Why is the global economy constrained by the energy cost of energy?
Copyright 1999, Business Communications Co, Inc. -- Reproduction prohibited without written
permission.
ENERGETIC LIMITS TO GROWTH
by
Jay Hanson www.dieoff.com
Appeared in
ENERGY Magazine, Spring, 1999
By definition, energy "sources" must generate more energy than they consume; otherwise, they are "sinks".
In
1972, the Club of Rome (COR) shocked the world with a study titled The Limits To Growth. Two main conclusions
were reached by this study. The first suggests that if
economic-development-as-we-know-it continues, society will run out of
nonrenewable resources before the year 2072 with the most probable result being
"a rather sudden and uncontrollable decline in both population and industrial
capacity." [[1]] The second
conclusion of the study is that piecemeal approaches to solving individual
problems will not be successful. For example, the COR authors arbitrarily
double their estimates of the resource base and allow their model to project a
new scenario based on this new higher level of resources. Collapse occurs in
the new scenario because of pollution instead of resource depletion. The bottom
line is traditional forms of economic development will end in less than 100
years one way or another. The COR study has been much belittled but proof of
the COR's thesis can readily be found in the real-world concept of "net energy"
and that is the focus of this article.
Net Energy
Net-energy
analysis became a public controversy in 1974 when two stories made the news. In
the first, Business Week reported
that Howard Odum had developed a "New Math for Figuring Energy Costs." Among
other results, this new math indicated that stripper oil well operations were
energy sinks rather than energy sources. According to this analysis, these
operations could be profitable only when cheap, regulated oil was used to
produce deregulated oil. The other net-energy story of 1974 was the study of
Chapman and Mortimer asserting that a rapidly growing nuclear program would
lead to an increased use of oil rather than to the desired substitution (see Net-Energy Analysis by Daniel T. Spreng, Oak Ridge Assoc. Univ. & Praeger, 1988).
As
we know from physics, to accomplish a certain amount of work requires a minimum
energy input. For example, lifting 15 kg of rock 5 meters out of the ground
requires 735 joules of energy just to overcome gravity and the higher the lift, the
greater the minimum energy requirements. [[2]]
Combustion engines that actually do work so-called "heat engines" also
consume a great deal of energy. [[3]]
The efficiency of heat engines is limited
by thermodynamic principles discovered over 150 years ago by N. L. S. Carnot. [[4]]
Thus, a typical auto, bulldozer, truck, or power plant wastes more than 50 percent of the energy
contained in its fuel.
One
seldom thinks about the energy that is utilized in systems that supply energy
such as oil-fired power plants. But energy is also utilized when exploring for
fuel, building the machinery to mine the fuel, mining the fuel, building and
operating the power plants, building power lines to transmit the energy,
decommissioning the plants, and so on.
The difference between the total energy input (i.e., the energy value of
the sought after energy) minus all of the energy utilized to run an energy
supply system equals the "net energy" (in other words, the net amount
of energy actually available to society to do useful work).
We
mine our minerals and fossil fuels from the Earth's crust. The deeper we dig, the greater the minimum energy requirements. Of
course, the most concentrated and most accessible fuels and minerals are mined
first; thereafter, more and more energy is required to mine and refine poorer
and poorer quality resources. New technologies can, on a short-term basis,
decrease energy costs, but neither technology nor "prices" can repeal the laws
of thermodynamics:
** The hematite ore of the Mesabi Range in
Minnesota contained 60 percent iron. But now it is depleted and society must
use lower-quality taconite ore that has an iron content of about 25 percent. [[5]]
** The average energy content of a pound
of coal dug in the US has dropped 14 percent since 1955. [[6]]
** In the 1950s, oil producers discovered
about fifty barrels of oil for every barrel invested in drilling and pumping.
Today, the figure is only about five for one. Sometime around 2005, that figure
will become one for one. Under that
latter scenario, even if the price of oil reaches $500 a barrel, it wouldn't be
logical to look for new oil in the US because it would consume more energy than
it would recover. [[7]]
Decreasing net energy sets up a positive feedback loop:
since oil is used directly or indirectly in everything, as the energy costs of
oil increase, the energy costs of everything else increase too including other forms of energy. For example, oil provides
about 50% of the fuel used in coal extraction. [[8]]
Oil
One
of the most important characteristics of energy is its "quality". Fuels come in
varying qualities. For example, coal contains more energy per pound than wood,
which makes coal more efficient to store and transport than wood. Oil has a
higher energy content per unit weight and burns at a higher temperature than
coal; it is easier to transport, and can be used in internal combustion
engines. A diesel locomotive wastes only one-fifth the energy of a coal-powered
steam engine to pull the same train. Oil' many advantages provide 1.3 to 2.45
times more economic value per kilocalorie than coal. [[9]]
Oil
is the highest quality energy we use, making up about 38 percent of the world
energy supply. No other energy source equals oil' intrinsic qualities of
relative ease of extraction, transportability, versatility and cost. The
qualities that enabled oil to take over from coal as the front-line energy
source in the industrialized world in the middle of this century are as
relevant today as they were then.
