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Nine Pounds of Gold

By: , Posted on: November 3, 2014

This article originally appeared on The PSM Report, a blog written by author and process safety expert, Ian Sutton. Click here to read the original article or continue reading below:


Last week’s post showed that the idea of Safety as a Value is not baked into our genes — it is in fact a cultural artifact that developed during the early phases of the Industrial Revolution (the first half of the 19th century). The post then went on to note that we are entering an Age of Limits and that one consequences of the change will be that industrial professionals will face a serious challenge: how to maintain the moral and ethical idea of safety as a value at a time when economic screws are tightening.

But, before pursuing this idea further it is useful to consider just what is meant by “The Age of Limits”. This is a complex and difficult topic; but can be boiled down to three issues:

  1. Natural resources, particularly oil, are becoming ever more expensive to extract.
  2. We are running out of places to dump waste products such as CO2 dioxide in the air or acid in the oceans.
  3. In order to maintain economic growth government, businesses and individuals have all taken on immense amounts of debt.

We will look at the first of these — Resource Limitations — in this post.

Gold In the Sea

The following quotation is taken from the article Is there gold in the ocean? posted at the National Oceanic and Atmospheric Administration’s web site.

Ocean waters do hold gold – nearly 20 million tons of it. However, if you were hoping make your fortune mining the sea, consider this: Gold in the ocean is so dilute that its concentration is on the order of parts per trillion. Each liter of seawater contains, on average, about 13 billionths of a gram of gold.

There is also (undissolved) gold in/on the seafloor. The ocean, however, is deep, meaning that gold deposits are a mile or two under water. And once you reach the ocean floor, you’ll find that gold deposits are also encased in rock that must be mined through. Not easy.

Currently, there really isn’t a cost-effective way to mine or extract gold from the ocean to make a profit. But, if we could extract all of that gold, there’s enough of it that each person on Earth could have nine pounds of the precious metal.

The point of this example is to show that it is not the absolute amount of a resource that matters — it is our ability to extract it economically. In the case of gold it will never make economic sense to extract it from the sea. So much for our nine pounds of gold.

Oil – Not Gold

With regard to gold it really doesn’t matter how much the extraction process costs — the metal is not a fundamental necessity of our civilization. But the same cannot be said of oil and other hydrocarbon fuels such as natural gas and coal. As it becomes increasingly expensive to extract them from the ground there will be less energy (hence money) left over to fund other activities — including safety. And if ever we reach the point where the net production of energy of oil or gas approaches zero then we are in very serious trouble indeed. One of the many consequences of such a situation could be that we revert to a moral climate similar to that of the early nineteenth century where safety is no longer regarded as a value, or at least it is seen as the responsibility of the individual worker not of the company that employs him or her.

Economic Rate – Not Quantity

Drilling-Rigs-1Whenever the topic of resource limitations comes up the initial reaction of most people is to consider the overall amount of that resource. “There is plenty of oil in the ground, so we will not run out of it for many, many years.” But, as the example to do with the nine pound gold bars showed, the key question is not “How much is available?” but “How much can be extracted economically?” The issue is not how much of them are in the ground but about the rate and economics of the extraction process.

And in order to address those questions we need to understand the concepts of Net Energy and Energy Returned on Energy Invested (ERoEI). This can be done by thinking of the money not in terms of dollars (or euros or pounds) but in terms of barrels of oil (or cubic meters of gas or tons of coal).

Net Energy

Gross energy is the energy available after oil has been extracted from an oil well or after coal has been mined. But it takes energy to find, produce and consume energy. And it takes yet more energy to convert energy from one form to another (say coal to electricity). Therefore what really matters is not gross but net energy, which can be defined as follows.

Net Energy  =  Gross Energy  –  Energy Expended

Therefore, if a company invests 10,000 barrels of oil in a new oil well and produces a million barrels over the life of the well we have the following values:

Energy Expended  =       10,000 barrels
Gross Energy          =  1,000,000 barrels
Net Energy              =    990,000 barrels

Energy expended includes the energy needed to drill the well and then transport the oil to the customer. It also includes the energy needed to fabricate the steel for the drill rig, the energy used by a refinery to convert the oil into usable products, even the gasoline used by the workers when they drive to work should be included.

Energy Return on Energy Invested (ERoEI)

ERoEI is another way of looking at Net Energy. It is defined as:

ERoEI  = Energy Output / Energy Input

Using the sample figures provided above the value for the notional oil well is,

EroEI  =  990,000 / 10,000  =  99


This is obviously a very good return on investment; it is what was obtained in the early days of the oil industry in Texas in the 1930s and in Saudi Arabia in the 1950s. The picture of the Spindletop blowout in the year 1901 illustrates the exuberance of a high ERoEI.

By definition any energy investment that has an ERoEI of less than unity does not make sense. In practice many analysts suggest that if the value is less than five then the investment is questionable, largely because most ERoEI calculations exclude many items which really should be included, as discussed below.

