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Tuesday, August 30, 2005

Fractional Returns

I occasionally see reference to how, since crude prices have elevated in price, that alternative fuels will start to become competitive with conventional fossil fuels. Unfortunately, the people laying these claims resort to using ancient prices for recovery and production costs of the alternatives (say from a few years ago) and so get caught spreading disinformation. In other words, due to EROEI costs, the outdated prices will rise along with current oil costs, at an approximately proportional rate to the fossil fuel price rise. Consider the cost for a single barrel of non-conventional fossil fuel (oil shale or ethanol for instance):

Price = ProductionCost + EnergyCost + Profit

If we assume that profit stays fractionally small, then we can rearrange the equation:

Price - ProductionCost ~ EnergyCost

And if ProductionCost stays constant (wages etc) to the first order, then it boils down to the Price of the alternative fuel tracks the EnergyCost rise. So if we have a very poor EROEI alternative fuel and we need fossil fuels such as oil and natural gas to produce the alternative, that price will skyrocket as well.

What does it take to break through this economic conundrum? In part, bootstrapping the extraction with the fuel itself will help, and more importantly using renewable energy sources at every chance we can. But then, one should ask: why not just use the renewable and transform the energy into electricity, for example?

Basically stuff that blogger/commenter Engineer-Poet keeps reminding us about.

Today, a caller to Air America Radio asked Sam Seder of Majority Report his opinion to the view held by many(?) that the U.S.A. has long tried to drain the rest of the world of oil first because we sit on a veritable bonanza of oil riches here at home. I took it as some sort of hegemaniacal strategy, easily dismissable as a crank. So I especially liked Sam's succinct response:
"It's a theory. It's a whack-job theory."

Peak Oil featured later tonight on AAR, as Peter Maass from NYT will make an appearance on Mike Malloy's show (The Young Turks guest-hosting).


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