An increasingly serious problem is threatening world energy markets.
As an advisor to 16 world governments on energy policy, I've seen many energy related problems come and go. Yet this may be the most disturbing crisis I've seen. And it's being completely ignored by the media.
It has to do with a ratio we used to call the Energy Profit Ratio (EPR). But today it's known as Energy Returned on Energy Invested, or EROEI.
EROEI is fast becoming critical.
As you'll see, this is likely to impact you, as well as anyone else who buys gas to drive a car... or relies on fuel for their living.
What is EROEI - And Why Is It So Dangerous?EROEI refers to how much energy it takes to get energy out of the ground.
Simply put, if the EROEI is equal to "1," it takes one barrel of oil to produce one barrel. In other words, it is a wash. And, of course, anything below 1 would mean more energy is being used than gotten. Unless we were in a war or facing a natural disaster, this would be unsustainable.
The problem we face now is that the overall EROEI figure is moving well down into single digits.
This is adversely impacting energy across the board. Recently we've seen it in renewables, natural gas and alternative sources of energy. But the ratio is most alarming when it comes to the energy we need and use the most: Oil.
In the 1930s you could get about 100 barrels out of the ground for every one barrel you used.
By 1970 that figure was 25-barrels-to-one.
Today, we're only getting about 3 for every one barrel of energy we use to extract it!
For crude oil, the EROEI has been declining steadily for a number of reasons...
- Securing adequate crude oil has required companies to move to smaller fields;
- Companies now must use more expensive extraction techniques; and
- Oil is located in less accessible and more energy-demanding onshore and offshore locations.
As an oil guy, it pains me to say that.
Even more alarming, the EROEI problem is accelerating at bewildering pace.
That's because it's becoming more expensive and energy intensive to extract raw materials and then process it into the oil products actually used by the retail market.
And the move to unconventional sources (shale, tight or heavy oil, bitumen, or tar sands), is not the answer to this critical problem.
Horizontal drilling and fracking (requiring a high diesel-powered footprint on the surface), turning highly viscous production into a flow that can move through pipelines, are very energy-dependent.
The move to unconventional sourcing may have improved the domestic portion of the oil used, but it has done so at a heavy and expanding EROEI cost.
So what does this all mean?
In a nutshell, it means we've got a race against time in our hands here, that we aren't going to win.
The EROEI problem is actually part of a broad economic crisis that I have researched for a long time with some highly acclaimed colleagues. These include Dr. Chris Martenson, a pathologist, and internationally recognized expert on the dangers of exponential growth, and Keith Fitz-Gerald, the President of the Fitz-Gerald Group and an expert in non-linear trends in the financial markets.
What we discovered was so alarming, we presented it to the United Nations, 16 world governments and UK parliament. We also hired an Emmy winning director to present the findings in a investigative documentary. Since releasing it in mid-July, it has gone viral. You can see it here.
As the EROEI crisis intensifies, the cost to you will expand right along with it. A transition to natural gas as a primary fuel source is inevitable, but that carries its own EROEI shortcomings
For investors, however, the lowering of EROEI figures actually provides a number of opportunities. There will be some segments of the energy sector that offer significant profit potential. You can get the details here.