IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v40y2012icp147-158.html
   My bibliography  Save this article

Energy return on (energy) invested (EROI), oil prices, and energy transitions

Author

Listed:
  • Heun, Matthew Kuperus
  • de Wit, Martin

Abstract

Very little work has been done so far to model, test, and understand the relationship between oil prices and EROI over time. This paper investigates whether a declining EROI is associated with an increasing oil price and speculates on the implications of these results on oil policy. A model of the relationship between EROI and oil market prices was developed using basic economic and physical assumptions and non-linear least-squares regression models to correlate oil production price with EROI using available data from 1954–1996. The model accurately reflects historical oil prices (1954–1996), and it correlates well with historical oil prices (1997–2010) if a linear extrapolation of EROI decline is assumed. As EROI declines below 10, highly non-linear oil price movements are observed. Increasing physical oil scarcity is already providing market signals that would stimulate a transition away from oil toward alternative energy sources. But, price signals of physical oil scarcity are not sufficient to guarantee smooth transitions to alternative fuel sources, especially when there is insufficient oil extraction technology development, a declining mark-up ratio, a non-linear EROI–cost of production relationship, and a non-linear EROI–price relationship.

Suggested Citation

  • Heun, Matthew Kuperus & de Wit, Martin, 2012. "Energy return on (energy) invested (EROI), oil prices, and energy transitions," Energy Policy, Elsevier, vol. 40(C), pages 147-158.
  • Handle: RePEc:eee:enepol:v:40:y:2012:i:c:p:147-158
    DOI: 10.1016/j.enpol.2011.09.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421511006975
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Charles A. S. Hall & Stephen Balogh & David J.R. Murphy, 2009. "What is the Minimum EROI that a Sustainable Society Must Have?," Energies, MDPI, Open Access Journal, vol. 2(1), pages 1-23, January.
    2. Greene, David L. & Hopson, Janet L. & Li, Jia, 2006. "Have we run out of oil yet? Oil peaking analysis from an optimist's perspective," Energy Policy, Elsevier, vol. 34(5), pages 515-531, March.
    3. Brandt, Adam R., 2010. "Review of mathematical models of future oil supply: Historical overview and synthesizing critique," Energy, Elsevier, vol. 35(9), pages 3958-3974.
    4. Kern, Florian & Smith, Adrian, 2008. "Restructuring energy systems for sustainability? Energy transition policy in the Netherlands," Energy Policy, Elsevier, vol. 36(11), pages 4093-4103, November.
    5. Brandt, Adam R., 2007. "Testing Hubbert," Energy Policy, Elsevier, vol. 35(5), pages 3074-3088, May.
    6. Cleveland, Cutler J., 2005. "Net energy from the extraction of oil and gas in the United States," Energy, Elsevier, vol. 30(5), pages 769-782.
    7. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137-137.
    8. Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
    9. Toman, Michael & Krautkraemer, Jeffrey, 2003. "Fundamental Economics of Depletable Energy Supply," Discussion Papers dp-03-01, Resources For the Future.
    10. J. Barkley Rosser, 1999. "On the Complexities of Complex Economic Dynamics," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 169-192, Fall.
    11. Friedrichs, Jörg, 2010. "Global energy crunch: How different parts of the world would react to a peak oil scenario," Energy Policy, Elsevier, vol. 38(8), pages 4562-4569, August.
    12. Smith, Adrian & Voß, Jan-Peter & Grin, John, 2010. "Innovation studies and sustainability transitions: The allure of the multi-level perspective and its challenges," Research Policy, Elsevier, vol. 39(4), pages 435-448, May.
    13. Nathan Gagnon & Charles A.S. Hall & Lysle Brinker, 2009. "A Preliminary Investigation of Energy Return on Energy Investment for Global Oil and Gas Production," Energies, MDPI, Open Access Journal, vol. 2(3), pages 1-14, July.
