Is hard-to-reach energy slowing down economic growth?

It should seem obvious that it takes energy to get energy. And, when it takes more energy to get the energy we want, this usually spells higher prices, since the energy inputs used cost more. Under such circumstances there is less energy left over for the rest of society to use; that is, there is less energy for the non-energy gathering parts – the industrial, commercial and residential consumers of energy – than would otherwise be the case.

It shouldn't be surprising, then, that as fossil fuels – which provide more than 80 percent of the power modern society uses – become more energy-intensive to extract and refine, there is a growing drag on economic activity as more and more of the economy's resources are devoted simply to getting the energy we want.

A more formal way of talking about this is Energy Return on Investment, or EROI. The "energy return" is the energy we get for a particular "investment" of a unit of energy. The higher the EROI of an energy source, the cheaper it will be in both energy and financial terms – and the more energy that will be left over for the rest of society to use.

But we've seen a persistent decline in the EROI of US oil and natural gas in the past century, a trend that is likely to be reflected elsewhere in the world as well. Here's a summary from the abstract of a 2011 study:

"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."

We rarely think of the energy it takes to get the energy we need because the processes are hidden from most of us. For example, when we drill for oil, there is energy expended to build the rigs, make the pipes, move and deliver them, drill the well, complete the well and pump the oil. The people involved all require energy in the form of food to live and tools and transportation to do their work. The oil is then transported by pipeline or tanker to refineries which use yet more energy to make the final products such as the diesel and gasoline we use. These products are transported to distributors and finally to retail service stations or large end users. This list is actually cursory, but it illustrates the scope of the activities involved.

A similar series of energy expenditures could be adduced for natural gas, coal, uranium, biofuels, solar power, wind, and, in fact, any energy source available to us.

The methods for assessing energy consumed in obtaining energy are not universally consistent. But no matter what methods are used, they point to one fact: fossil fuel EROI, including coal, has been declining. This is entirely consistent with the observation that we have extracted the easy-to-get resources first and are now going after oil and natural gas deposits that are progressively more difficult to extract – in deep shale deposits requiring extensive hydraulic fracturing or fracking, in deep ocean waters, and in the Arctic. For coal this is reflected in the declining heat value per unit of coal that is now being mined.

So, if EROI has generally been declining for decades, why has the economy grown consistently? The answer comes from one more piece of the puzzle: net energy. Net energy is the energy left over for the rest of society after we expend the necessary energy to extract, refine, and deliver it. That sounds like EROI, but it is an absolute number, not a ratio.

It turns out that we have greatly expanded the gross amount of energy we are extracting from all sources in the past century. This vast increase in gross extractions of energy has masked falling EROI by giving us consistently more net energy for society.

However, the growth in net energy appears to have slowed while EROI of fossil fuels continues to fall. That has led to greater competition for the available net energy and a general rise in fossil fuel prices from 2000 onward. There have been fluctuations, sometimes violent ones, tied to the so-called Great Recession of 2008 and 2009 and to the softening of the world economy in the past year which led to steep declines in oil prices (something which may be telling us there is another recession in the offing).

If the composition of our energy resources weren't so skewed toward finite fossil fuels, which supply more than 80 percent of all energy to human society, then the question of net energy might be less important. The vast amount of solar energy available on the Earth's surface might be available to us with a relatively low EROI, but the gross amount available is orders of magnitude greater than the amount we are using today. As solar becomes a larger and larger part of world energy production and as the technology becomes more efficient at converting sunlight to useable energy, we may see the EROI of our total energy mix turn up.

But it's doubtful that solar and other renewable alternatives can make up for the vast energy contribution of fossil fuels anytime soon. This means that we may be facing a secular slowdown in net energy growth or even stagnation or decline in the net energy available to society. As our major energy sources, fossil fuels, continue their downward EROI trajectory, it is getting harder and harder for gross extractions to compensate.

This suggests that the net energy available to society might actually peak and decline even as gross energy extractions continue rising. No doubt many experts will cite the rising trend as reason not to be concerned about energy supplies – even though, on a net basis, energy available to society might actually be shrinking.