Energy transition

Plummeting 'Energy Return on Investment' of Oil and the Impact on Global Energy Landscape

Our shifting energy landscape requires a new way to measure the amount of energy that can be extracted from any given source against the energy required to produce and distribute it.

Rise in gasoline prices concept with double exposure of digital screen with financial chart graphs and oil pumps on a field.
Source: Getty Images

As a critical component in 90% of all industrially manufactured products and a third of global primary energy consumption, oil is the backbone of industrial civilization.

A number of strategic advantages such as its liquid state and high energy density have driven its ever-escalating demand and the search for new supplies. It is against this backdrop that we have come to scrutinize the nonrenewable nature of oil and the risk that poses for a possible supply squeeze that cannot be reversed.

During the 1990s, experts predicted a global peak in conventional oil production around 2005, giving rise to the term "peak oil" in 2000. In response, the Association for the Study of Peak Oil and Gas was established in 2001 to raise awareness of oil scarcity. The validation of its claims, combined with the 2008 financial crisis, reignited discussions of declining cheap oil production.

Post-financial crisis, interest in the peak oil debate gradually decreased due to an absence of political proposals, a focus on climate change regulation, and a clash with the mainstream belief in abundance and unlimited technological progress.

In the 2010s, the shale revolution that drove oil production from unconventional resources, particularly US tight oil, had significant economic and geopolitical implications globally. The unique environment, including abundant shale resources, supportive hydrocarbon policies, infrastructure networks, trained engineers, access to the largest market, and unbridled speculative debt system, facilitated a major boom in oil and gas output which further dampened the discussions on peak oil.

In the mid-2010s, the "peak demand" hypothesis emerged, which suggests that peak oil will be driven by technological advancements and policies aimed at reducing carbon dioxide emissions.

Recently, the resource-limited peak theory has regained importance due to the recent concerns about the ability of the tight-oil industry to increase production and recover pre-crisis levels after the 2020 oil-consumption plunge and subsequent Saudi-Russia price war. As a result, the issue of net energy from oil liquids in the context of a transition to low-carbon energy sources requires more attention.

The Utility of EROI

With our new energy landscape has come a new and increasingly prominent metric. Energy Return on Investment (EROI) is a ratio used to measure the amount of usable energy that can be extracted from a particular energy source compared to the amount of energy required to extract, process, and distribute that energy source.

The EROI values are presented as unitless ratios. For example, hydroelectric power and nuclear power have one of the highest EROIs, with estimates ranging from 30 to 100. EROI estimates for wind power range from 18 to 50.

Solar and biomass energy have low EROIs, with estimates ranging from 2.5 to 10 depending on the specific technology and location. The EROI for oil is estimated to be between 4 and 30, depending on the specific location and type of oil. Natural gas has a higher EROI than oil, with estimates ranging from 20 to 40.

Higher EROI value indicates a more energy-efficient method, while lower value suggests that more energy is being invested in the energy-production process than is ultimately gained from the produced energy.

It is also worth noting that the EROI of different energy sources can change over time due to technological advancements, changes in resource availability, and shifts in market conditions. For example, the EROI of shale gas has increased in recent years due to advances in hydraulic fracturing technology, but this has also led to environmental concerns and increased regulations that can probably reduce the EROI of shale gas.

The EROI of different energy sources can have important implications for energy policy and decision-making, as it impacts the overall cost and sustainability of our energy systems.

When it comes to oil liquids, we can assess the EROI first by grouping them as:

  • Onshore fossil oils, e.g., field oils, natural gas liquids or NGLs, shale/tight oils, oil sands.
  • Onshore manufactured oils, e.g., mined shale oils, gas-to-liquids, coal-to-liquids, biofuels or biomass-to-liquids, refinery gains.
  • Offshore oils from various depth intervals, e.g., by depth 0–500 m, 500–1000 m, 1000–2000 m and 2000+ m.

