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Dr. Mike Joy on Peak Oil
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Energy makes the economy go round
Dr Mike Joy tackles some disturbing truths about our reliance on oil, suggesting how we might transition to a ‘de-carbonised world’
30 Octoer, 2018
How many barrels of oil does it take to power the economy? Far from the punchline of a joke, the answer outlined by Dr Mike Joy, a senior researcher at Victoria University of Wellington’s Institute for Governance and Policy Studies, in a public lecture highlights some disturbing truths about our reliance on oil, the importance of energy to the economy, and how we might “transition to a de-carbonised world”.
Starting with the dire warning from more than 20,000 scientists worldwide that “if the world doesn’t act soon, there will be catastrophic biodiversity loss and untold amounts of human misery”, Joy went on to introduce the field of Biophysical Economics and one of its key concepts—Energy return on energy invested (EROI), or “how much energy do you have to put in to get that back?”.
“Biophysical Economics uses material and energy flows, rather than prices, to evaluate the economy, and it’s clear economists have underestimated the significance of energy in production. People also seem to underestimate how hard it is to replace energy production and how much it takes to produce energy,” said Joy.
“They don’t realise most of the food that is produced for people on this planet comes from using fossil fuels. But the net energy from our oil and gas supply is declining, which is going to have implications for everyone.”
There is a “double whammy” of the current need to use fossil fuels continuing to expand globally, and the fact that the easily accessible fuel is gone and what is left requires much more effort and therefore energy and capital to extract and refine.
We need to find four Saudi Arabias in the next 20 years to keep up with consumption.
Guest speaker at the lecture and a transition engineering consultant, Nathan Surendran put this assessment in perspective by pointing out that “we’re now producing and consuming two to four barrels of oil for each barrel we find”.
“Put another way, we need to find four Saudi Arabias in the next 20 years to keep up with consumption. The reality is that oil is the weak link in the production and delivery of virtually all other forms of energy, commodities, food, goods and services. Oil is, in many respects, the master resource,” Surendran said.
In spite of acknowledging the importance of oil to economies, both Joy and Surendran are in agreement about the need for New Zealand and the world to be carbon neutral by 2050 to keep global temperature rise under 1.5°C.
So what about the promise of renewable energy in achieving this goal?
While many people may think a transition to renewable energy will be a “lovely carry-on-as-we-are world with no more petrol pumps”, Joy is sceptical about the “bright green future we’re being told awaits us”.
“Contrary to what most people believe, we are using proportionally less renewable energy than we did previously. That is a huge issue. But there’s also the fact that the EROI on renewables like photovoltaic (solar panels), wind and biofuels poor and can’t sustain our current energy needs,” said Joy.
“The best way to compare all the possible energy sources and realise limitations on that green future, is by looking at these renewable energy sources in terms of watts per square metre—how much area of land does it take for each renewable energy source to meet current energy demand.”
Applying the formula of energy used per person and population density, Joy used the example of Britain to highlight the issue of relying solely on current renewable energy sources, as every square metre of the country would need to be covered in wind farms and solar panels to meet energy needs.
“The energy density of our alternatives is so much lower than fossil fuels, but if we want to keep under the 1.5oC threshold, we have to reduce our emissions by 6 percent per year from today,” said Joy.
“Basically we’re going to have to get used to having a whole lot less energy than what we had before, and that’s our only future. We have to figure out how we’re going to do that.”
20 Comments on "Dr. Mike Joy on Peak Oil"
dave thompson on Wed, 31st Oct 2018 12:54 pm
“We have to figure out how we’re going to do that.” Unless humans can change the laws of physics we will not “transition”.
Antius on Wed, 31st Oct 2018 2:37 pm
It will certainly be challenging for human civilisation to make a wholesale transition to renewable energy without reducing living standards substantially. Not physically impossible. A few calcs. Offshore wind has a maximum power density of 3W per square metre in Northern Europe.
Using the UK as an example; annual electricity demand is approximately 350TWh per year. That is equivalent to a continuous power output of 40GW. To produce that power would require offshore wind covering some 13,000 square kilometres. If we convert heating and transport to electric, that number will increase by about 50%. Some power could be generated by solar, wave, tide and biomass. Difficult, but achievable.