Boundary Issues

One of the challenges in calculating ERoEI is determining the boundaries of any particular energy investment or project. For example, with regard to drilling an oil well the following energy items would most likely be included:

  • Power for the drill rig;
  • Fuel needed to move the drill rig to the site;
  • Fuel needed to transport the produced oil to the marketing hub; and
  • Electricity needed to keep the site office running.

However there are many other energy costs associated with this activity that are likely to be overlooked. These include:

  • The energy used to make the steel used for the drill rig and for its fabrication;
  • The energy used to construct the factory that makes the steel for the drilling equipment;
  • The fuel needed to plug and abandon the well at the end of its life; and
  • Even the energy used by the advertising company to create TV advertisement for the gasoline produced.

The issue becomes even more complex when issues such as shared resources for two projects and the multiple sources of electricity are considered. It is for these reasons that an economic level for ERoEI of five rather than one is often used — there are many energy inputs to a project that are likely to be overlooked.

ERoEI Trends

As already noted, in the early days of the oil industry ERoEI values of 100 or more were commonplace. However it is always the low-hanging fruit that is picked the first so overall ERoEI has dropped as oil, gas and coal have become more difficult to extract. For example, it requires a much greater energy investment to produce oil from a deepwater well than it does from a shallow well located onshore close to market.

Due to the boundary condition problems just discussed and also because conditions change with time it is difficult to develop accurate ERoEI values. Moreover, there are often hidden factors such as government subsidies that skew any analysis. Given these caveats some very, very rough numbers are provided below.

Hydro                                       100
Oil (conventional onshore)     20
Wind                                          18
Oil imports                                12
Natural gas                                10
Solar                                            5
Shale oil                                      5
Bitumen tar sands                    3
Ethanol from corn                    <1 to 5

Regardless of the energy source ERoEI for society overall is declining inexorably and new technologies and sources of energy have lower values than more traditional sources (with some exceptions — the cost of solar panels has come down a lot in recent years, although even in this case there is a large amount of embedded energy in a solar panel, and that energy likely came from oil, gas or coal.)

There are also qualitative issues to consider. For example, low ERoEI projects generally impact the environment much more adversely than those with a higher value. In the “good old days” all you had to do was “stick a straw in the ground” and high quality oil flowed under its own pressure into the production pipeline. No longer — now the development of resources such as the bitumen tar sands has a huge environmental impact. And the Deepwater Horizon/Macondo catastrophe showed just how severe the environmental problems to do with deepwater drilling can be.

Political issues can also be a factor. For example, ethanol produced from corn may have an ERoEI that hovers around one, hence it does not make economic sense to bother with this activity. But the ethanol does provide a local source of fuel thus providing those countries that grow corn and make ethanol with some political independence. And the production process provides jobs for the local population.

Climate change is another qualitative issue. Gas may have a lower ERoEI than coal but it puts less carbon dioxide into the atmosphere and so contributes less toward global warming.

But the bottom line is that we are using more and more of our energy resources to create usable energy — which means that there is less energy (money) left over for all the other activities that we would like to do — including improving safety.

Impact on Safety

John Michael Greer

In a paper published in 2005 – How Civilizations Fall: A Theory of Catabolic Collapse – the blogger John Michael Greer states,

. . . the process that drives the collapse of civilizations has a surprisingly simple basis: the mismatch between the maintenance costs of capital and the resources that are available to meet those costs. Capital here is meant in the broadest sense of the word, and includes everything in which a civilizations invests its wealth: buildings, roads, imperial expansion, urban infrastructure, information resources, trained personnel, or what have you. Capital of every kind has to be maintained, and as a civilization adds to its stock of capital, the costs of maintenance rise steadily, until the burden they place on the civilization’s available resources can’t be supported any longer.

Now this is very big picture thinking indeed. We are confining our discussions here to the value of safety. In the context of the discussion at this post, what Greer is saying is that we will spend more and more of our available net energy (money) on simply finding and producing new so new sources of energy to replace what we are using up. This means that there will be less net energy (money) available for everything else that we want to do — including improving safety, whether it is the purchase of hard hats or the running of sophisticated vapor dispersion computer simulations.

But the fundamental challenge for industry professionals runs deeper than this — it is to make sure that the concept of “Safety as a Value” does not fade away. As discussed in last week’s post this concept may have ethical and moral roots but it only became practicable as society created large amounts of net energy (money) in the early days of the Industrial Revolution. There is nothing that says that we cannot regress.

Read more articles from Ian on Process Safety Management:

About the Author

ian sutton bio picIan Sutton is a chemical engineer with over 30 years of design and operating experience in the process industries. He provides services in all areas of process design, plant operations and process safety management — both onshore and offshore. He provides consulting services to senior management on the implementation, effectiveness and cost of process safety and risk management programs. His clients include companies in oil and gas production and refining, pipelines, chemicals, minerals processing, and food production.

You can follow along with Ian’s thoughts and musing on process safety at his personal blog, The PSM Report here.

He has published the following books with Elsevier:

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