Oil Production; Fuel Cost as a Percentage of Gross Domestic Product; An Update

There are two widely-used metrics of petroleum production, crude oil (including gas from oil wells that condenses and is mingled with crude oil), and “total liquids.” The latter includes “natural gas liquids” (NGLs), which are liquid fuels derived from natural gas, “other liquids,” which are primarily biofuels, and “refinery processing gain.” The latter is liquids made from crude oil that are less dense than crude oil and so represent an increase in volume over the original crude.
Although it will likely take several more years of data to be sure, it appears that global production of crude oil reached its peak annual production in 2005. Total liquids production, however, still seems to be rising, with the 2010 value about 1.5% higher than 2005. A closer look reveals that the total energy content of these liquids has risen somewhat less, about 1% since 2005. This is because the increase in total liquids is due to larger quantities of the non-crude oil components, and these components contain less energy per volume than crude oil (1).
This view of the data still isn’t the whole story. These data reflect the gross energy in the fuel consumed, not the net energy, sometimes expressed as an energy returned over energy invested (EROI) ratio. It is likely that production of oil and other liquids requires more energy today than formerly, because many of the easily extracted fuels have already been produced. Some estimates in the literature suggest that the EROI of crude oil produced today is in the range of 15 to 1 or less, whereas formerly it had been 50 to 1 or higher. If the EROI of the fuels that are the components of total liquids is declining, it is possible that the trend of the net energy of the total liquids is closer to flat, or even declining.

If market signals reflect reality, as more energy is expended in acquiring a fuel, the price of that fuel should rise. Plotting the cost of energy as a fraction of GDP is an indirect way of gauging the net energy of the fossil fuel resource. Pictured is an update of a plot of fossil fuel cost as a percent of GDP. Although the 2010 value is preliminary, the percent appears to again be above its range during recent periods of prosperity. This probably signals continued economic difficulties, since our way of life is heavily dependent on fossil fuels, and paying more for fuel means less money for other things. The percent would be higher were it not for a big drop in the price of natural gas. If, as some believe, there are vast new reserves of natural gas now available from shale, this fuel may offset to some degree flat or declining quantities and net energy of liquid fuels.

(1) NGLs probably are more or less similar to LP gas, which has about 70% of the energy per volume as crude oil. Ethanol, the primary biofuel, has only about 60% of the energy of crude. The volume of crude plus refinery processing gain has an energy density somewhere in-between the two chief refinery products, gasoline and diesel fuel and similar fuels, and this is about 5% less than the energy density of the original crude. This difference represents the energy consumed in producing the refined products.