The real challenge is adapting to an intermittent energy supply without pushing up costs beyond what can be afforded. It can be done, but it means a different way of life.
The EROI of all renewable energy sources is a strong function of size. This is especially true for wind power. The best results can be expected for very large multi-megawatt turbines arranged in large wind farms sharing common services. To get the most out of the energy, try to avoid unnecessary energy transitions, I.e. try to convert the grid electricity directly into the end use with minimal intermediate energy transitions. Look for ways of using the electricity directly, by adjusting demand to match supply. Minimize the use of storage. This is not easy and will require large changes to our way of life. But I believe that it can be done.
Adapting to an intermittent supply is the thing that should be consuming our efforts if a renewable energy transition (rather than nuclear) is the way to go. The power plants themselves are broadly competitive provided we can tolerate intermittent supply.
Davy on Wed, 31st Oct 2018 3:05 pm
Antius, you are sounding more optimistic these days or is it just a brave face?
I AM THE MOB on Wed, 31st Oct 2018 4:32 pm
Trump’s Iran squeeze threatens $150 oil and a world recession
The slowing world economy is not strong enough to handle an oil supply shock.
At this juncture it would trigger a full-blown slump. Yet that is exactly what we risk as Donald Trump tries to drive every last barrel of Iranian crude oil off the global market.
A spike in Brent oil to $120 by early next year would probably be enough to tip the eurozone and Japan into recession, and would be the coup de grace for large parts of the emerging market nexus.
It would amplify the effects of monetary tightening by the US Federal Reserve and the European Central Bank already in the pipeline, and which will hit with full force in the first quarter of 2019.
The likelihood of such an oil spike has risen from implausible to near 50:50 as it becomes clear that the Trump administration really does intend to knock out 2m barrels a day (b/d) of Iranian exports by early next year. Those barrels are the difference between ample world supply and an almighty crunch.
Mr Trump is likely to get his way. The evidence so far is that not even China National Petroleum Corporation and Sinopec dare defy Washington. China’s giant refiners have notified Tehran that they will stop buying Iranian exports after the sanctions deadline passes on Sunday. So has India’s Reliance.
The Europeans are pulling out, whatever the bluster from Berlin, Brussels, and Paris. Total has suspended all Iranian operations. ENI is winding down purchases.
The US will pay a strategic price for Donald Trump’s promiscuous misuse of financial hegemony. But right now no serious company can risk being shut out of the US capital markets and the dollarised world payments system. It is too dangerous.
In practical terms, the spare capacity of global oil producers will fall below 1pc by early next year for the first time in the history of the post-war energy markets. This is lower than during the OPEC shock of 1979, and lower than in July 2008 when roaring Chinese demand pushed Brent to $147 a barrel.
“All this works perfectly so long as there are no supply problems anywhere. But Libya and Nigeria are political wild cards, and Venezuela is collapsing,” said Helima Croft from RBC Capital Markets.
“You have already had three Saudi tankers attacked in the Red Sea by (Iranian-backed) Houthis and one was sunk. You can’t rule anything out,” said Mrs Croft, a former Mid-East analyst for the US Central Intelligence Agency.
On Sunday, Iran’s leader Hassan Rohani threatened to close the Strait of Hormuz, the choke point for a fifth of world’s crude and for Britain’s shipments of liquefied natural gas from Qatar.
Mr Trump tweeted back in capital letters: “Never, ever, threaten the United States again or you will suffer consequences the likes of which few throughout history have ever suffered before”. The Iranians replied laconically that they had been around for millenia and seen empires come and go, including “more civilized” ones.
Jean-Louis Le Mee and Will Smith from Westbeck Energy said Saudi Arabia, OPEC, and Russia cannot lift output much further to plug the Iranian deficit even if they bend every sinew. “Global crude spare capacity is exhausted. Every producer globally is currently squeezing every last barrel,” they said.
Westbeck is betting on a “furious rally” in November and December, culminating in a $150 crescendo next year.
Saudi oil minister Khalid al-Falih confirmed that the OPEC-Russia cartel is in “produce as much as you can mode” and that crude prices could quickly jump to $100.
