Economic Scenarios for an Age of Declining EROIs

One of the most interesting presentations on the ASPO USA Peak Oil Conference 2009 was delivered by Charlie Hall (ESF) and Hannes Kunz (IIER). This is a short overview of their research.

They suggests that a fundamental change in economic dynamics requires a new approach to macroeconomics. Instead of the traditional "Growth" paradigm their research has lead to a much wider system definition which includes

• Financial systems (money supply, credit, prices, etc.)
• Resource systems (energy, human labor, other natural resources)
• Global flows of goods, energy and funds (exports, imports, balances)
• Population development

The New Paradigm: Decline is as much part of a human ecosystem as is growth

Energy and GDP

Economic Scenarios for an Age of Declining EROIs describes consistent correlations of Energy use and GDP:

GDP$ per Energy Unit Consumed is defined as Total Global GDP (in US$ PPP) divided by the sum of Human Labor and External Primary Energy Inputs.

Primary Energy inputs and economic output are highly correlated, even before eliminating distortions from globalization. Mining, agricultural inputs, raw materials and manufacturing contain a significant amount of “energy accounted for elsewhere”, which is not included in traditional energy efficiency reviews. Most differences can be explained from energy transfers from industrial processes. The result is a rough average of 133 US$ purchasing power parity of GDP produced per GJ of energy input.

The first conclusion of the presentation is that most of our increased “productivity” comes from replacing human labor with fuel and machinery. The “productivity increase” leads to immediate gains for an economy and rising standards of living.

The Energy Squeeze-Out

Over the past decades, our fossil energy sources have become less efficient. Independent of the arrival of “Peak Oil”, increasing amounts of upfront energy are required to explore the next new units of energy. The concept of EROI (Energy Return on (Energy) Investment) describes this as: Energy Units Gained from one Energy Unit Used.

A change of EROIs from 80:1 to 20:1 (current estimate for global oil production) equals a “salary increase” of physical work from oil by a factor of almost 4, significantly reducing benefits to our economy. Higher energy cost quickly reverses previous gains from increased “productivity”.

Looking at EROIs and expected changes shows significant trouble ahead. Transportation will be highly affected by declining EROIs (and thus higher cost). The highest impact however will be seen in agricultural production.

High contribution of energy to food production (4-5% of global non-renewable energy consumption goes into food); in OECD countries, another 10-15% is used for processing and transporting food. With rising energy prices, farming and food processing will have to reduce input and thus output directly with higher fuel prices (less fertilizer equals less crop). Food prices will still rise both due to shortages and higher production cost and squeeze out poorer countries.

Lower EROIs will start squeezing out low-efficiency applications of energy. A significant number of industrial transportation and production chains will become unmanageable.

• Cost of commodity transportation becomes significant
• Global arbitrage of labor cost for low-cost/high-volume goods will become unattractive over long distances
• A substantial portion of global trade (the lower cost bracket) will be unattractive
• Food production and processing will no longer work on todays levels, with more local food and less processing
• Results might be very different compared to most people’s expectations

Download the full presentation in pdf to learn more.

Export Land Model Predicts Rapid Oil Decline

The Export Land Model (ELM) presented in these slides at ASPO Denver by Jeffrey J. Brown, Samuel Foucher, PhD, Jorge Silveus predicts rapidly declining net oil exports:

Three Primary Factors That Control Net Export Declines

• Consumption as a percentage of production at final production peak
• Rate of change in production
• Rate of change in consumption

Three Primary Characteristics of Net Export Declines:

• The net export decline rate tends to exceed the production decline rate
• The net export decline rate tends to accelerate with time
• Net export declines tend to be “Front-end loaded,” with the bulk of post-peak net exports being shipped early in the decline phase

Check out the full presentation on the Export Land Model and the other proceedings of ASPO2009 here.

How food shapes our cities

Every day, in a city the size of London, 30 million meals are served. But where does all the food come from? In this new TED video Architect Carolyn Steel discusses the daily miracle of feeding a city, and shows how ancient food routes shaped the modern world.



