Sunday, October 31, 2010

Energy Return on Energy Invested

Oil has had an enormous impact on the productivity and development of civilization - - especially in the area of transportation. We are where we are mainly due to cheap energy - - BTUs that have easily flowed to the surface or were easily mined. We did the rational thing - - we exploited the cheapest energy sources first.

We have several huge energy problems - - one of them is not running out of energy. The problem is that the new sources of energy are more expensive to exploit. Look for the "Energy Return on Energy Invested" ratio to become an important metric. During the 1930s, our energy return to energy invested was about 100 to 1. We got 100 barrels of oil for every one barrel invested. In the 1970s, the ratio dropped to 30 to 1. Current estimates on the the ratio range from 20 to 1 to a low of 16 to 1. Tar sands and ethanol have a ratio in the single digits. If we were a giant company - - our return on capital would be falling. Energy is roughly 4.5% of the global share of GDP. With higher extraction costs, the energy share of GDP could skyrocket, squeezing other forms of investment, like infrastructure improvements.

We are seeing a future of both surging energy demand and higher extraction costs. The higher extraction costs will have a huge negative impact on productivity - - at the same time of medical cost pressures and changing demographics (What about a world where medical care and energy combine for 30% of GDP?). Not what we need.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.