The Net Hubbert Curve: What Does It Mean?

Cutler Cleveland of Boston University has reported that the EROI of oil and gas extraction in the U.S. has decreased from 100:1 in the 1930’s to 30:1 in the 1970’s to roughly 11:1 as of 2000 (Figure 1). But beyond the fact that society receives currently around 11 barrels of oil for every 1 barrel that it spends getting that oil, What does this mean?

Figure 1. Plot of three estimations of EROI for U.S. oil and gas.

Well, first, it means that, if the trend of declining EROI continues, society will be spending an increasingly larger chunk of their remaining energy to get more energy. This cycle is positively reinforcing:

Declining EROI means that the net energy contained in each unit of energy delivered to society is decreasing over time, requiring the extraction of increasingly greater quantities just to meet societal demand →
decreases the quantity of energy remaining in the ground for future society →
makes it more difficult to find and develop the remaining bit of energy.

With every barrel we pull out of the ground we propel ourselves further down this path, creating a more difficult situation for future generations. (note: I assume that the “Best First Principle” applies to this scenario, i.e. society is using the best resources (i.e. oil fields) first, then the second best, etc…)

More importantly, declining EROI also means that the amount of discretionary energy available to society is FAR less than that predicted by a Hubbert curve (Figure 2). The Hubbert curve represents the total gross quantity of energy available, and, as it is calculated, there are equal quantities of energy available on the left and right side of the peak. This, however, is only true in a gross sense. The net energy available (i.e. discretionary energy) is less. In other words, declining EROI means that there will be much less net energy extracted post-peak than pre-peak on the Hubbert curve.

Figure 2. Hubbert curve as published in 1971. See here for a more detailed discussion of M. King Hubbert and this graph.

To understand this in greater depth, I quantified this relationship by first creating a replicate of the Hubbert curve published in 1971 (Figure 2). I then applied the three point values of EROI over the past century (i.e. 1930 = 100:1, 1970 = 30:1, and 2000=11:1), and interpolated linearly the values between the points and into the future to a minimum EROI of 1.1:1. I have no a priori reason to believe that EROI has declined linearly or that it will decline to 1.1 and then level off, but it has certainly declined in the past and as long as it is declining the general results reported here are valid.

I then used the following equation to calculate the percent of net energy available from the gross energy produced:

Net Energy = Gross Energy * ((EROI – 1)/ EROI)

Figure 3 shows the results of this analysis. Unlike the original Hubbert curve that shows equal quantities of gross energy resources on the left and right side, the Net Hubbert Curve is skewed so that most resources are on the left. For example, according to the original Hubbert curve, 50% of the energy resource is remaining when production levels reach the peak, but this is quite different for the Net Hubbert curve. Due to declining EROI, by the time peak production is reached, 73% of the net energy available is already used.

Figure 3. Gross and Net Hubbert curves, adapted from Figure 2.

The implications of these results are vast, but in general, declining EROI is going to make it very difficult to meet the net energy needs of future society. Although this study may not be very precise, it does imply that if we have reached Peak Oil (and I think we have), that society has already spent quite a bit more than half of the net (or discretionary) oil energy that will ever be available.

Peak Water

“It should be obvious from simple arithmetic that population growth is on a direct collision course with increasingly scarce resources.” - Jeremy Grantham

The notion of peak water probably sounds crazy to most people. The earth is 70% covered by water. The water cycle replenishes water on a continuous basis. The global warming enthusiasts tell us that glaciers are melting and oceans are rising. This should make water more plentiful. But, as they say in the real estate business – Location, Location, Location. Freshwater shortages in the wrong places could have calamitous consequences to those regions, worldwide commodity prices, the economic future of nations with water shortages and possible war. Regional water scarcity means water usage exceeds the annual natural replenishment from the water cycle. The impact of water scarcity can be far reaching. It can lead to food shortages, famine, and starvation. Many nations, regions and states have mismanaged their water resources, and they will have to suffer the long-term consequences.

Source: Wikipedia

The peak oil debate gets a tremendous amount of press and generates heated disagreements on both sides. The focus on peak oil has permitted the future water crisis to stay under the radar. As usual, myopic self serving politicians have ignored resource issues for the last 30 years. These were 30 years of debt financed good times with relatively low prices for all natural resources and commodities. The end of this period of low prices is nigh. The brilliant investment manager Jeremy Grantham lays out the future in his recent newsletter:

“We must prepare ourselves for waves of higher resource prices and periods of shortages unlike anything we have faced outside of wartime conditions. In fact, I believe we are already several years into this painful transition but are still mostly invested in denying it.”