Food is a shared necessity -- but also a shared way of thinking, argues Carolyn Steel. Looking at food networks offers an unusual and illuminating way to explore how cities evolved.

Top Ten Things to Know about Oil Supply

A new Global Witness Report - Heads in the Sand: Governments Ignore the Oil Supply Crunch and Threaten the Climate

The report argues that governments have failed to acknowledge a looming oil supply crunch. Their collective failure means we have lost a decade in which action could have been taken. Recognition of the oil supply crunch would also have injected a sense of urgency and increased ambition into climate change negotiations.

Rising demand and falling supply means a growing gap: ten things you ought to know about oil supply

Many of these facts have been staring us in the face for some time. In some cases, they have been obvious for decades, and yet depressingly, they seem not to have been acted upon. When taken together, the sheer scale of the imminent oil supply crunch, and the extent of missed opportunity and failed leadership become apparent.

1. 1965 was the year in which the largest volume of oil was discovered. Since then, the trend in the number and average size of discoveries has been in decline.
2. In 1984 global conventional crude oil production exceeded the volume discovered, and the gap has continued to increase since then
3. In 2007, just over half the world’s crude oil production came from 110 oil fields, with approximately one quarter from just 13 fields. There are 70,000 smaller oil fields which account for just under half of the world’s conventional crude oil production
4. By 2007, out of the world’s 20 largest producing oil fields, 17 were over 40 years old. The volume of oil production from 16 of this group of 20 largest fields was below their historical maximum
5. The rate of decline in oilfields can be rapid. By 2007 the average post-peak production rate of decline was 6.7% per year
6. Between 2005 and 2008 conventional oil production ceased to grow, despite massive investment, increasing demand and prices. This failure to increase conventional oil production, despite all the right incentives, is unprecedented in the history of the oil industry.
7. By 2015, the IEA projected a potential 7m bpd gap between supply and demand.8 A gap of this size represents 7.7% of projected world demand of 91m bpd (barrels per day) in 2015.9 It is also the equivalent to over 60% of China’s projected demand, and 39% of that of the USA
8. Between 2008 and 2020, the IEA projects conventional crude oil production from existing fields to drop by almost 50%
9. To provide for its forecast demand for oil in 2030, the IEA stated that the world would require “Some 64 mb/d [million barrels per day] of additional gross capacity – the equivalent of almost six times that of Saudi Arabia today – needs to be brought on stream between 2007 and 2030.”
10. As if replacement of lost volumes of oil was not a big enough problem, the ratio of units of energy input required to produce each unit of energy output (EROI) from oil is also decreasing. In the USA for example, EROI has shrunk from approximately 100:1 in the 1930s to 14:1 today. Estimates for the EROI of tar sands production vary between 10:1 (a very optimistic figure) and 2:1. This means that, in energy content terms, each new barrel of oil is worth less than its predecessors.

Recommendations of the report

The priority recommendation is the need for international recognition of the underlying fundamental problems that equate to an imminent oil supply crunch. It is hard to see how effective solutions can be developed until there is widespread
recognition of the problem.

• Governments and appropriate multilateral agencies should publicly recognise the imminence of an oil supply crunch.
• Governments must act urgently to fast-track the development and the building of a sustainable set of safe energy provision systems and implement energy conservation measures.
• To that end, and as a matter of national security, global leaders should commit to dialogue about energy both within and between countries at the highest level.
• Transparency is required for global petroleum reserves and exploration data, on a field-by-field basis. This transparency should be extended to other key primary energy sources, such as gas, uranium and coal.
• Promising technologies must receive sufficient investment as a matter of priority; reliance only on market solutions is insufficient. These should then be rolled out to achieve economy-of-scale price reductions.
• The Copenhagen targets need to reflect a precautionary approach based on up-to-date scientific evidence and findings.

International Day of Climate Action

Today, on 24 October, people in 181 countries are coming together for the most widespread day of environmental action in the planet's history. At over 5200 events around the world, people are gathering to call for strong action and bold leadership on the climate crisis.

350.org is coordinating a distributed day of events for 24 October, uniting the world around a common call to climate action.