The contribution of different types of oil to gross energy is led by onshore field oil (60%), followed by offshore shallow oil (20%). Shale tight oil and oil sands input are limited to small fractions of 3% and 2%, respectively.

Onshore field oil, shale tight oil, and offshore oil from 500 m to 1000 m have the highest EROI of 30. Followed by offshore oil from 1000 m to 200 m, and mined shale oil at EROIs of 12 and 10, respectively.

Plummeting EROI of Oil Liquids

The global energy landscape is facing a crucial turning point. Various studies show that oil liquid production is expected to peak in 2035 at a magnitude of 500 petajoule per day (PJ/d), but when the energy required for the extraction and production of these liquids is taken into account, the net-energy peak is expected to occur in 2025 at a level of 400 PJ/d (Delannoy et al. 2021). For context, the US consumed 100,000 petajoules of energy in 2021.

It is projected that the energy needed for oil liquid production will increase exponentially from 1.5 PJ/d in 1950 to 210 PJ/d in 2050, after which it is expected to plateau.

Energy necessary for the production of oil liquids is growing at an exponential rate, representing 15.5% of the energy production of oil liquids today and projected to reach a proportion equivalent to half of the gross energy output by 2050 (Delannoy et al. 2021).

The gross energy production from oil liquids is likely to peak in the next 10 to 15 years, and the contribution of unconventional liquids will increase to about half of conventional oil at its peak. The energy required for oil liquids production is expected to increase exponentially, and the weighted average EROI of oil liquids is expected to reach a low plateau of 6.7.

The EROI of different sources of energy declines at different rates, but the dominance of onshore field and offshore shallow oil in overall energy production (80% of the total contribution) suggests that to assess future projection uncertainties, these sources of oil liquids should be focused on as they are the most important sources of oil currently.

However, unconventional oils, such as shale tight oil, are expected to grow in proportion, and the yearly contribution will undergo important changes in the coming decade.

The weighted average EROI of onshore field oil and shallow offshore oil is going down, and the two will continue to move downwards.

EROI Starvation Leads to 'Energy Cannibalism'

Forecasts have traditionally focused on gross energy rather than net energy, which is the amount of energy available after accounting for the cost of acquisition.

With the increasing use of unconventional oil liquids and the need for a transition to low-carbon energy sources, it is important to consider the impact of changes in resource quality on net energy availability at a global scale. Today, energy scientists consider a net-energy decrease to be a real, yet under-recognized, risk.

The decline of EROI over time for nonrenewable energy sources is due to physical depletion and technological improvement factors. The EROI is theorized to start at a high level, grow rapidly to a maximum, and gradually decline to reach an asymptotic limit of one.

The decline years vary for different resources. As the EROI estimates decrease, the peak year for energy production shifts to an earlier date and the peak magnitude also decreases.

This highlights the importance of considering EROI when predicting energy needs and assessing the future of the world's energy supply.

We need to be aware of the sharply declining EROI of oil over time.

It is essential that global stakeholders act swiftly to transition to more sustainable and renewable sources of energy to ensure a secure and sustainable energy future.

Given the plummeting energy return on investment of oil, the global energy transition must occur quickly to avoid energy shortages, environmental threats, and economic depression. In the foreseeable future, the energy needed to produce oil liquids could approach unsustainable levels, a phenomenon called “energy cannibalism.”

The concept of energy cannibalism is becoming increasingly relevant, as mounting energy use in oil production means the very resources needed for the transition to renewable energy may be constrained, particularly when viewed from a net-energy perspective and in terms of economic growth.

On the one hand, we clearly have too much fossil fuels stock to respect ambitious climate targets. On the other hand, should the supply side of oil liquids face major bottlenecks, then a fast global shift to renewable energy sources will be all the more difficult to achieve.

For Further Reading

Applied Energy, 304, 117843 Peak Oil and the Low-Carbon Energy Transition: A Net-Energy Perspective by Delannoy, L., Longaretti, P. Y., Murphy, D. J., and Prados, E. (2021).