The following chart provides a useful comparison of oil and water as resources. While oil is non-renewable and limited, it is replaceable by other more costly alternatives. Water is renewable and relatively unlimited, but there is no substitute and it is only useful in the precise places. The Southwest region of the United States, our fastest growing region, has considerable freshwater constraints and could ultimately run out of water.

CHARACTERISTIC	OIL	WATER
Quantity of resource	Finite	Literally finite; but practically unlimited at a cost
Renewable or Non-Renewable	Non-renewable resource	Renewable overall, but with locally non-renewable stocks
Flow	Only as withdrawals from fixed stocks	Water cycle renews natural flows
Transportability	Long-distance transport is economically viable	Long distance transport is not economically viable
Consumptive versus non-consumptive use	Almost all use of petroleum is consumptive, converting high-quality fuel into lower quality heat	Some uses of water are consumptive, but many are not. Overall, water is not "consumed" from the hydro-logic cycle
Substitutability	The energy provided by the combustion of oil can be provided by a wide range of alternatives	Water has no substitute for a wide range of functions and purposes
Prospects	Limited availability; substitution inevitable by a backstop renewable source	Locally limited, but globally unlimited after backstop source (e.g. desalination of oceans) is economically and environmentally developed
Source: Pacific Institute

Facts & Figures

According to the United Nations, by 2020 water use is expected to increase by 40% to support the food requirements of a worldwide population that will grow from 6.7 billion people to 7.5 billion people. The U.N. estimate is that 1.8 billion people will be living in regions with extreme water scarcity. Even though 70% of the globe is covered by water, most of it is not useable because it is saltwater. Only 2% of the earth’s water is considered freshwater. Most of the freshwater is locked up in glaciers, permanent snow cover and in deep groundwater. Desalinization is a process that can convert saltwater into freshwater, but it is only practically useful on the coastlines and it is 15 times more expensive. The middle of the United States is considered our breadbasket, where the majority of our food is grown. Drought and/or over-consumption of existing sources of water in this sensitive area would have worldwide implications, as the U.S. is a huge exporter of wheat, soybeans, rice and corn. The United States exported $115 billion of agricultural products in 2008 while importing $80 billion, according to the USDA. This is one of the few remaining businesses where the U.S. is a net exporter. Population growth and water shortages could change that equation.

One estimate of global water distribution:
Water source	Water volume, in cubic miles	Water volume, in cubic kilometers	Percent of fresh water	Percent of total water
Oceans, Seas, & Bays	321,000,000	1,338,000,000	--	96.5
Ice caps, Glaciers, & Permanent Snow	5,773,000	24,064,000	68.7	1.74
Groundwater	5,614,000	23,400,000	--	1.7
Fresh	2,526,000	10,530,000	30.1	0.76
Saline	3,088,000	12,870,000	--	0.94
Soil Moisture	3,959	16,500	0.05	0.001
Ground Ice & Permafrost	71,970	300,000	0.86	0.022
Lakes	42,320	176,400	--	0.013
Fresh	21,830	91,000	0.26	0.007
Saline	20,490	85,400	--	0.006
Atmosphere	3,095	12,900	0.04	0.001
Swamp Water	2,752	11,470	0.03	0.0008
Rivers	509	2,120	0.006	0.0002
Biological Water	269	1,120	0.003	0.0001
Total	332,600,000	1,386,000,000	-	100
Source: Igor Shiklomanov's chapter "World fresh water resources" in Peter H. Gleick (editor), 1993, Water in Crisis: A Guide to the World's Fresh Water Resources (Oxford University Press, New York).

The major challenges regarding freshwater are:

• Tremendously uneven distribution of water on earth.
• The economic and physical constraints of tapping water trapped in glaciers.
• Human contamination of existing water supplies.
• The high cost of moving water from one place to another.

Regional scarcity is not easily solved. Once the extraction of water exceeds the natural rate of replenishment, there are only a few options.

• Reduce demand to sustainable levels.
• Move the demand to an area where water is available.
• Shift to increasingly expensive sources, such as desalinization.

None of these options is available for many areas in the Southwest U.S. The cities of Las Vegas, and Phoenix were built in the middle of the desert. The Hoover Dam, built on the Colorado River near Las Vegas during the Great Depression, created Lake Mead, the country's largest artificial body of water. The lake provides water to Arizona, California, Nevada and northern Mexico - but after several recent years of drought, on top of ever-growing demand, it's dangerously depleted. Housing developments on the outskirts of these towns have been stopped dead in their tracks by lack of water supply. The growth of these major U.S. metropolitan areas is in danger of going into reverse if their long-term water supplies are not secure.

