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Page added on March 16, 2014
Net vs. gross energy: Is it wise to be complacent?
Everyone knows that when a potential employer makes a job offer, the salary or wage he or she proposes isn’t what you’ll be taking home. What you’ll take home is your net pay. The number the employer offers you is your gross pay, and that’s just what it says on your pay stub.
It’s not quite a perfect analogy with net energy versus gross energy. But it’s an everyday analogy that most people can understand. Net pay is what you have to pay your bills today. And, net energy is what society has in order to conduct its business (and its fun) on any given day. Net energy is what’s left after the energy sectors of the economy–oil and gas, coal, nuclear, hydroelectric, renewable energy industries, and farming which provides food for human and animal energy and crops for biofuels–expend the energy they must to extract energy from the environment and then sell the surplus to the rest of us.
We don’t often think of these sectors of the economy because for most people they are out of sight and therefore out of mind. And, until the last decade food and energy have been so consistently cheap in the last 60 years or so, that few people ever paused to ponder the fact that it takes energy to get energy. And, after all, cheap energy is an indication that it takes very little energy to extract huge amounts of energy from the environment. So, why worry about that?
However, as food and energy costs have risen dramatically in the last decade, the public and policymakers have begun to notice. What they don’t seem to understand is that this rise results from the fact that it is now taking significantly more energy (and therefore money) to extract the energy we desire, both from fossil fuels in the ground and farm crops on the land (yields of which are currently heavily dependent on fossil fuel inputs). An obvious symptom is that wealth is flowing into the energy-gathering sectors of the economy mentioned above. But, that means there is less wealth left for the other sectors of the economy where the vast majority of people work, at least in so-called developed countries.
Still, as costs to extract energy continue to rise for those in the energy-gathering sectors of the economy, even their profits and wages will ultimately get squeezed. Yes, everyone eventually suffers when society must use more and more energy just to get the energy it needs to allow the non-energy parts of the economy to function properly.
Since 86 percent of the energy consumed worldwide is derived from burning finite fossil fuels, we are faced with a serious dilemma. Eventually, the energy we get from these fuels will turn down–and not for the reason that most people think. The world continues to extract more gross energy in the form of oil, natural gas, and coal each year. And yet, it takes energy to find, extract, refine and deliver that energy to society. So, are we still getting more net energy from those fuels each year? No one knows the answer.
One thing is clear. Because fossil fuels are finite, one day their rate of extraction will peak and then begin an irreversible decline. When that will occur, no one can know. But, before that happens–perhaps many, many years before it happens–the net energy from fossil fuels will peak and then begin an irreversible decline.
There are clues, obvious clues, that we may be nearing a net energy peak, even as the energy companies tout new records of gross fossil fuel extraction. High prices and now shrinking profits are evident in the oil and gas industry. Executives in the linked article give many explanations for falling profits, but none of them have to do with the declining net energy from their extractive activities. And, if the executives understand the latter cause–and I’m not sure they do–announcing it would hardly boost oil company stock prices.
But the word is out now that high costs for developing new fossil fuel energy sources are finally biting into energy company profits despite continuing high prices for oil and rebounding prices for natural gas.
One way the companies are fighting the high cost of developing new resources is simply to cut back on investment. But, this could create a self-reinforcing cycle in which exploration and development cutbacks lead to supply reductions worldwide which lead to higher prices which lead to recession and thus lower demand–and finally to much lower prices which discourage exploration and development.
But, back to my answer to the question, “Are we still getting more net energy from those [fossil] fuels each year?” My answer was that nobody knows. It’s curious that in the information age no one has thought to examine this question very deeply except a few energy researchers who have been too ill-funded to gather and analyze extensive data on the subject. Charlie Hall and his students come to mind. They have gone to heroic lengths to obtain at least some data and analyze it in order to explore this question.
It is instructive that the premier energy statistics agency on the planet, the U.S. Energy Information Administration (upon which I rely heavily for accurate historical energy statistics), does not even have a category in its tables for net energy, nor any mention of it (in the sense I mean it) anywhere on its site that I can find.
The real peak then in fossil fuel energy will come not when the rate of extraction of oil or coal or natural gas peaks. As far as society is concerned, it will come when the net energy from these sources peaks and begins to decline. The fact that we won’t even be able to see this when it arrives means we’re headed for trouble already.
11 Comments on "Net vs. gross energy: Is it wise to be complacent?"
Nony on Sun, 16th Mar 2014 7:55 pm
1. Yeah, calculating energy in/out is really hard. Fortunately we have this thing called the free market. And whadya know, it even includes aspects like timing of the energy, conveience, etc. that affect its usefulness.