Unfortunately,
forecasts about the abundance of oil are warped by inconsistent definitions of
"reserves". In truth, every year for the past two decades the industry has
pumped more oil than it has discovered, and production will soon be unable to
keep up with rising demand. Almost 50 years ago, the geologist M. King Hubbert
developed a method for projecting future oil production. Hubbert found that
when approximately one half the Estimated Ultimately Recoverable (EUR) oil had
been produced in an oil basin, production "peaks" and then declines towards
zero. He calculated that oil production in the lower-48 states would peak about
1970. His prediction has proved to be remarkably accurate. Both total and peak
yields have risen slightly compared to Hubbert's original estimate, but the
timing of the peak and the generally declining production trend are correct.
For
the last 50 years, many geologists and oil companies have published estimates
of the total amount of crude oil that will ultimately be recovered from the
Earth over all time. Remarkably, these assessments of EUR oil have varied
little over the past half century [10]
and global oil production is now expected to peak around 2005. [[11]]
The End of the Consumer Economy
Although
economists are trained to treat energy just like any other resource when it
comes to "supply and demand", it is manifestly not like any other resource. Net
energy is the pre-condition for all other resources. The coming peak in global oil production
signals the end of the consumer economy because nothing can replace conventional oil.
Economists
frequently cite Canada's Athabasca oil sands as a handy replacement for
conventional oil. [[12]]
But oil sands and tar shale are very energy-intensive, environmentally
destructive, and not all that large anyway. For example, back-of-the-envelope
calculations show that the Athabasca oil sands could supply less than three
years' worth of oil for the global economy. Three hundred billion barrels of
oil (AEUB) gushing out of a pipe would only last 12 years at present World
consumption of 70 million barrels a day. Oil sands would last just three years
if we super-optimistically assume 25 percent net energy for the digging, etc.
over the entire resource. "The mining operation involves stripping off the
overburden; separating the bitumen with steam, hot water and caustic soda, and
then diluting it with naphtha. After centrifuging, liquid bitumen at 80 C is
produced, which is then upgraded in a coking process and subjected to other
treatments, eventually yielding a light gravity, low sulphur, synthetic oil." (The Coming Oil Crisis, p. 121, Campbell, 1997)
How
about natural gas? Unlike oil, natural gas can not easily be shipped by sea. It
must be liquefied prior to shipment, then shipped in specially designed
refrigerated ships destined for specially equipped ports, and then regasified
for distribution at an estimated 15 to 30 percent energy loss. [[13]]
Moreover, natural gas cannot be easily stored like oil or coal. Global natural
gas production is expected to "peak" sometime between 2010 [[14]]
and 2020. [[15]] Hopes of exploiting the ice-like methane hydrates from the
ocean floor also appear doomed because the solid is unable to migrate and
accumulate in commercial volumes. [[16]] Today's euphoria over methane hydrates reminds me
of that which surrounded oil shale and tar sands a couple of decades ago. With regard to coal, U.S. coal production rose to a
record high of 1,118 million short tons in 1998. U.S. coal, however, is
expected to become an energy "sink" not worth digging out of the
ground by 2040. [[17]]
What
about nuclear energy? The fraction of energy produced by conventional nuclear
plants can not be significantly increased because of a shortage of fuel. [[18]]
Moreover, all but one of the new "fast breeder" reactors have been
abandoned because they are "too costly and of doubtful value". [[19]]
The expansion of solar energy systems is limited by the availability of land. Estimates are that about 20
percent of U.S. land area (about 450 million acres) would be required to
support a solar energy system that would supply less than one-half (37 quads)
of our current energy consumption (80 quads). [[20]]
Fuel Cells to the Rescue?
The
automobile industry is planning to put fuel-cell-powered automobiles on the
road by 2004. But the new cars won"t be on the road for long because these fuel
cells use hydrogen via methanol that is made from fossil fuel. [[21]]
Hydrogen is not a "source" of energy it' an energy "carrier" (like
electricity). About 95 percent of the hydrogen used in the U.S. market is
produced by a chemical process known as "steam methane reforming". [[22]]
A carbon-based feedstock (usually natural gas or coal) is combined with steam
under high pressure and temperature to produce hydrogen at about a 35 percent
energy loss. Methanol is usually produced from natural gas or coal at a 32 to
44 percent net energy loss. [[23]]
In the U.S., oil production "peaked"
in 1970 and is declining towards zero. Scenarios for widespread use of hydrogen
are therefore likely to include steam reforming of gasified coal or biomass. But the coal will be gone in 40 years and
there just isn't enough land for biomass!
Money Is Not Energy
Energy
companies are in business to make money not energy. For example, economic
subsidies allow ethanol companies to waste energy
while making a profit. Specifically, about 71% more energy is used to produce a
gallon of ethanol than the energy contained in a gallon of ethanol. [[24]]
Obviously, alternative energy technologies that require energy subsidies are
only viable as long as we don't need them!