Mike Shedlock noted the difficulties facing the Southwest in a white paper that he wrote on the subject of peak water:

“There is more water allocated to each user from the Colorado River than there is water to allocate. As long as some people are willing to sell their water, this isn’t an immediate problem. Chevron’s water rights for its DeBeque, Colo., shale oil project are leased, not sold, to the city of Las Vegas for drinking water. How will Las Vegas replace that in the future when Chevron won’t extend the lease? Many areas are using ground water that will be used up entirely in just a few decades.”

Potential Impact on Commodities

The United States, for better or worse, is a sprawling suburban dominated country with large supplies of freshwater in some regions and limited amounts in other regions. Suburban sprawl has put intense pressure on local water supplies. The millions of acres of perfectly manicured green lawns and millions of backyard “cement ponds” require vast quantities of water to retain that glorious green hue. The Ipswich River near Boston now "runs dry about every other year or so," according to Sandra Postel, director of the Global Water Policy Project. "Why? Heavy pumping of groundwater for irrigation of big green lawns." In drought years like 1999 or 2003, Maryland, Virginia and the District have begun to fight over the Potomac -- on hot summer days combining to suck up 85 percent of the river's flow. With 67 million more people expected to inhabit the United States by 2030, these water shortages will only become more severe.

Source: The Big Picture

Kansas is considered part of the fertile mid-section of our country that has allowed the average American to become morbidly obese. The story of Scott City, Kansas should be a warning to all farming communities in the Midwest. Mike Shedlock describes what happened to Scott City:

“Farmers around Scott City pumped with abandon from the underground reservoir called the Ogallala Aquifer in the 1960s, ’70s, and ’80s, raising record wheat, corn, and alfalfa crops, and never once worrying that they might hit ‘E’ on the tank fueling the economy. But today, in a withering downtown that no longer has a place for residents to buy shoes or dress clothing, some have likened the situation to a car running out of gas.

“‘If you run out of water for your crops, that’s one thing,’ farmer Kelly Crist says, recalling the day about a decade ago when his well went dry. ‘But when you go to your house and turn the shower on and there is no water, it’s a serious situation. Today, the 46-year-old farmer relies on an 800-foot-deep well that pokes into a deeper but smaller aquifer to fill his toilets, sinks, and bathtub.

“Water levels in the Ogallala, which stretches from Texas to South Dakota, vary in depth, and some communities have decades — or even more than a century — before the water runs out.Scott City sits atop a shallow portion of the aquifer. Water experts say that makes it a window into the Plains’ future.

“‘The area around Scott City is beginning to experience what the rest of the region is going to experience if we continue to pump the way we do,’ says Rex Buchanan of the Kansas Geological Survey. ‘If they keep going at the rate they are, it’s not a sustainable lifestyle. Something has to give.’

Food production around the world has begun to flatten or decline. The last 10 years have seen steady erosion in the amount of grain grown per capita. And since wheat and rice and corn are all world markets, with developing countries growing at a breakneck pace, the need for imports elsewhere could drive up the cost of food everywhere. The Chinese are relentlessly converting farmland to industrial uses (even as they continue to demand more meat and grains in their diet). The price spike in 2007 and 2008 was not a onetime event. It was a foreshadowing of a much more costly future for consumers. The U.N. said global food reserves in 2008 were at their lowest level in 30 years, which was good for only 53 days, compared with 169 days in 2007. Peak oil and peak water are misleading terms. They should be changed to peak cheap oil and peak cheap water. We’ll be able to produce oil and water for decades, but it will cost significantly more to do so. This will result in much higher commodity prices as farming requires prodigious amounts of oil and water to produce the food for the 6.7 billion people that inhabit the planet (8.3 billion projected in 2030).

More Dire Consequences

“In real life our species has such a modest ability to deal with distant outcomes or to defer gratification that a bad ending is probably inevitable. We need, it seems, the shock of a Pearl Harbor to really gear up and make sacrifices.” - Jeremy Grantham

Americans seem to have a problem facing up to imminent threats until they hit them like a sledgehammer. This penchant for delay is going to cause much heartache and pain for most Americans. Hoping for a good outcome will not work. Thirty years of delay has set the stage for eventual conflict over resources. Peak oil is the more likely trigger for armed conflict. We know who has the oil – Middle East, Russia, Brazil, Canada. We know who needs the oil – United States, China, Europe, Japan. Peak water as a trigger for conflict isn’t on anyone’s radar screen. It is interesting that Brazil, Russia, and Canada also have the greatest amount of renewable freshwater on the planet. South America, which has 28% of the world’s freshwater and consumes only 6%, is the prize. Asia, which has 29% of the world’s freshwater, consumes 50% of all the freshwater on the planet. With high population growth and industrial development something will have to give in Asia.