2. Even just in EROI-land, EROI is not the only thing that’s relevant. The quantity matters also. If I have half the EROI, but 10 times as much amount…the lower EROI product is better. It’s like business. We can make up for low margin with volume.
J-Gav on Sun, 16th Mar 2014 8:26 pm
Net energy and flow rates are indeed where it’s at in the FF world. Those who are still oblivious to this fact will be getting an object lesson in reality within a few years.
bobinget on Sun, 16th Mar 2014 9:46 pm
In the last few years investors impressed by a new technology, discoveries, continue to lose money on gas.
Less often than we would like, an Exxon comes along and buys ‘our’ gas bag for a premium. This only encourages desperate energy investors who hope
there’s a bigger sucker around the corner. Except,
XOM already is the biggest. (US)
Buying energy shares today is like a second or third marriage.
(A second marriage is the victory of hope against the sanity.)
Nony reminds us of the oldest business gag.
“Sure, we lose (money) on every unit, but we make it up on volume”.
shortonoil on Sun, 16th Mar 2014 10:02 pm
“The real peak then in fossil fuel energy will come not when the rate of extraction of oil or coal or natural gas peaks. As far as society is concerned, it will come when the net energy from these sources peaks and begins to decline. The fact that we won’t even be able to see this when it arrives means we’re headed for trouble already.”
The answers to those questions can be found in our 57 page study. For petroleum we hit the half way point in 2012. It now takes more energy to produce petroleum, and its products than what is delivered to the general economy. The maximum dollar contribution from petroleum to the general economy will occur in 2017.
Stop by and visit.
http://www.thehillsgroup.org/
Davy, Hermann, MO on Sun, 16th Mar 2014 11:18 pm
Profound words Short!!
It now takes more energy to produce petroleum, and its products than what is delivered to the general economy. The maximum dollar contribution from petroleum to the general economy will occur in 2017.
JB on Sun, 16th Mar 2014 11:21 pm
“…are we still getting more net energy from those fuels each year? No one knows the answer.” Of course we know the answer. What are you smoking? Net energy has been going down for decades.
A detailed quantitative analysis would be very difficult, but all we really need is a back-of-an-envelope analysis. Each day we use less light-sweet crude (higher net energy), and more Heavy sour crude (less net energy.) We use more non-conventional and renewables (less net energy). Oil is getting harder to find and extract (lower RoI). Etc. The peak of net energy was passed years ago. Why the unending chatter on this subject?
Makati1 on Mon, 17th Mar 2014 2:10 am
10 barrels of ethanol does NOT equal 10 barrels of sweet light crude. Nuff said.
forbin on Mon, 17th Mar 2014 12:33 pm
Makati,
you’re not dealing with people who can add up but with Uni students with degrees in hair-ology and marketing
2+2 = 7 because its more artistically correct …….
Forbin
shortonoil on Mon, 17th Mar 2014 2:46 pm
“One thing is clear. Because fossil fuels are finite, one day their rate of extraction will peak and then begin an irreversible decline. When that will occur, no one can know. But, before that happens–perhaps many, many years before it happens–the net energy from fossil fuels will peak and then begin an irreversible decline.”
In actuality convention crude peaked before the per unit “net” energy from petroleum began its decline. The energy curve is running about six years behind the production curve. Conventional peaked in 2006, the energy to produce a unit of petroleum, and its products hit the half way point of the per unit energy content of the petroleum in 2012. It is important to note that there is a difference between the per unit energy delivered, and the total energy delivered. The total energy delivered (per unit energy X total units produced) hit its maximum for petroleum about 2000. That was the point where production growth was no longer great enough to compensate for the decline in per unit energy delivered to the general economy.
To complete our report took 3 years, over 10,000 man hours, and required the writing of over 40 stand alone software packages. Because of the unique approach it takes to the problem of determining the depletion status of the world’s petroleum reserve it allowed us to employ the historical price of WTI as a control. It is not intended to be a gloom and doom report, it is a straight forward engineering study of the problem. Its determination is that the depletion status of the world’s petroleum reserve is much further advanced than generally assumed.
http://www.thehillsgroup.org/
rollin on Mon, 17th Mar 2014 4:42 pm
Gasoline hit a low of around $1 in 1998, while now it is about $3.50.
Meanwhile a barrel of oil went from about $10 to $100.
Pay in many jobs has fallen in that time, thus making oil products even more expensive for the consumer.
Falling net energy will play a role in this increased expense, along with increased cost of production, increasing internal demand in oil producing countries and increasing demand in developing countries.
JB on Mon, 17th Mar 2014 10:16 pm
Thanks short for making clear the difference between total energy delivered, and per unit net.