Thermodynamic model of oil depletion sparks controversy

This is a post by François-Xavier Chevallerau, a Brussels-based public policy professional who is in the process of setting up a new international think tank to support the emergence and promotion of biophysical economics in the public debate and the policy conversation. Here, he comments on the "Hill's Report" that was also discussed in a previous post on "Cassandra's Legacy." 

Guest post by François-Xavier Chevallerau

A report on the world’s oil depletion problem published several years ago by an obscure association of anonymous consulting engineers and professional project managers is suddenly coming under fierce criticism. 
 
In December 2013, an ‘association of consulting engineers and professional project managers’ calling themselves ‘The Hill’s Group‘ published a report titled ‘Depletion: A determination for the world’s petroleum reserve’. Depletion, as is well known, is the inevitable consequence of non-renewable resource extraction, and determining how this depletion will affect petroleum production has been a key focus of energy analysts and researchers for a long time.

Arriving at an estimate for the remaining extractable petroleum reserve is usually attempted by adding together the quantity of petroleum believed to be present in each field, a method which is error-prone and imprecise. The Hill’s Group’s study proposed an alternative model of oil extraction and depletion, rooted in thermodynamics – i.e. the branch of physical science that deals with the relations between all forms of energy. This model, called ‘ETP’ (Total Production Energy), is allegedly derived from the fundamental physical properties of petroleum, the first and second laws of thermodynamics, and the production history of petroleum.

The methodology used by The Hill’s Group is based on ‘exergy analysis’. Exergy in thermodynamics means ‘the maximum amount of work that can be extracted from a system’. The system being considered, in this case, is a unit of petroleum. The Hill’s Group’s study calculates the maximum amount of work that can be extracted from a unit of petroleum, using the physical properties of the crude oil in question, equations derived from studies of the First and Second Laws of thermodynamics, and the cumulative production history of petroleum. It then uses these these values to construct a mathematical model that it claims can predict the status of the world’s petroleum reserve with a much smaller margin of error than can be provided by the quantity measurement approach.

Optimistic estimates place the world’s total petroleum reserve at 4,300 billion barrels. Of that quantity the model proposed by The Hill’s Group predicts that it will only be possible to extract 1,760.5 billion barrels, or 40.9% of the total reserve. Its model suggests that petroleum’s ability to supply the energy needed to sustain its own production process is declining, that petroleum depletion is further advanced than generally assumed and that oil production will decline or even collapse much faster than commonly anticipated.

From its ETP model the Hill’s Group also derives a petroleum cost curve, which it says maps the price of petroleum since 1960 with a correlation coefficient of 0.965, making it the most accurate oil pricing model ever developed. It also says that the price of oil depends, in addition to production costs, on the amount that the end consumer can afford to pay for it, and derives from its ETP model a Maximum Consumer Price curve, representing the maximum price that the end consumer can pay over time for petroleum. It is based on the observation that the price of a unit of petroleum can not exceed the value of the economic activity that the energy it supplies to the end consumer can generate. According to the Hill’s Group, its model shows that 2012 was the energy half way point for petroleum production, i.e. it was the year when one half of the energy content of the petroleum extracted was required to produce the petroleum and its products. From then on, it says, the price of oil can only be pulled down along the descending Maximum Consumer Price curve, which it says is curtailed at $11.76/ barrel in 2020. At this point petroleum will no longer be acting as a significant energy source for the economy, and its only function will be as an energy carrier for other sources. In other words, the oil industry as we know it will disintegrate, with a myriad of negative consequences for the world economy.



The Hill’s Group’s original report was published over three years ago, and a second version was published in March 2015. It gained significant popularity and was favorably commented on many blogs and websites. All this however seems to have change, and the Hill’s Group’s ETP model is now coming under fierce criticism from various sources:

‘SK’, a professor emeritus in the department of Mechanical and Aeronautical Engineering at a Major U.S. University, delivered a strong critique of the ETP oil extraction model at peakoilbarrel.com. The fact that The Hill’s Group said that a threshold for oil markets was passed in 2012 and that oil prices would tend to go down shortly after seems to give the report a superficial credibility. But according to SK the thermodynamic analysis is incorrect and therefore any calculations and graphs based on this analysis must also be unreliable.

Spanish physicist Antonio Turiel published on his website an analysis of the theoretical basis of the ETP model (in Spanish). Applying the principles of thermodynamics to evaluate the limits of the oil’s capacity to deliver net energy to society makes sense, he says, provided it is done in a proper way. The ETP model, however, is according to him based on an incorrect use of thermodynamic theory, erroneous deductions, definitions that do not make sense from a physics point of view, deficient data processing, and ignorance of the interactions between oil production and the economy as well as other energy sources. Given these important shortcomings, he says, the ETP model cannot be used for a serious discussion of oil depletion, at least not until it is fundamentally revised and rebuilt.

Another Spanish physicist, Carlos de Castro from the University of Valladolid, also published a scathing critique of the Hill’s Group’s report (in Spanish). The physical, technological and economic foundations of the report are erroneous, he says. The Hill’s Group in fact focuses on the loss of thermal energy involved in the oil extraction process (oil moving from a high temperature reservoir to ambient temperature outside), which he says has nothing to do with the energy cost of the oil procurement process for human societies. What matters to society, he says, is not oil’s thermal energy but its chemical energy – even if this chemical energy may then be used to generate heat. The ETP model, he concludes, is not an adequate model to assess the net energy derived form petroleum extraction and its evolution.

Prof. Ugo Bardi from the University of Florence is also taking aim with the Hill’s Group’s work in a recent blog post. The Hill’s Group’s report, he says, is badly flawed. While it is true that the oil industry is in trouble, the calculations by the Hill’s group are, at best, irrelevant and probably simply plain wrong. The problem of diminishing energy returns of oil production is real, Bardi says, but the way to study it is based on the ‘life cycle analysis’ (LCA) of the process. This method takes into account entropy indirectly, in terms of heat losses, without attempting the impossible task of calculating it from textbook thermodynamic principles. By means of this method, we can understand that oil production still provides a reasonable energy return on investment (EROI). It is anyway erroneous, says Bardi, to draw conclusions regarding the economy from net energy analysis. The economy is a complex adaptative system that evolves in ways that cannot be understood in terms of mere energy return considerations.

This controversy surrounding the Hill’s Group’s report reveals some inconvenient truths that the ‘peak oil’ community now has to face. The Group’s work was widely embraced and disseminated in this community, with no or limited critical scrutiny. It indeed has an aura of scientific accuracy that comes from its use of basic thermodynamic principles and of the concept of entropy, correctly understood as the force behind the depletion problem. But behind the thermodynamic terminology, it proposes a series of assumptions, not always explicit, and of complex mathematical calculations that nobody until recently had apparently taken the time to review. As pointed out by Antonio Turiel, the Hill’s Group’s work would probably not have passed a proper peer review process in its current form.

Yet the report was widely accepted and commented in the ‘peak oil’ community. According to Ugo Bardi, this episode shows that “a report that claims to be based on thermodynamics and uses resounding words such as ‘entropy’ plays into the human tendency of believing what one wants to believe“. As many in the ‘peak oil’ community want to believe in imminent collapse and disaster, works like the Hill’s Group’s report that are perceived as providing a serious scientific basis to catastrophism are widely embraced. If the scientific basis is revealed to be not as sound as initially thought, as seems to be the case for the Hill’s Group’s work, then its embrace and dissemination can only be detrimental to the peak oil community and undermine its credibility.

Energy researchers and analysts should probably be particularly cautious and vigilant when using the concept of ‘entropy’. As pointed out by Ugo Bardi, “entropy is an important concept, but it must be correctly understood to be useful. It is no good to use it as an excuse to pander unbridled catastrophism.” The problem being, of course, that entropy cannot be correctly understood so easily. As famous scientist John von Neumann (1903-1957) once advised a colleague: “You should call it entropy (…) nobody knows what entropy really is, so in a debate you will always have the advantage.“

FXC

The other side of the global crisis: entropy and the collapse of civilizations

Guest post by Jacopo Simonetta

When we discuss the impending crisis of our civilisation, we mainly look at the resources our economy needs in growing quantity. And we explain why the Diminishing Returns of resource exploitation pose a growing burden on  the possibility of a further growing of the global economy. It is a very interesting topic, indeed, but here I suggest we turn 180 degrees around and take a look at the “other side;” that is to what happens where the used resources are discarded.

Eventually, our society (as any other society in history) is a dissipative structure. It means that it exist only because it is able to dissipate energy in order to stock information inside itself. And there is a positive feedback: more energy permits to implement more complexity; and more complexity needs, but also permits a larger energy flow. This, I think, is a crucial point: at the very end, wealth is information stocked inside the socio-economic system in different forms (such livestock, infrastructures, agrarian facilities, machines, buildings, books, the web and so on). Human population is peculiar because it is a large part of the information stocked inside the society system. So, from a thermodynamic point of view, it is the key part of “wealth”, while from an economic point of view people can be seen as the denominator of global wealth.

The accumulation of information inside a system is possible only by an increment of entropy outside the same system. This is usual with all the dissipative structures, but our civilisation is unique in its dimension. Today about 97% of the terrestrial vertebrate biomass is composed of humans and of their symbionts and we use about 50% of the primary production (400 TW?), plus a little less than 20 TW we get from fossil fuels and other inorganic sources.
At the beginning, our modern civilisation performed in the same way as all the others in history: appropriating energy forms such as food, livestock, commodities, slaves, oil, carbon and so on, and throwing entropy to the biosphere in different forms such as pollutants, ecosystems transformations, extinctions, heat and so on; while throwing entropy to other societies as war, migration, etcetera.