Total Renewable Freshwater Supply, by Country
Country	Annual Renewable Water Resourcesa (km^3/yr)
Brazil	8,233
Russia	4,498
Canada	3,300
United States of America	3,069
Indonesia	2,838
China	2,830
Colombia	2,132
Peru	1,913
India	1,908
Congo, Democratic Republic (formerly Zaire)	1,283
Venezuela	1,233
Bangladesh	1,211
Myanmar	1,046
Source: Pacific Institute

A looming future crisis of food shortages and skyrocketing commodity prices is inevitable. Peak water will play a significant role in the crisis. The facts are undeniable:

• Droughts in key farming belt areas due to climate change.
• Less snow pack in the mountains resulting in less freshwater flows during growing season.
• Contamination of freshwater sources by industrial waste.
• Soil erosion and depletion of underground aquifers.
• Higher oil prices resulting in higher fertilizer costs, food transport, and industrial agriculture.
• Expansion of bio-fuels as an energy source.
• Worldwide population growth, with developing countries expanding the diets of their middle class.
• Subsidies and tariffs that protect farmers and distort market prices.
• Inability to transport water economically.

War over resources has happened before and it will happen again. Japan attacked Pearl Harbor because the U.S. was cutting off its oil supply. The devastating combination of peak oil and peak water in the next five years will combine to create a commodity crisis that is likely to spur armed conflict as countries contend for declining resources. The question is who will attack who and when. In the meantime, plant a vegetable garden.

Wind Turbines and Maintenance

Opening this morning’s newspaper here in Japan, I found an article on problems facing wind power in Japan, mainly the northern island of Hokkaido. While the public seems to have a rosy picture of renewables — thanks to the relentless propaganda put out by governments and corporations — there is next to no knowledge about the surprising drawbacks.

Let me cite some of the information given in this article (unfortunately I could not find anything in English online, so trust me). Three-quarters of the wind turbines installed in Hokkaido and Japan as a whole are foreign-made, which may surprise many people who think of Japan as a major “green technology” exporter. A point made here is that when wind turbines break down and need parts, they are out of service for long time periods for the parts to arrive and be installed. One municipality in Hokkaido says its foreign-made turbines are typically out of service for three months while waiting for maintenance! Of the total 267 turbines in Hokkaido, 74% are foreign-made, and in FY2007, 62 of them were out of commission for at least one month.

What can we learn from this? Of course many will say the lesson is that using domestically made wind turbines is the answer. That would indeed shorten down time because replacement parts could be obtained quickly. But the real important lesson here is the surprising number of turbine breakdowns reported. And when a turbine breaks down, that requires maintenance personnel to come with cranes or even helicopters to do the repairs. The cranes in turn need access roads, and those roads too must be built and maintained. So the important lesson here is that once the petroleum economy falters, so will maintenance on windmills and other renewable energy infrastructure, not to mention conventional sources of power.

Because the world public is ceaselessly bombarded with upbeat information about renewables, people naturally have woefully unrealistic expectations about what renewables can do. Instead of beating the drums, rolling out the bandwagon, and passing out pairs of rose-colored glasses, proponents need to be honest with themselves, and with the public about what we can expect from renewables, which is far less than most people understand.

Financial Crisis Called Off

Whew, what a relief! Everybody from Ben Bernanke and a Who's Who of banking poobahs schmoozing it up in the heady vapors of Jackson Hole, Wyoming, to the dull scribes at The New York Times, toiling in their MC Escher hall of mirrors, to poor dim James Surowiecki over at The New Yorker, to - wonder of wonders! - the Green Shoots claque at the cable networks, to the assorted quants, grinds, nerds, pimps, factotums, catamites, and cretins in every office from the Bureau of Labor Statistics to the International Monetary Fund - every man-Jack and woman-Jill around the levers of power and opinion weighed in last week with glad tidings that the world's capital finance system survived what turned out to be a mere protracted bout of heartburn and has been reborn as the Miracle Bull economy. Our worries over. If you believe their bullshit. Which I don't.

