Long Term Assessment of Energy ROI

A New Long Term Assessment of Energy ROI

A New Long Term Assessment of Energy Return on Investment (EROI) for U.S. Oil and Gas Discovery and Production

Megan C. Guilford, Charles A.S. Hall, Pete O’ Connor and Cutler J. Cleveland

Abstract

Oil and gas are the main sources of energy in the United States. Part of their appeal is the high Energy Return on Energy Investment (EROI) when procuring them. We assessed data from the United States Bureau of the Census of Mineral Industries, the Energy Information Administration (EIA), the Oil and Gas Journal for the years 1919–2007 and from oil analyst Jean Laherrere to derive EROI for both finding and producing oil and gas. We found two general patterns in the relation of energy gains compared to energy costs: a gradual secular decrease in EROI and an inverse relation to drilling effort. EROI for finding oil and gas decreased exponentially from 1200:1 in 1919 to 5:1 in 2007. The EROI for production of the oil and gas industry was about 20:1 from 1919 to 1972, declined to about 8:1 in 1982 when peak drilling occurred, recovered to about 17:1 from 1986–2002 and declined sharply to about 11:1 in the mid to late 2000s. The slowly declining secular trend has been partly masked by changing effort: the lower the intensity of drilling, the higher the EROI compared to the secular trend. Fuel consumption within the oil and gas industry grew continuously from 1919 through the early 1980s, declined in the mid-1990s, and has increased recently, not surprisingly linked to the increased cost of finding and extracting oil.

1. Introduction

Petroleum, including crude oil, natural gas, and natural gas liquids, is industrialized society’s most important fuel. Since its discovery in the United States in 1859, the use of petroleum has increased rapidly in both absolute terms and relative to other fuels. It accounted for about two thirds of total fuel use in the 1970s [1]. Since the oil crises of the 1970s, many entities within the United States have attempted to devise alternatives to oil. Nevertheless we consume today about the same proportion of petroleum as in the 1970s. As the easier-to-find and exploit resources are increasingly depleted, we have to turn to other, more difficult and expensive resources. The deep water Gulf of Mexico exploration and exploitation efforts are but one example. Getting oil from these more difficult environments is more expensive, and any oil company will tell you that the easy oil is gone.

It takes energy as well as money to produce energy. One important issue pertaining to petroleum availability in the United States is Energy Return on Investment (EROI), the ratio of energy returned compared to the energy used to get it. A more energy-intensive process of production, other things being equal, results in a lower energy return on energy (and dollar) investment. In theory, EROI takes into consideration all energies produced and all energies consumed to get that production. In practice, EROI is usually calculated from the direct and indirect energy used to produce a given amount of energy Murphy et al. in press [2].

The U.S. oil and gas industry is traditionally the most energy-using industry in the United States, and the energy intensity of getting energy did not escape the notice of M. King Hubbert, the most important analyst of oil production patterns in the United States, who mentioned it in his notes for his deposition before the 93rd U.S. Congress. However, few or no analysts attempted to quantify that relation until Hall and Cleveland undertook this analysis in 1981 [3]. They concluded that the energy found per foot of all types of drilling while seeking and producing oil and gas declined from about 50 barrels of oil (including gas on an energy basis) in 1946 to about 15 in 1978. They also found that the energy cost increased from about 0.1 to 2 barrels equivalent per foot. EROI was not calculated explicitly in that paper, but one can infer that the EROI implied by these data declined during that period from at least 50:1 to about 8:1. They also found that while the (inferred) EROI declined over time it was greatly influenced by the amount of drilling, and that a large amount of drilling effort in any given year was associated with a low EROI relative to the secular trend and the converse. Previously Davis had reported on a similar relation for return per drilling effort [4]. An update to the Hall and Cleveland study was published by Cleveland in 2005 [5] that estimated that the EROI for oil and gas for the United States had declined from a peak of about 30:1 in 1972 to about 13:1 in 1982, during a period of very intense drilling, but that the ratio had recovered to about 18:1 in 1997. He also found that if corrections were made for the quality of the different fuels the ratio had declined from 20:1 to about 11:1 from 1954–1997. Since the data that have been analyzed previously covered only a short time span (1946–1977 or 1954–2002 at best) our objective is to analyze the data, including earlier and more recent data for a longer time span using a consistent methodology. We also compared the energy return on investment for both finding oil and producing it.

Read the full assessment here. (PDF)

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