    14. Fouquet, Roger, 2010. "The slow search for solutions: Lessons from historical energy transitions by sector and service," Energy Policy, Elsevier, vol. 38(11), pages 6586-6596, November.
    15. Sweeney, James L., 1993. "Economic theory of depletable resources: An introduction," Handbook of Natural Resource and Energy Economics,in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 17, pages 759-854 Elsevier.
    16. Sorrell, Steve & Speirs, Jamie & Bentley, Roger & Brandt, Adam & Miller, Richard, 2010. "Global oil depletion: A review of the evidence," Energy Policy, Elsevier, vol. 38(9), pages 5290-5295, September.
    17. repec:eee:ecomod:v:220:y:2009:i:23:p:3424-3438 is not listed on IDEAS
    18. Carey W. King & Charles A.S. Hall, 2011. "Relating Financial and Energy Return on Investment," Sustainability, MDPI, Open Access Journal, vol. 3(10), pages 1-23, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:energy:v:139:y:2017:i:c:p:743-754 is not listed on IDEAS
    2. Michael Aucott & Charles Hall, 2014. "Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013," Energies, MDPI, Open Access Journal, vol. 7(10), pages 1-13, October.
    3. Månsson, André & Johansson, Bengt & Nilsson, Lars J., 2014. "Assessing energy security: An overview of commonly used methodologies," Energy, Elsevier, vol. 73(C), pages 1-14.
    4. Adam R. Brandt, 2017. "How Does Energy Resource Depletion Affect Prosperity? Mathematics of a Minimum Energy Return on Investment (EROI)," Biophysical Economics and Resource Quality, Springer, vol. 2(1), pages 1-12, March.
    5. Fizaine, Florian & Court, Victor, 2015. "Renewable electricity producing technologies and metal depletion: A sensitivity analysis using the EROI," Ecological Economics, Elsevier, vol. 110(C), pages 106-118.
    6. Bo Xu & Lianyong Feng & William X. Wei & Yan Hu & Jianliang Wang, 2014. "A Preliminary Forecast of the Production Status of China’s Daqing Oil field from the Perspective of EROI," Sustainability, MDPI, Open Access Journal, vol. 6(11), pages 1-21, November.
    7. Höök, Mikael & Tang, Xu, 2013. "Depletion of fossil fuels and anthropogenic climate change—A review," Energy Policy, Elsevier, vol. 52(C), pages 797-809.
    8. Wagner, Liam & Ross, Ian & Foster, John & Hankamer, Ben, 2016. "Trading Off Global Fuel Supply, CO2 Emissions and Sustainable Development," MPRA Paper 69941, University Library of Munich, Germany.
    9. Ramos Tercero, Elia Armandina & Sforza, Eleonora & Bertucco, Alberto, 2013. "Energy profitability analysis for microalgal biocrude production," Energy, Elsevier, vol. 60(C), pages 373-379.
    10. Florian Fizaine & Victor Court, 2014. "Energy transition toward renewables and metal depletion: an approach through the EROI concept," Working Papers 1407, Chaire Economie du climat.
    11. Herendeen, Robert A., 2015. "Connecting net energy with the price of energy and other goods and services," Ecological Economics, Elsevier, vol. 109(C), pages 142-149.
    12. Hasan, Mahmudul & Langrish, Timothy Alan Granville, 2016. "Time-valued net energy analysis of solar kilns for wood drying: A solar thermal application," Energy, Elsevier, vol. 96(C), pages 415-426.
    13. repec:gam:jeners:v:11:y:2018:i:4:p:839-:d:139527 is not listed on IDEAS
    14. Florian Fizaine & Victor Court, 2016. "The energy-economic growth relationship: a new insight from the EROI perspective," Working Papers 1601, Chaire Economie du climat.
    15. repec:eee:renene:v:116:y:2018:i:pa:p:258-271 is not listed on IDEAS
    16. Hasan, Mahmudul & Zhang, Mengze & Wu, Weinan & Langrish, Timothy A.G., 2016. "Discounted cash flow analysis of greenhouse-type solar kilns," Renewable Energy, Elsevier, vol. 95(C), pages 404-412.
    17. Eric Nazindigouba Kere, 2016. "Do political economy factors matter in explaining the increase in the production of bioenergy?," WIDER Working Paper Series 025, World Institute for Development Economic Research (UNU-WIDER).
    18. repec:eee:energy:v:128:y:2017:i:c:p:540-549 is not listed on IDEAS

    More about this item

    Keywords

    EROI; