Energy return on (energy) invested (EROI), oil prices, and energy transitions

Heun, Matthew Kuperus; M, de Wit

doi:10.1016/j.enpol.2011.09.008

Cited by 71 publications

(47 citation statements)

References 20 publications

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“…While energy price and EROI are not necessarily directly correlated, due to subsidies and other mechanisms that can distort markets, empirically EROI and the price of a fuel are inversely and moderately strongly related [16,17]. Certainly, a declining EROI must eventually translate to a higher price, and conversely, a continued high price suggests a relatively low EROI.…”

Section: Coalmentioning

confidence: 99%

Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

Aucott

Hall²,

Stern³

2014

Energies

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Abstract:We examined data on fuel consumption and costs for the years 1950 through 2013, along with economic and population data, to determine the percent of U.S. gross domestic product (GDP) spent each year on fuels, including fossil fuels and nuclear ore, and the growth of the economy. We found that these variables are inversely correlated. This suggests that the availability and cost of energy is a significant determinant of economic performance. We believe this relation is consistent with analyses based on the energy return on investment (EROI) concept in that increasingly scarce, and hence expensive, fuels are a drag on economic growth. The best-fitting linear equation relating the percent of GDP (energy cost share) and year-over-year (YoY) GDP change variables suggests that a threshold exists in the vicinity of 4%; if the percent of GDP spent on fuels is greater than this, poorer economic performance has been likely. Currently, about 5% of GDP is spent on fuels; most of this is for liquids. Continued weak economic performance appears likely unless improvements in energy efficiency, on the order of a factor of 3 for liquid fuels, and/or a more rapid adoption of renewable or nuclear energy sources can be achieved, provided that the EROI of these new sources proves to be sufficiently high.

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Section: Coalmentioning

confidence: 99%

Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

Aucott

Hall²,

Stern³

2014

Energies

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“…In addition, there have been several publications relating EROI to long-term economic growth, firm profitability and oil prices [3,[13][14][15]. The main objective of this paper is to use this literature to explain the implications that declining EROI may have for long-term economic growth.…”

Section: Introductionmentioning

confidence: 99%

The implications of the declining energy return on investment of oil production

Murphy

2014

Phil. Trans. R. Soc. A.

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Declining production from conventional oil resources has initiated a global transition to unconventional oil, such as tar sands. Unconventional oil is generally harder to extract than conventional oil and is expected to have a (much) lower energy return on (energy) investment (EROI). Recently, there has been a surge in publications estimating the EROI of a number of different sources of oil, and others relating EROI to long-term economic growth, profitability and oil prices. The following points seem clear from a review of the literature: (i) the EROI of global oil production is roughly 17 and declining, while that for the USA is 11 and declining; (ii) the EROI of ultra-deep-water oil and oil sands is below 10; (iii) the relation between the EROI and the price of oil is inverse and exponential; (iv) as EROI declines below 10, a point is reached when the relation between EROI and price becomes highly nonlinear; and (v) the minimum oil price needed to increase the oil supply in the near term is at levels consistent with levels that have induced past economic recessions. From these points, I conclude that, as the EROI of the average barrel of oil declines, long-term economic growth will become harder to achieve and come at an increasingly higher financial, energetic and environmental cost.

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“…Our hypothesis for the analysis of this paper is that the biophysical characteristics of producing available energy, namely the EROI of the energy production process, dictate a limit on the price and profit margin for a firm to engage in energy production and exploitation. At least one other paper has addressed the important issue of relating EROI to price of energy, where the authors applied a statistical analysis of various fitted curves that are based upon a similar structure as we present [23]. Here, rather than optimize for a statistical correlation, we formulate an underlying basis for the relationship between price and EROI such that there is a physical basis for price and a framework for projecting future trends.…”

Section: Introductionmentioning

confidence: 99%

Relating Financial and Energy Return on Investment

King

Hall

2011

Sustainability

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For many reasons, including environmental impacts and the peaking and depletion of the highest grades of fossil energy, it is very important to have sound methods for the evaluation of energy technologies and the profitability of the businesses that utilize them. In this paper we derive relations among the biophysical characteristic of an energy resource in relation to the businesses and technologies that exploit them. These relations include the energy return on energy investment (EROI), the price of energy, and the profit of an energy business. Our analyses show that EROI and the price of energy are inherently inversely related such that as EROI decreases for depleting fossil fuel production, the corresponding energy prices increase dramatically. Using energy and financial data for the oil and gas production sector, we demonstrate that the equations sufficiently describe the fundamental trends between profit, price, and EROI. For example, in 2002 an EROI of 11:1 for US oil and gas translates to an oil price of 24 $2005/barrel at a typical profit of 10%. This work sets the stage for proper EROI and price comparisons of individual fossil and renewable energy businesses as well as the electricity sector as a whole. Additionally, it presents a framework for incorporating EROI into larger economic systems models.

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Energy return on (energy) invested (EROI), oil prices, and energy transitions

Cited by 71 publications

References 20 publications

Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

The implications of the declining energy return on investment of oil production

Relating Financial and Energy Return on Investment

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