localization, where we produce using local resources, consume and then recycle within the local ecosystem. All ends of the economy are tied up, in a closed loop system. What goes come back and in relatively quick time. The feedback received becomes evidence of our learning. Behaviors start changing.
This also provides a possibility to have a proxy or actual indicator of the environmental footprint of the combined lifestyles (may be of a community). This might help begin a conscious journey towards a sustainable movement towards sustainability.
The above theory needs proof of concept and for that we should start small, very small. A model at local level will enable us to test our assumptions and crystallize our understanding before launching an assault at national or global level. Ultimately it is the small unseen, unheard movements at nano level which will do the front-running in our ultimate quest for sustainable change.
Till that time, lets keep Dreaming!!!