From seabeds to mountaintops, people around the world were staging a day of demonstrations Saturday to call for urgent action on climate change.

The events were being coordinated by a group called 350.org, whose name refers to the parts per million of carbon dioxide it considers the safe upper limit for our atmosphere.

The group said it wants to "inspire the world to rise to the challenge of the climate crisis" ahead of the United Nations climate change conference in Copenhagen, Denmark, in December.

Community Resilience Toolkit

If your neighborhood association, church organization, city planning office, or community-based organization is interested in building a more resilient community, the Community Resilience Toolkit by Bay Localize is for you.

The Bay Localize Community Resilience Toolkit guides groups in leading workshops to plan for resilience in their communities while decreasing reliance on fossil fuels. It is designed for community groups that would like to get involved in making a difference in their neighborhood, city, or county. The Toolkit offers Bay Area-specific resources and action ideas in six key sectors: food, water, energy, transportation and housing, jobs and economy, and civic services.

Why Resilience?

We live in interesting times, with far-reaching tangible impacts on our communities. Many Bay Area communities struggle to meet their basic needs even in the best of times. Now we are facing three additional major threats to our well-being:

• Economic downturn has led to high levels of job loss and foreclosures. With lower tax revenue cities and counties are cutting back services, just when more people need a social safety net.
• Climate change will directly impact communities in the Bay Area as well as throughout the world. Our region will face rising sea levels (a danger if you live or work near the Bay), heat waves, decreased air quality, and long-term decreased availability of water and food. Impacts in other parts of the world are likely to be catastrophic due to widespread hurricanes, flooding, drought, and famine. We need to do all we can do decrease greenhouse gas emissions that make climate change worse.
• Peak oil means that we are nearing or have already passed the point at which we have used the majority of easily accessible oil in the world. As the global economy is so reliant on oil, rising oil prices makes everything else more expensive. Increased oil prices are predicted to spur higher inflation, economic contraction, growing unemployment, increased poverty, and increased violence at home and around the world.

We need creative ways to make sure our communities can meet the basic human needs of all residents, while reducing reliance on fossil fuels and protecting the health of our environment for our children. This is especially true for communities that are already struggling. In order to meet the human needs of all in our communities, we need to examine and change patterns of power and distribution of resources that contribute to inequities in our society.

Fortunately, we already have local resources to face these challenges in our communities. These assets include our knowledge and creativity, relationships, institutions, infrastructure, and natural resources. We can nurture, grow, and connect these resources in creative ways to make our communities strong and resilient enough to weather these challenges.

The Community Resilience Toolkit is available free of charge for registered users.

Ofgem: Project Discovery - Energy Market Scenarios Report

Project Discovery is Ofgem’s investigation into whether or not future security of supply can be delivered by the existing market arrangements over the coming decade.

Eearly 2009 Ofgem launched Project Discovery with the objective of examining the prospects for secure and sustainable energy supplies over the next 10-15 years. This investigation is wide ranging and uses scenario analysis to put the debate regarding UK energy in the wider global and environmental context. The purpose of the Project Discovery: Energy Market Scenarios report is to consult across all stakeholders on these scenarios.

Ofgem has drawn up four scenarios for the next decade and beyond. Each scenario shows that energy supplies can be maintained, but the analysis exposes real risks to supplies, potential price rises and varying carbon impacts.

Retirements of older nuclear plant and closures of coal and oil plant by the end of 2015 under European environmental legislation could pose a threat to security of supply. Increasing gas import dependency could be exacerbated by growth in gas-fired power generation. Significant changes in the way in which we generate and consume power may be needed to manage the variability associated with increasing reliance on wind power.

High levels of investment are likely to be needed to secure energy supplies and meet carbon targets – up to £200 billion may be required over the next 10-15 years. This would more than double the recent rate of investment.


Consumer bills rise in all scenarios due to the levels of new investment required and increasing costs of carbon, and especially so if oil and gas spot prices spike sharply or continue their underlying rise since 2003. Existing regulatory and market arrangement may well be seriously tested.

Project Discovery team is currently conducting an assessment of these arrangements given the challenges that they have identified, and are considering what policy responses may be required.