October 29, 2005


Thermodynamics and Money (Peter Huber, 10.31.05, Forbes)

In his day M. King Hubbert was a great geologist who spent his life studying the planet's deposits of oil and gas. But as he got older, he simply lost it. His "peak oil" theory--which many people are citing these days--is a case study in junk economics.

Hubbert was born in 1903. By 1949 he had concluded that the fossil-fuel era was going to end, and quite soon. Global production would peak around 2000, he predicted, and would decline inexorably thereafter. By 1980 the aging Hubbert was certain that the impending crisis "was unique to both human and geologic history.… You can only use oil once. You can only use metals once. Soon all the oil is going to be burned and all the metals mined and scattered." Indeed we would soon be forced to abandon our entire "monetary culture," replacing it with an accounting tied to "matter-energy" constraints. An editor of Geophysics magazine summarized Hubbert's views in 1983: "The science of matter-energy and the historic system of finance are incompatible."

Today this same nonsense is often dressed up with numbers in an analysis that's dubbed "energy return on energy invested" (Eroei). According to this theory it can never make sense to burn two units of energy in order to extract one unit of energy. The Eroei crowd concedes, for example, that the world has centuries' worth of junk oil in shale and tar sands--but they can also prove it's irrelevant. It takes more energy to cook this kind of oil out of the dirt, they argue, than you end up with in the recovered oil. And a negative Eroei can only mean energy bankruptcy. The more such energy investments we make, the faster things will grind to a halt.

Eroei calculations now litter the energy policy debate. Time and again they're wheeled out to explain why one form of energy just can't win--tar sands, shale, corn, wood, wind, you name it. Even quite serious journals--Science, for example--have published pieces along these lines. Energy-based books of account have just got to show a profit. In the real world, however, investors don't care a fig whether they earn positive Eroei. What they care about is dollar return on dollar invested. And the two aren't the same--nowhere close--because different forms of energy command wildly different prices. Invest ten units of 10-cent energy to capture one unit of $10 energy and you lose energy but gain dollars, and Wall Street will fund you from here to Alberta.

Who knew there were even still folks who believe in thermodynamics?

Posted by Orrin Judd at October 29, 2005 4:13 PM

Oh, thermodynamics is fine and useful, it's just that belief it explains everything - or, indeed, mentioning it at all - is 95% coorelated to monomania of one kind or another.

Posted by: Mike Earl at October 29, 2005 4:54 PM

Our local high school put up posters by the Sierra Club with a picture of a kid and the caption to the effect "When she grows up there will be no more oil." That kid has to be 40 by now.

Posted by: Gideon at October 29, 2005 5:44 PM

I'm not a brilliant geologist but, um, we can use metals more than once.

Posted by: David Cohen at October 29, 2005 6:11 PM

And plastics.

Posted by: jim hamlen at October 29, 2005 6:29 PM

David - A neat confirmation of the author's point that Hubbert was, at age 77, quite senile.

Posted by: pj at October 29, 2005 7:17 PM

How concentrated the energy you produce matters, too. Which is why windmills do make a certain amount of sense, converting wind into electricity. It's when you spend similarly valued and similarly concentrated energy for what you produce that you get into trouble. Or worse, subsidies. That's one of the problems with biodiesel. As long as it's a byproduct of food production, converting inedible waste, it makes sense. But to grow crops to convert them into fuel to be used to grow crops is where the viscious circles start to apprear.

Then there's the matter of scale. Some solutions which work great on a small scale make no sense at a large one, or vice versa.
(The hemp heads have the same sort of problems. They think that the supply of closets with growlights is unlimited and unconstrained by electic prices. Probably because their parents are providing the closet and electricity. )

I don't get the part about metals either. Not only is metal recycling profitable, but if I understand correctly, modern mills work best with a certain percentage of scrap providing trace elements.The metals of a scrapyard may be "scattered about", but they are still far more concentrated than the stuff that comes out of a taconite or any other open pit mine.

As for that 40 year old little girl, we were also supposed to run out of food, water, air, and space to live.

Posted by: Raoul Ortega at October 29, 2005 7:19 PM

10 years till that awful LA of Blade Runner.

Posted by: RC at October 30, 2005 3:17 AM

Metals rust.

Posted by: Perry at October 30, 2005 10:17 PM

Putting aside 70's-era (and later) environmentalist hyperbole, what Hubbert predicted was that oil production would peak and then slowly decline. He did not predict an abrupt and complete crash. He originally made a similar prediction regarding oil production on U.S. domestic oil production, which was dead-on correct. Peak production was reached within a few years of his prediction (1970, if memory serves), and has slowly declined ever since.

The verdict is not yet in on Hubbert's world oil production estimate - we are still within the range of years that should represent the peak, but this isn't something to be laughed at.

Posted by: M.. Bulger at October 31, 2005 10:42 AM

not that you'd get the joke.

Posted by: oj at October 31, 2005 10:53 AM