As the industrial economy overruled and substituted all others, it became the only economy in the world, and so, necessarily, found more and more difficulties in dissipating energy outside itself. In practice, sinks become problematic before wells do. But remember that in order to implement its own complexity, a dissipative system needs a growing energy flow; that is, it needs cornucopian energy wells.

Today, both global pollution and massive immigration into the more industrialized countries is evidence that our system is no longer able to expel entropy out of itself. But if entropy is not discharged out of the system, it necessarily grows inside it. And when there is more energy, there is more entropy in a typical diminishing returns dynamic. Maybe, we can see here a negative feedback which has stopped economic growth and that will possibly crash the global economy in some decades.  [Ed- this is highly optimistic, the crash has started, and ‘in some decades’ the economy will simpy no longer exist!]

If this reasoning is correct, the political and the economic crisis, social disruption and, finally, failing states are nothing less than the visible aspect of the growing entropy inside our own meta-system. Eventually, global society is so large and complex as is obvious in many correlated sub-systems that we are now managing it in order to concentrate entropy inside the less powerful ones: some yet problematic countries, lower classes and, especially, the young. But these phenomena produce political shifts, riots and mass migrations at the core of the system. This also means that the elites have lost the capability to understand and/or control the internal dynamic of the global socio-economic system.
In the meantime, the overloading of the sinks is starting to cause the deterioration of the wells. This is evident, for instance, with air and water pollution, ocean acidification, mass extinction, ecosystems disruption, and much more. In the end, as the economy grows, the global system necessarily loses the capacity to dissipate energy, condemning itself to disruption.

We can find the same phenomenon at smaller scales, such as for a single organism, or such as in a single human being. If a good energy flow is available in the form of food and heat, a baby can develop into a strong and healthy adult. Good flows of energy during adult life mean a better life and the possibility to develop culture, skills, art, science and to keep one’s health for a long time. Insufficient energy means starvation and illness. But it is also true that if the body absorbs a quantity of energy larger than its capacity to dissipate it, then we have problems such as, illness, obesity and, finally, a bad life and premature death.

We found the very same phenomenon at larger scales as well. The Earth as a whole is also a dissipative, complex system. It does not have any problems with its main energy well, the Sun. We can be sure that the 86,000 TW that we receive from the sun on average are not going away, although they will gradually increase over very long time spans. But the whole biosphere is collapsing in one of the most serious crisis it has ever faced during the 4.5 billions years of its history. This crisis is the result of human activity that reduces the capability of the ecosystem to dissipate the energy input, in particular as a result of the greenhouse effect caused by the combustion of fossil fuels. So the internal entropy grows with the consequence of harming even more the ecosystems and reducing complexity, possibly leading to a global disaster at a geological scale.

In conclusion, I suggest that, in the coming decades, entropy will be a much more challenging problem than that of the energy supply. Only a drastic reduction in the energy input could save the biosphere. But this is a high price to pay because a reduction of energy flow means necessarily a reduction of complexity and information stored inside the human sub-system. It means misery and death for much of the human population, although it also means hope for the future one (assuming that it will exist, but humans are too adaptable and resilient to go extinct as long as a functioning biosphere exists) So, new civilizations will appear but, in order for that to occur, the present civilization will have to collapse fast enough to leave a livable planet to our descendants.


Note: this post by Jacopo Simonetta was edited by a native English speaker, the "grumpy old man" who keeps the blog "Damn the Matrix" and the edited version published on his site. So, I cut and pasted it in here, in place of the original version, with many thanks! (UB)

What punctured the North-African balloon? Crude oil and social unrest

Many people have suggested that the ongoing unrest in North African countries has been generated by high oil prices or problems with oil availability. It is always difficult to be certain about what drives events such as revolutions and civil wars. However, physical models of complex social systems can help us understand what are the driving forces of the events that we see. 

One of the lectures of my class in materials science involves showing to the students an inflated balloon. I puncture it with an needle and it explodes. Then I ask to the students to explain to me exactly what has happened. Why did the balloon explode and not just deflate gradually?

It is not an easy question and, usually, my students cannot answer it. We learn as children that some objects break more easily than others. It is after a good number of failures that we learn how to handle glasses and china. And, yes, we do learn that puncturing an inflated balloon with a needle makes it explode. It looks normal to us because we have seen it happening many times. But it is difficult to explain exactly why.

Human societies, it seems, have some elements in common with inflated balloons. A society is not as simple as a balloon, of course, but it can easily explode in revolutions, collapse, breakdowns, civil wars and all sort of rapid and unpredictable changes. Societies, it seems, are fragile, at least in terms of the stability of their governments. This behavior looks normal to us because we have seen it happening many times. But, just as for balloons, it is difficult to explain exactly why societies "explode."

Of course, the difficulty of the problem has not prevented historians from proposing various causes for past collapses and revolutions in terms of economic, political, and social factors. Recently, crude oil has become popular as the cause of dramatic social changes. For instance, the collapse of the Soviet Union has been related to the local peaking of oil production (see this post of mine on The Oil Drum). Could crude oil be the "needle" that has been puncturing North African countries as well?


But how exactly is peak oil related to collapse? Why doesn't society simply adapt to the new conditions? I think we can gain some insight on these points if we consider human societies as complex systems which obey the laws of physics.

There are some common physical elements in the behavior of balloons, human societies and many other systems. One is that these systems accumulate energy. A balloon accumulates energy as pressurized gas, a society accumulates energy in forms that we tend to call "capital" (human capital, monetary capital, industrial capital, etc.). Both inflated balloons and societies are systems defined as "out of thermodynamic equilibrium" because of this accumulated energy.


The second principle of thermodynamics says that system will try to find the fastest possible way to reach equilibrium, that is the condition of maximum entropy. That means dispersing the accumulated energy to the largest possible number of states. The system will do that by following the available pathway that leads faster to that condition.

Thermodynamics doesn't say that a pathway (fast or slow) to equilibrium must necessarily exist. In the case of an inflated balloon, as long as the balloon walls are intact, there is no such pathway and the balloon stays inflated. But, if we puncture the balloon, we create a fast route to entropy increase. In the right conditions, that is, if the accumulated energy is sufficiently large, the crack created by the needle tip generates a rapidly expanding fracture. The balloon explodes.

Human societies are much more complicated than a balloon but, in the end they tend to reach equilibrium by dispersing the accumulated energy - that is, reaching a condition of maximum entropy. That means transforming the accumulated energy into what we call "waste" or "pollution". The dispersal process can take many different routes: a society is a tangle of feedbacks; with some stabilizing the system while others destabilizing it. Societies also grow new structures and new stocks of energy as they exploit natural resources. Then, when the stocks of non renewable energy are gradually exhausted, the rate of energy processing slows down - that's something we sometimes call "The Hubbert cycle." The fact that production shows a peak ("Hubbert's peak") is typical of crude oil, but it is a normal feature of dynamic systems of this kind. The cycle of a society often follows a "bell shaped" curve (e.g. for the Roman Empire)

Sometimes, the process of energy dispersal is smooth, but sometimes it is not smooth at all. Societies seem to be easily subjected to rapid and sudden changes as the system finds new pathways to disperse energy. In some cases, a growing society gets rid of a stumbling block to energy dispersal. This could be a good model for events such as the French Revolution that found such a stumbling block in the aristocrats of the time. In other cases, when a society is declining or reaching a peak, the problem may be that some structures built in order to manage large fluxes of energy become useless and must disappear. That may have been the case of the Red Army and of the Communist Party in the Soviet Union. In all cases, the social system is blocked in an out of equilibrium condition because of the lack of a path to release the stored energy. Such a path may be created, however, by positive feedbacks generated by apparently minor events, for instance an increase in oil prices. Then, when the pathway appears, the transition may be abrupt: it is what we call revolution or collapse.

How about Northern African countries? In this case, we don't have yet a clear picture yet of what is happening, especially for the case of Libya. But we know that the uprising in Egypt arrived shortly after that the curve of internal consumption crossing the one of national production. Egypt "exploded" when it became a net importer of crude oil (see e.g. this paper by Gail Tverberg). Tunisia went along the same path with consumption surpassing production around 2001. In the new condition of oil scarcity, these societies needed to get rid of energy expensive structures in the form of static governments that had been around for decades. That, of course, was not easy to do and it needed a trigger; something that released the accumulated pressure. Not unlike a punctured balloon.    

We should always be careful about simple explanations for complex events. More than all, we should be wary of falling in the trap of seeing a simple chain of cause and effects in complex systems. Oil prices are not a "cause" of the unrest - just a trigger for something that needed to happened for other reasons.

But, even with these caveats, we know that oil - as our main source of energy - plays a role in the recent unrest in North Africa and will continue to do so in the future -. and not just in North Africa.



To know more about energy dispersal and entropy in out of equilibrium systems, you may give a look the papers by Arto Annila and coworkers at the University of Helsinki. Not the kind of stuff you read to relax in the evening, but - if you can manage to digest it, at least in part - it can answer a lot of questions you have always been wondering about.