“Nobody has a clue what Iranian exports will be. There are potential declines in Libya, Nigeria, Mexico and Venezuela. Our spare capacities for the entire globe are much less today than they were in the past, and we are using a significant part of them,” he told Tass.
Mr al-Falih says the Kingdom can ramp up output from 10.7m to 12m b/d if need be. “This I can assure. But if 3m b/d disappears, we cannot cover this volume,” he said. Thereafter, Saudi Arabia would have to invest $20bn to $30bn of investment to add another 1m b/d of capacity.
Few oil watchers believe the Saudis can in fact rech 12m b/d in any meaningful time horizon. S&P Global Platts said the Saudis are already running flat out.
The Manifa field is suffering from corrosion that will hold back 300,000 barrels a day (b/d) until early next year. While there is a 500,000 b/d field waiting in the Saudi-Kuwait ‘neutral zone’, this is caught up in a dispute over Kuwait’s diplomatic tilt towards Turkey.
What seems clear is that Washington will take a draconian line on exemptions for buyers of Iranian crude, with limited waivers and phase-out periods even for allies. “Our goal remains getting countries importing oil from Iran to zero as quickly as possible,” said Brian Hook, head of the State Department’s Iran action group.
Total compliance is impossible but a loss of 1.7m b/d by January is on the cards. S&P Global estimates exports will be down by 1.3m b/d as soon as next month.
Risks have been obscured over recent weeks by market noise and a jump in Iranian shipments before the deadline. Brent has been caught in the undertow of the October equity rout, dropping 13pc to $76. Hedge funds have been liquidating “long” positions on the derivatives markets, accelerating the sell-off.
Oil balance is always a complex calculus of shifting supply and demand. Economic slowdowns can deflate prices fast. “The oil market is adequately supplied for now,” said the International Energy Agency in its latest monthly report. This could remain the case for months as new barrels from Brazil, Kazakhstan, Iraq, and elsewhere match vanishing Iranian crude.
Yet the IEA says that most of the 2.6m b/d rise in output over the last year is due to OPEC and Russia eating into spare capacity. This is “straining parts of the system to the limit”. The agency says fresh supply of 5.7m b/d is needed each year just to keep up with the natural decline of old wells.
Oil cycles have the power and predictability of tidal flows. Investment in upstream oil and gas peaked at $750bn in 2014 before the price crash. It touched bottom at $460bn in 2016 and has yet to recover. This has stored up trouble.
Consultants Goehring & Rozencwajg say there has been a collapse in the discovery of new conventional fields. Some 100 projects covering 27bn barrels of reserves have been suspended since 2014. “We believe the big declines in non-OPEC conventional production are about to reemerge as a huge, unexpected issue,” they said.
Mr Trump appears convinced that America can withstand any shock now that shale fracking has restored US energy independence and turned the country into the world’s top crude producer. This is strangely jejune. Oil is a fungible commodity. The blowback from the interlinked global economy would send the US crashing into recession along with everybody else.
The energy intensity of the world economy has halved since the OPEC crises of the 1970s. Yet oil can still cause havoc. The spike of July 2008 was a deflationary shock of the first order. It drained demand from the US, European, and East Asian economies, and triggered the collapse of an over-leveraged financial system that had become dangerously unstable.
The system is scarcely safer today.
https://www.telegraph.co.uk/business/2018/10/31/trumps-iran-squeeze-threatens-150-oil-world-recession/
I AM THE MOB on Wed, 31st Oct 2018 5:12 pm
This year I am having a Republican Halloween..We give the first 1% of kids to our door all of the candy..And trust that they will give adequate shares to all the other kids..
It should work right?
I AM THE MOB on Wed, 31st Oct 2018 5:36 pm
This is how republics end
Warnings from the fall of Rome.
https://www.washingtonpost.com/outlook/2018/10/31/this-is-how-republics-end/?fbclid=IwAR0__-2Uw-lQoX-IWQqCectWFwVPYGG5hLm-HmmiT-PAjbdzCCpsTGoFbKk&utm_term=.c07ace329d6b
Anonymous on Wed, 31st Oct 2018 5:45 pm
Yawn, this article is so a decade ago. How is The Oil Drum doing?