All this goes to show is how completely the people in charge of things in the USA have lost their minds. They seem to think this mass exercise in pretend will resurrect the great march to the WalMarts, to the new car showrooms, and the cul-de-sac model houses, reignite another round of furious sprawl-building, salad-shooter importing, and no-doc liar-lending, not to mention the pawning off of innovative, securitized stinking-carp debt paper onto credulous pension funds in foreign lands where due diligence has never been heard of, renew the leveraged buying-out of zippy-looking businesses by smoothies who have no idea how to run them (and no real intention of doing it, anyway), resuscitate the construction of additional strip malls, new office park "capacity" and Big Box "power centers," restart the trade in granite countertops and home theaters, and pack the turnstiles of Walt Disney world - all this while turning Afghanistan into a neighborhood that Beaver Cleaver would be proud to call home.

By the way - and please pardon the rather sharp digression - but does anybody know if they buried Michael Jackson yet? It's only been a couple of months. And, if not, is that the stench now wafting across the purple mountains' majesty from sea-to-shining sea? Isn't it a little indecent to keep the poor fellow waiting? Or is a really surprising comeback secretly planned, with product tie-ins and all?

America loves the word "recovery" as only a catastrophically sick society can. "In recovery" is the new universal mantra of loser individuals and loser nations. Everybody in the USA is in recovery. Even Michael Jackson (he may have given up on somatic activity but, on the plus side, as the Rotarians love to say, he's quit using drugs for once and for all, and the magazines have stopped publishing photos of him taken after 1990, when he turned himself into something out of the Hammer Films catalog).

To sum it all up, the US economy is in recovery. Paul Krugman says that we'll soon realize that Gross Domestic Product (GDP) is growing. He actually said that on the Sunday TV chat circuit. Not to put too fine a point on it, but I would really like to know what you mean by that Paul, you fatuous wanker. Do you mean that the Atlanta homebuilders are going to open up a new suburban frontier down in Twiggs County so that commuters can enjoy driving Chrysler Crossfires a hundred and sixty miles a day to new jobs as flash traders in the Peachtree Plaza? Do you mean that the Home Equity Fairy is going to wade into the sea of foreclosure and save twenty million mortgage holders currently sojourning in the fathomless depths with the anglerfish? Do you mean that all the bales of deliquescing, toxic "assets" hidden in the vaults of Citibank, JP Morgan, Bank of America, et al, (not to mention on the books of every pension fund in the USA, and not a few elsewhere) will magically turn into Little Debbie Snack Cakes on Labor Day weekend? Do you mean that American Express and Master Card are about to declare a Jubilee on accounts in default everywhere? Do you mean that General Motors will produce a car that a.) anyone really wants to buy and b.) that the company can sell at a profit? Are you saying we get a do-over, going back to, say, 1981? Did we win some cosmic lottery that hasn't been announced yet? What's growing in this country besides unemployment, bankruptcy, repossession, liquidation, gun ownership, and suicidal despair? In short, are you out of your mind, Paul Krugman?

The key to the current madness, of course, is this expectation, this wish, really, that all the rackets, games, dodges, scams, and workarounds that American banking, business, and government devised over the past thirty years - to cover up the dismal fact that we produce so little of real value­ these days - will just magically return to full throttle, like a machine that has spent a few weeks in the repair shop. This is not going to happen, of course. It is permanently and irredeemably broken - this Rube Goldberg contraption of swindles all based on the idea that it's possible to get something for nothing. And more to the point, we're really doing nothing to reconstruct our economy along lines that are consistent with the realities of energy, geopolitics, or resource scarcity. So far, our notions about a "green" economy amount to little more than blowing green smoke up our collective ass. We think we're going to build "green" skyscrapers! We're too dumb to see what a contradiction in terms this is. The architects are completely uninterested in the one thing that really is "green" - traditional urban design - and most particularly the walkable neighborhood. That's just too conventional, not special enough, lacking in star power, not enough of a statement, boring, tedious, so not cutting edge! We blather about high speed rail, but you can't even get from Cleveland to Cincinnati on a regular train - and what's more amazing, nobody is really interested in making this happen. All we really care about is finding some miracle method to keep all the cars running.

What we've been seeing is nothing more than a massive pump-and-dump operation in the stock markets, most of it executed by programmed robot traders, with the trading nut provided by taxpayers current and future. These shenanigans add up to new risks and fragilities so extreme that the next time a grain of sand catches in the exquisite machinery they will sink the USA as a viable enterprise. We will end up discrediting not just capitalism, but also the idea of capital per se, that is, of deployable acquired wealth. As this occurs, of course, events on-the-ground will give new meaning to the term "reality television."

-- JHK