As summer gas prices fluctuate, the discussion over oil prices heats up faster than the Texas landscape. Energy policy is a topic of debate, as it has been for several decades now, and I began looking for answers to some questions that were rattling around in my head.
I wondered how gas prices can go up when oil reserves also go up?
I wondered what effect increases in production would have on prices?
And, I wondered if one of the elements of the increasing price of oil products might have anything to do with the increasing costs of production?
I found an interesting table on the Peak Oil News and Message Boards. It shows the decreasing energy return (Energy Return on Investment or EROI) of different energy sources since the turn of the century.
In 1930, domestic oil had a 100:1 EROI. This reflects the abundance of "free flowing" oil as opposed to demand. Many early oil wells were "gushers," were at relatively shallow depths, and required minimal investment and labor to move from ground to consumer. By 1970, the EROI had dropped to 40:1 as wells had to go deeper, were located in more remote locations, and required more capital investment to move to refineries. Imported oil in 1970 also had a 40:1 EROI. By 2005, imported oil had dropped to 32:1, and by 2000, domestic oil had plunged to a dismal 10:1.
EROI is presented as a ratio of energy produced to the energy consumed during production. An energy source that yields positive net energy has an EROI ratio of more than 1:1. Anything less is considered a loss, or energy sink.
Coal has maintained a relatively high EROI of 80:1; hydroelectric remains steady at 40:1; firewood is at 30:1; natural gas and leather both clock in at 12:1. Coming in far down the scale are solar at 8:1, tar sands at 8:1 and biodiesel/gasohol at a poor showing of 5:1.
The recent increase in oil and gas production using hydraulic fracturing actually causes a loss in EROI, as the amount of energy consumed by mining of sands, transportation of those materials to well sites, and the intensive energy required to "frack" those wells all lower EROI.
As many have called for opening up drilling around the U.S., the ease of extraction is a factor that must be taken into account, and is an element that will lower EROI. According to the Peak Oil site: "However, no longer can an oil company drill a hole on easily accessible, vacant land and get a gusher. Although new discoveries are announced regularly, most are small and many are difficult and increasingly expensive to contract. Consider the deep water oil wells in the Gulf of Mexico, the frozen shorelines of the Arctic Ocean, the tar sands in Alberta, Canada, or the shale oil deposits in Wyoming as examples. Oil's EROI remains high compared with most renewables, but it's continually declining. And, because the production and consumption of energy always has environmental impacts, the more energy that must be invested to produce usable energy, the greater the environmental cost of that source."
Opening up drilling in all available fields would eliminate the need for imports and create jobs; but, according to an article in CNN Money, would come with trade-offs. There would be rigs up and down all of our beaches, near the Florida keys and in the wilds of Alaska. Millions of dollars of tourist revenue would be put at risk, and there is always the associated risk of wildlife habitat.
Even then, according to the article, it's doubtful that gas prices would come down. The world has an increasing demand for oil. If the U.S. produced more oil, OPEC could cut a proportional amount of production and prices would remain unchanged.
Energy is a topic that is always at the forefront in national discussions. Those discussions need to start including the associated energy needs of production, the loss of revenue to other industries due to expanded production, and the long term effects to our society as we increase our dependence on single sources of energy. It's time we looked at all options, at all costs, and at all repercussions.
It’s all just my opinion.