Oil: Economy of Oil

Summary:

We will not run out of oil. But we will run out of cheap oil and the oil "production" will drop because of this.

It is getting more expensive to extract oil over time and eventually oil will be too expensive to extract.

In the last blog post, I discussed how much oil we have, how much "new" oil we find and how much oil we consume. To understand this, it is essential to understand the economy of oil and the theory of peak-oil.

Economy of Oil - EROI
When one decides whether or not to extract oil from an oil field, one will consider how much effort is needed and how much returns one can expect. The specific energy of crude oil is 11.6 kWh per kg and that is the upper limit of the efforts one would put in to get oil - it would be much more energy efficient to take a nap than to spend 12 kWh of energy to get 11.6 kWh of energy.

One of the first towers of the Spindletop oil field in the early 20th century
. Initially, it is easy to extract oil (high return of investment, EROI)

It goes without saying that humans start with the easy fields first, and move to the more expensive fields later. The EROI falls since we need to put in more resources to get the same oil.

Troll A from the end of the 20th century. The investments are now considerably higher.

Once the oil is on the surface, we need to add more energy to until the end product is available to the customer:

• In some cases, such as oil sand, the oil needs to be cleaned
• In the unlikely case of accidents, actors need to arrange rescue operations and handle the oil spills.
• The oil needs to be transported to the oil refinery and be refined.
• The petrol products needs to be shipped to the end customers.
• We need security personnel to protect the oil from being stolen. Or, if actors are desperate enough, personnel to steal the oil.

All this adds to the denominator of the return of investments. This means that the effort of digging up oil needs to be much lower than the energy in oil.

Peak-Oil
The fundamentals of peak-oil is very simple: We are consuming a limited asset that is never renewed. Sooner or later, that asset will dry up and we will see a diminishing output of that asset.

There are many predictions on when peak oil will happen, Most of them are likely wrong, and it doesn't really matter when peak oil will happen. The key point is that it will happen and when it happens, bad things will happen we will see a drop in the economic activities.

A Paradox of Oil Reserves
If we over consume oil, why are the reserves increasing?

When digging into the numbers, I see some countries that has more oil than expected in 2017:

• The USA (55 Billions more barrels than expected). Since Oil Sand fields are getting more important, it seems plausible that some Oil resources has been reclassified to reserves.
• The Russian Federation (39 Billions more barrels than expected) - I don't know why there is more oil 2017 compared with 2007.
• Iran, Iraq and Saudi Arabia (a total of 120 Billions more barrels than expected).  

In my last blog post, I discussed new oil discoveries. Those are too small to explain why we have more oil reserves than expected.

My personal conclusion from this is that the reserves might increase or decrease in the short term. Since no oil is created, the total amount of oil must reduce when we extract billions of oil every month. In the long term, oil production recovery will decrease.

Side Note 1:
I haven't forgot about global warming. I can recommend a panel debate hosted by Science and Cocktails in Copenhagen on April 23rd this year. Video is available on Facebook.

Side Note 2:
Peak-Oil will most likely not stop global warming - the known reserves corresponds to 50 years of oil consumption, 50 years of natural gas consumption and more than 100 years of coal consumption. The carbon dioxide emissions must start falling dramatically within a couple of years.

Side Note 3:
My prediction for my personal emissions is still 4.2 tonnes of CO2e (8 tonnes including public emissions). If we choose not to relocate this year, my personal emissions will be less than three tonnes due to the consumption of stuffed furniture.