A retraction……….

28 02 2017

Catastrophism is popular, but not necessarily right. Debunking the “Hill’s Group” analysis of the future of the oil industry

I have lifted this post by Ugo Bardi straight from his site because, as he did himself, I posted all the info from Louis Arnoux and the Hill’s Group treating it as gospel. As Ugo says, and just like him, I have no time to check all the facts that pass by my ‘desk’, especially when they are as complex as this issue. Another proof we live in a post truth world…. it’s disappointing that I have to retract this issue from my blog, because I still feel it’s ‘correct’ in its assessment, just not correct in its methodology, apparently…. at the very least, enjoy the Trump ‘cartoon’.
“The Hill’s Group” has been arguing for the rapid demise of the world’s oil industry on the basis of a calculation of the entropy of the oil extraction process. While it is true that the oil industry is in trouble, the calculations by the Hill’s group are, at best, irrelevant and probably simply plain wrong. Entropy is an important concept, but it must be correctly understood to be useful. It is no good to use it as an excuse to pander unbridled catastrophism. 

Catastrophism is popular. I can see that with the “Cassandra’s Legacy” blog. Every time I publish something that says that we are all going to die soon, it gets many more hits than when I publish posts arguing that we can do something to avoid the incoming disaster. [I can vouch for this….. the exact same thing happens here at DTM!] The latest confirmation of this trend came from three posts by Louis Arnoux that I published last summer (link to the first one). All three are in the list of the ten most successful posts ever published here.

Arnoux argues that the problems we have today are caused by the diminishing energy yield (or net energy, or EROI) of fossil fuels. This is a correct observation, but Arnoux bases his case on a report released by a rather obscure organization called “The Hill’s Group.” They use calculations based on the evaluation of the entropy of the extraction process in order to predict a dire future for the world’s oil production. And they sell their report for $28 (shipping included).

Neither Arnoux nor the “Hill’s Group” are the first to argue that diminishing EROEI is at the basis of most of our troubles. But the Hill’s report gained a certain popularity and it has been favorably commented on many blogs and websites. It is understandable: the report has an aura of scientific correctness that comes from its use of basic thermodynamic principles and of the concept of entropy, correctly understood as the force behind the depletion problem. There is just a small problem: the report is badly flawed.

When I published Arnoux’s posts on this blog, I thought they were qualitatively correct, and I still think they are. But I didn’t have the time to look at the report of Hill’s group in detail. Now, some people did that and their analysis clearly shows the many fundamental flaws of the treatment. You can read the results in English by Seppo Korpela, and in Spanish by Carlos De Castro and Antonio Turiel.

Entropy is a complex subject and delving into the Hill’s report and into the criticism to it requires a certain effort. I won’t go into details, here. Let me just say that it simply makes no sense to start from the textbook definition of entropy to calculate the net energy of crude oil. The approximations made in the report are so large to make the whole treatment useless (to say nothing of the errors it contains). Using the definition of entropy to analyze oil production is like using quantum mechanics to design a plane. It is true that all the electrons in a plane have to obey Schroedinger’s equation, but that’s not the way engineers design planes.

Of course, the problem of diminishing EROEI exists. The way to study it is based on the “life cycle analysis” (LCA) of the process. This method takes into account entropy indirectly, in terms of heat losses, without attempting the impossible task of calculating it from first principles. By means of this method, we can see that, at present, oil production still provides a reasonable energy return on investment (EROEI) as you can read, for instance, in a recent paper by Brandt et al.

But if producing oil still provides an energy return, why is the oil industry in such dire troubles? (see this post on the SRSrocco report, for instance). Well, let me cite a post by Nate Hagens:

In the last 10 years the global credit market has grown at 12% per year allowing GDP growth of only 3.5% and increasing global crude oil production less than 1% annually. We’re so used to running on various treadmills that the landscape doesn’t look all too scary. But since 2008, despite energies fundamental role in economic growth, it is access to credit that is supporting our economies, in a surreal, permanent, Faustian bargain sort of way. As long as interest rates (govt borrowing costs) are low and market participants accept it, this can go on for quite a long time, all the while burning through the next higher cost tranche of extractable carbon fuel in turn getting reduced benefits from the “Trade” creating other societal pressures.

Society runs on energy, but thinks it runs on money. In such a scenario, there will be some paradoxical results from the end of cheap (to extract) oil. Instead of higher prices, the global economy will first lose the ability to continue to service both the principal and the interest on the large amounts of newly created money/debt, and we will then probably first face deflation. Under this scenario, the casualty will not be higher and higher prices to consumers that most in peak oil community expect, but rather the high and medium cost producers gradually going out of business due to market prices significantly below extraction costs. Peak oil will come about from the high cost tranches of production gradually disappearing.

I don’t expect the government takeover of the credit mechanism to stop, but if it does, both oil production and oil prices will be quite a bit lower. In the long run it’s all about the energy. For the foreseeable future, it’s mostly about the credit

In the end, it is simply dumb to think that the system will automatically collapse when and because the net energy of the oil production process becomes negative (or the EROEI smaller than one). No, it will crash much earlier because of factors correlated to the control system that we call “the economy”. It is a behavior typical of complex adaptative systems that are never understandable in terms of mere energy return considerations. Complex systems always kick back.

The final consideration of this post would simply be to avoid losing time with the Hill’s report (to say nothing about paying $28 for it). But there remains a problem: a report that claims to be based on thermodynamics and uses resounding words such as “entropy” plays into the human tendency of believing what one wants to believe. Catastrophism is popular for various reasons, some perfectly good. Actually, we should all be cautious catastrophists in the sense of being worried about the catastrophes we risk to see as the result of climate change and mineral depletion. But we should also be careful about crying wolf too early. Unfortunately, that’s exactly what Hill&Arnoux did and now they are being debunked, as they should be. That puts in a bad light all the people who are seriously trying to alert the public of the risks ahead.