CreedoninMo on Thu, 1st Nov 2018 6:14 am
Conspiracy theory; they are going to continuously drop the price of oil each time it looks like the economy is failing not because it has anything to do with oil supply but as a way of stimulating the economy. They don’t seem to have as much control over the bond price, however.
Chrome Mags on Thu, 1st Nov 2018 5:47 pm
https://www.cnbc.com/2018/11/01/trump-near-deals-with-india-south-korea-on-iran-oil-imports-reports.html
‘Trump will reportedly allow India and South Korea to keep buying sanctioned Iranian oil’
“U.S. sanctions have cut Iran’s exports by roughly a third, with shipments shrinking to roughly 1.7 million to 1.9 million barrels per day by the end of September, according to estimates from several sources.”
That last paragraph was surprise, as it seemed like November was when the export numbers would drop for Iran.
How much oil India and SK import from Iran? Maybe Trump got worried there wasn’t enough OPEC spare capacity so he made these deals?
jef on Fri, 2nd Nov 2018 9:28 am
How many barrels of oil does it take to power the economy?
Answer; All of them.
pointer on Sat, 3rd Nov 2018 7:47 am
There’s a lot of room for conservation. And conservation can come in a lot of forms.
John W on Sat, 13th Apr 2019 5:19 pm
Hey!
Why is the point being missed.
Transition is to USING LESS ENERGY, not more from non fossil sources or any source.
The reductionist views those advocating some form of “economic” shift to renewable sources of energy need to do the maths on that transition in terms of use of oil to implement such a shift on top of present oil consumption.
The world is finite and Non Renewable Natural Resources are shrinking as we consume them at a record rate in our present BAU suicidal quest. Add further industrialised output manufacturing so called “green” energy capture infrastucture, and you deplete NRNRs even faster while using more oil, and pollute even more.
None of the present “economic ” models can assist a transition to using less energy, and also reduce human population, both of which must happen and will happen one way or another.
At present our energy consumption per capita keeps climbing as does our oil consumption while economist and politicians chase “growth” towards an unavoidable widespread climbing death rate as food supply collapses.
Reducing total energy use, and doing that progressively by at least 10% pa, is a matter of stripping out any form of energy consuption that does not produce food for is not used judiciously to building an more localised food supply.
Cuba fed itself after transitioning to an 1/8th of its oil consumption, through community resilience, not corporate market forces or Corporate involvement.
The soil was improved without oil based fertiliser and local supply was the centre of the success.
We allow out lives to be manipulated by and filled with corporate junk.
8 ball pool on Fri, 5th Jun 2020 2:15 am
Westbeck is betting on a “furious rally” in November and December, culminating in a $150 crescendo next year.
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Block Blast on Sat, 4th Jan 2025 12:59 am
Dr. Mike Joy’s insights on peak oil and the transition to a de-carbonised world are crucial. As we face the reality of declining oil supplies, exploring renewable energy is essential. However, the challenges he outlines, especially regarding EROI, cannot be ignored. Perhaps engaging with games like Block Blast can raise awareness about energy conservation in a fun way, encouraging discussions on sustainable practices. We must prioritize finding innovative solutions for a greener future.
Sprunki on Mon, 3rd Feb 2025 1:44 am
Dr. Mike Joy’s insights on peak oil and the urgent need for a transition to a de-carbonized world are crucial. It’s alarming how reliant we are on fossil fuels, especially when considering the declining energy return on energy invested (EROI). As we seek sustainable alternatives, games like Sprunki can foster awareness and engagement around renewable energy. They encourage players to think critically about energy consumption and the impact of our choices.
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Peak Oil Alarm: Can Games Save Us?
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Geral Dortiz on Mon, 28th Jul 2025 9:21 pm
This is a sobering assessment. The idea that we need to find “four Saudi Arabias” is terrifying. It really highlights the urgency of transitioning to sustainable energy sources and reducing consumption. It’s daunting to consider the necessary lifestyle changes, though. Thinking about planetary scale destruction and resource depletion sometimes makes me want to just launch digital asteroids at virtual planets in Solar Smash. Dark humor, I guess. But seriously, we need innovative solutions and widespread cooperation.
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