The Paradigm Shift: Energy Return on Energy Invested (EROEI)
Source: Petrodollar Warfare by William R. Clark
One of the crucial concept required to understand the importance of Peak Oil relates to a phenomenon in physics commonly described as Energy Return on Energy Invested, or EROEI. Unlike the traditional financial metric, Return on Investment (ROI), EROEI refers to the amount of energy spent compared to the energy extracted. EROEI is the ratio between energy expended to extract a barrel of oil, versus the energy provided by that barrel of oil.
Fifty years ago when some of the super-giant oil fields were still being discovered, one of these could produce an EROEI of 200, that is, energy 200 times greater than the actual energy expended to extract the oil. In contrast, oil wells in deep water currently achieve an EROEI of 5. Oil removed from the tar sands, as found in Canada (and Venezuela), have a very low EROEI of 1.5, along with a slow extraction process.
Once global Peak Oil is reached and exceeded, a critical point is attained on the downward side of Hubbert's curve, when it requires more energy to extract a given unit of oil than what it will produce if extracted. Of the remaining oil in the ground or at the bottom of the ocean, a positive EROEI is required if that oil is the be used as transportation fuel. To reiterate, when the energy required to extract very low-grade or geographically undesirable oil is equal to or greater than the energy that would be provided by that new barrel of oil, it will no longer be logical to expend the energy to extract the oil. In such a scenario, the EROEI for that oil field becomes an energy sink, and the oil will simply remain in the ground.
It is for these reasons that the world will never technically run out of oil; rather, it will ultimately become simply too energy-intensive to extract low-quality or geographically inaccessible oil. Unlike ROI calculations, the amount of money invested in a mature oil field is completely irrelevant if the energy required to extract the oil is greater than the energy that would be derived from recovering the oil.
Despite the historic, social, economic, and geopolitical implications of global Peak Oil, many governments still appear reluctant to publish this information — even though the facts regarding global oil discovery and production are perfectly apparent to the rational observer. Instead, the global society has acquired an unfounded belief that more oil will be discovered as needed in order to further economic growth, but this is a false construct.
Source: Petrodollar Warfare by William R. Clark