Catastrophism is the other face of cornucopianism; both are human reactions to a difficult situation. Cornucopianism denies the existence of the problem, catastrophism (in its “hard” form) denies that it can be solved or even just mitigated. Both attitudes lead to inaction. But there exists a middle way in which we don’t exaggerate the problem but we don’t deny it, either, and we do something about it!

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9 responses

28 02 2017
Joe

What’s the point in retracting if Prof Bardi might be wrong – read some of the comments below his original post on his blog.

28 02 2017
Dr. George W. Oprisko

Actually, I found the Hill’s analysis intriguing………. why Dr. Bardi dismisses
their premise……….. I wouldn’t be too hasty…………

One key point they made is regarding declining net energy……. and they did so
quantitatively……… which is new……….
I disagree WRT the operant mechanism because…………. energy costs(losses) incurred in production, refining, and distribution of petro-energies
are borne by the energy companies themselves………..
The ultimate consumer sees the same BTU/lb as always……… he also sees
declining volumes as more and more feedstock is consumed in production, refining, and distribution.
In the US today, these declining volumes are offset in effect by declining ability of the population to pay for them……… due to mass un and under employment……… and declining household income….

I believe that Hill’s scenario will play out……. not necessarily due to entropy considerations…….. but definitely due to net energy considerations…….. with individual wells shut in when the energy they produce declines below that required to produce it……. obscured for possibly quite some time by disconnects between net energy and net financial income due money flows….

In summary, I believe Hill’s Group is correct…… declining net energy will cause closure of production in a cascading manner…….. with least productive wells closed first…….. that is……. tight (unconventional) wells shut first……. followed by conventional wells……..
Using Ghawar as an example……. this conventional and among the most productive fields on earth…… is rapidly declining in producible area…. and the time will come then it is simply closed altogether……. in the not too distant future….. because it’s wells will produce water with an oil shene on it……. instead of oil with water entrained within. At which point Saudi production will
drop markedly, and will shift to crudes with higher gravities and much higher sulfur.

INDY

28 02 2017
mikestasse

It wasn’t Ugo who ‘dismissed’ the Hill’s Group’s assertions, it was Seppo Korpela, whose work you can read at http://peakoilbarrel.com/on-the-thermodynamic-model-of-oil-extraction-by-the-hills-group/

28 02 2017
rabiddoomsayer

Our civilization faces so many problems that catastrophism is entirely appropriate. Study the money conclusion we are stuffed, study the EROEI we are stuffed, study the very rapid decline in the biosphere we are stuffed, study the climate we are in deep do do, peak phosphate big problem, garbage everywhere including the deepest marine trenches, going to bite us. Totally dependent upon electronics, totally unprepared for a Carrington event (or electromagnetic pulse weapons).

Whatever problem is studied, the bigger picture is always ignored and the conclusions downplayed. We accept the figures of players we know are being dodgy and still the answer looks bleak, or do we really believe Ghawar has just as much oil as it did decades ago. What paleo climatology tells us is significantly different to what the IPCC tells us, but the IPCC is scary enough.

OK I accept the study has flaws, but that does not mean the answer is wrong.

28 02 2017
Arthur Robey

Don’t anyone dare call me a Cornucopian. I won’t stand for it.
But.
My research tells me that our standard physics model is an edifice of kludges.
Our salvation lies not in the puny electron but in the massive hadrons.
There are a lot of subtle hints all over the place, from Pari Spolter’ attack on Newton ( for heaven’s sake. How fare she!?) To the “dustification” of the twin towers.Not to mention Catherine Austin Fitts talks of the so called Black Budgie

http we://youtu.be/EaT3Gm2ajvU

Oh. And I sailed my yacht from Adelaide to Hobart.Next stop Home, Southport

28 02 2017
Arthur Robey

My apologies.
Wrong video. Try this one. Less sensational and muchore evidence

1 03 2017
gbell12

Kudos Mike! It’s important to recognise flaws in sources and ideas, even if it’s annoying, costs energy, and we don’t change our minds.

6 03 2017
psile

Looks like a hatchet job to me.

7 03 2017
Dr. George W. Oprisko

First of all, Arthur, congratulations on completion of your recent voyage! As a
bluewater circumnavigator, I know well the personal attributes necessary to voyaging successfully.
Unfortunately, knowledge of physics, and in this case thermodynamics, is not one of them.
The first, second, and third laws of thermodynamics were postulated to explain the amount of fuel necessary to distill scotch whisky. They gained applicability when the steam engine was invented, increased in importance when the Otto and Diesel cycles were invented, and are of major importance. The Brayton cycle applies to gas turbines, turbo props, and jets. The Rankine applies to steam engines. The Stirling and Ericcson apply to those engines too.
In each and every case the 4 laws of thermodynamics have been found to apply.
Of course, thermodynamic laws are the origin of entrophy, which is a measure of dis-order or of energy so dissipated that it is unavailable for work.

Which brings us back to Hill’s analysis. In using entropy, in the thermodynamic sense, Hill is correct. The problem is the audience, not Hill. Specifically the audience’s lack of understanding of entropy and it’s meaning.

In lay terms, Hill postulates, quantitatively, that fossil fuel production will cease
before almost anyone thinks because the energy available to do work, whether in an engine, or not, is rapidly declining to zero. It is another way of saying that the net energy of fossil fuels is rapidly declining to zero.

From earlier postings here, it would appear that no one disputes this.

INDY

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