Energy as the substrate of power

Use net energy rather than headline reserves to compare two producers.

In the 1930s an American oil well returned around a hundred units of energy for every unit spent finding and lifting it. The oil was shallow, it was under pressure, and it was near where it was used. Conventional oil today returns something in the range of ten to twenty, and oil sands return three to five. Every barrel still burns the same, and the arithmetic around it has changed completely.

What is left over

Energy takes energy to get. The ratio between what comes out and what went in is called the energy return on energy invested, and what matters to anybody outside the energy business is the share that reaches them:

net share = 1 − 1 ÷ EROI

That is the whole formula, and its shape is the reason it deserves a lesson. Move the slider and find the knee.

Reaches anybody else

90%

Produce this to deliver one

1.11

Worth of one more point of return

1.00pp

The knee. Below about ten the losses start being noticeable, and every further point of decline costs more than the last one did.

Every figure here is approximate and disputed. Where you draw the boundary of what counts as energy invested moves them a long way, and the solar and wind numbers have been improving for twenty years. The shape of the curve is not disputed by anybody.

Energy returned per unit spent10.0

Notice where the sources sit. Almost everything replacing conventional oil sits further down the slope than the thing it replaces, and the newer the source the steeper the ground it is standing on.

Worked example

Where the arguing happens and where it matters

100 to 20: four percentage points. Eighty points of energy return, and the delivered share goes from 99% to 95%. This is the flat part.
10 to 5: ten points. The share goes from 90% to 80%. Half the ratio, and now it shows.
5 to 2: thirty points. From 80% to 50%. Three points of ratio, and a third of all the energy.

Stated as a slope, one more point of energy return is worth a hundred times more at a ratio of two than at a ratio of twenty. Almost all of the public argument about energy sources happens on the flat part of that curve.

Stated the other way round: at a ratio of twenty, deliver a hundred units by producing a hundred and five. At a ratio of two, produce two hundred. The gross figures in the headlines grow while the useful figure stands still, which is what a country running down the curve looks like from the outside.

The framework is Charles Hall's, and the ranges above mostly follow Hall and Murphy's published surveys. Treat every figure as an order of magnitude: where the system boundary is drawn moves them a long way, different researchers draw it differently, and the solar and wind numbers have been improving for two decades. The curve is arithmetic and nobody disputes it.

ConventionReserves are not what is in the ground. A proven reserve is what is recoverable with current technology at current prices, which makes it partly a price statistic. When oil goes up, reserves go up without anybody finding anything, because deposits that were uneconomic become economic. That is worth knowing before treating a reserves figure as a fact about geology.

Why this belongs in a section about power

Everything a state does beyond producing energy runs on what is left over. Armies, hospitals, universities, and factories are all financed out of the surplus, and the surplus is the net figure rather than the gross one.

This is also why the energy question is never only about quantity. Being able to get it to a customer matters as much as having it, which puts pipelines, ports, and straits into the same conversation. A landlocked producer sells through somebody else's territory and prices accordingly. A producer with a deepwater terminal sells to anybody.

And it explains why energy independence is a phrase that means less than it sounds. Oil is a world market, so a self-sufficient producer still pays the world price when the world price moves. What independence buys is not cheaper energy. It is not being cut off, which is a real thing worth having and a different thing from what is usually claimed.

What breaks

Quoting EROI figures with a straight face. The estimates vary by a factor of several for the same source depending on where the boundary is drawn, whether the energy to build the equipment counts, and whether intermittency is priced. Anybody quoting a single number to two decimal places is quoting one study.

Comparing sources that do different jobs. Electricity and liquid fuel are not substitutes for most uses without a conversion that costs energy. A high ratio on something that cannot fly a plane or make steel is not a replacement for something that can, and the comparison quietly assumes a conversion nobody has priced.

Forgetting that the ratio moves. It falls as the easy deposits go first, and it rises as technology improves, and both happen at once. Shale did both: it opened resources that had been uneconomic, at a ratio well below the conventional oil it partly replaced. Which effect dominates is a question about a particular decade rather than a law.

What to do with this

When a producer's importance comes up, convert the headline into the net figure before forming a view. A country pumping twice as much at a third of the return delivers less, and the ratio is usually findable.

And when somebody argues about energy returns, check which part of the curve they are standing on. Above twenty they are arguing about a rounding error. Below five they are arguing about a third of everything, and that is the argument worth having.

Test yourself

01Country A has twice the proven reserves of country B. What do you still need to know before saying it is the more important producer?

What the energy return is on getting it out, and what it costs to move. Reserves are a gross figure. If A's reserves are bitumen at three to one and B's are conventional at twenty to one, A delivers two thirds of each barrel and B delivers ninety-five percent of each.

You also need to know whether A can get it to a customer. Reserves under a landlocked border, or reachable only through somebody else's pipeline, are a different asset from reserves at a deepwater port, which is the chokepoints lesson meeting this one.

02A new source has an energy return of 30 to 1 rather than 60 to 1. How much should that worry you, and why is that the wrong question to be asking?

Barely at all. The difference between 60 and 30 is about 1.7 percentage points of the energy, from 98.3% delivered to 96.7%. It is inside the error bars of the estimates themselves.

The right question is what happens near the bottom. Between five and two you lose thirty percentage points, and the marginal value of one more point of return is a hundred times higher at two than at twenty. Almost all of the public argument happens on the flat part of the curve, where it does not matter, and almost none happens at the knee.

03Why does the energy return matter to a state and not only to an energy company?

Because everything a society does beyond producing energy runs on what is left over. A country where the energy sector consumes a tenth of the energy has ninety percent for hospitals, schools, factories, and armies. A country where it consumes a third has considerably less room, and the room it lost was not to waste. It went into getting the rest, which nobody can decide to stop doing.

A tutor that knows this lesson. It asks before it explains, and it will not tell you what to do with your own money.

Educational material, not investment or policy advice. Figures are cited where they come from a filing or a statistical series, and labelled as illustrative where they do not.