From
the standpoint of achieving society' goal of a long-term solution to our
energy problems, profit is simply the wrong objective for energy companies.
Even without direct and indirect subsidies of $650 billion a year [[25]]
it's conceivable that energy companies could make money but lose energy by
burning one $10-barrel of oil today in order to pump one-half of a $50-barrel tomorrow. The price of oil is expected to rise sharply and permanently
when global oil production peaks in less than ten years.
"Energy"
is defined as the capacity of a physical system to do work. Over a hundred
years ago, scientists pointed out that energy not money is the true source
of the capitalist's wealth:
It is, in fact, the fate of all kinds of energy of
position to be ultimately converted into energy of motion. The former may be
compared to money in a bank, or capital, the latter to money which we are in
the act of spending ... If we pursue the analogy a step further, we shall see
that the great capitalist is respected because he has the disposal of a great
quantity of energy; and that whether he be nobleman or sovereign, or a general
in command, he is powerful only from having something which enables him to make
use of the services of others. When a man of wealth pays a labouring man to
work for him, he is in truth converting so much of his energy of position into
actual energy...The world of mechanism is not a manufactory, in which energy is
created, but rather a mart, into which we may bring energy of one kind and
change or barter it for an equivalent of another kind, that suits us better -
but if we come with nothing in hand, with nothing we will most assuredly
return. [Balfour Stewart, 1883] [[26]]
But economists still do not
study energy [[27]] they study money and
prices. Physics incorporated thermodynamics moved from "production" to
"circulation" over 100 years ago. But modern economic texts, such as
McConnell & Brue, 1999, and Samuelson & Nordhaus, 1998, still do not
discuss thermodynamics or entropy! Money isn"t a measure of anything "real",
like joules or kilograms. Money is merely social power because it
"empowers" people to buy and do the things they want including
buying and "doing" other people.
Economists
frequently point to "prices" and make claims about the real world. This or that
is "better off" they say, and go on their way. But the price of a thing does not reveal its quantity or its quality,
particularly in the energy business. At best, the relationship between
prices and natural resources is nonlinear. A good analogy for the oil market is
the float in a carburetor: as the engine demands more gas, the float falls and
allows more gas to flow in from the tank. But the float has no information
concerning the amount of gas left in the tank until the fuel line is unable to
keep up with demand. So it is with the market. As the demand for oil increases,
the increase in price signals oil companies to pump more oil out of the ground
which lowers prices again. But the oil
market has no information about the amount of oil left in the ground until
production is unable to keep up with demand. In October 1980, Julian Simon
challenged Paul Ehrlich and colleagues to a $1,000 bet that in ten years the
price of any raw material they selected would fall (measured in constant 1980
dollars). In October 1991, Ehrlich paid up. The prices of the five minerals
chosen (copper, chrome, nickel, tin and tungsten) had dropped substantially. [[28]]
Obviously, though, prices did not reflect the fact that ten years" worth of
minerals had been taken out of the ground! One
concludes that prices give no warning of approaching resource exhaustion.
How
much is $10 worth of oil? It depends upon when and where you bought it. What's
the net energy of $10 worth of oil? If oil costs $10 a barrel, how much is left
in the ground? Who knows? Prices simply measure states of mind. This means that
economists issue opinions on opinions. In short, economists are pollsters with
an attitude. Based on the best information we have at hand today, sometime
during the coming century the global economy will
"run out of gas", as fossil energy sources become sinks. One can argue about
the exact date this will occur, but the end of fossil energy and the dependent global economy is inevitable.
Conclusion
Imagine having a motor scooter with a five-gallon tank, but the
nearest gas station is six gallons away. You can not fill your tank with trips
to the gas station because you burn more than you can bring back it'
impossible for you to cover your overhead (the size of your bankroll and the
price of the gas are irrelevant). You might as well put your scooter up on
blocks because you are "out of gas" forever.
It's the same with the American economy: if we must spend more-than-one unit of
energy to produce enough goods and services to buy one unit of energy, it will
be impossible for us to cover our overhead. At that point, America' economic
machine is "out of gas" forever.
I will conclude with an observation of Cosmologist Fred Hoyle who stated, "It has been often said that, if the human species fails to make a go of it here on Earth, some other species will take over the running. In the sense of developing intelligence this is not correct. We have, or soon will have, exhausted the necessary physical prerequisites so far as this planet is concerned. With coal gone, oil gone, high-grade metallic ore gone, no species however competent can make the long climb from primitive conditions to high-level technology. This is a one-shot affair. If we fail, this planetary system fails so far as intelligence is concerned. The same will be true of other planetary systems. On each of them there will be one chance, and one chance only."
Jay
Hanson has been a member of his local utility' Integrated Resource Planning
advisory committee. He owns a computer business that designs and manufactures
software and hardware and also runs the Internet Website: www.dieoff.org.
Jay Hanson
78-7230 Puupele Road
Kailua-Kona, HI 96740
Tel: 808/324-6645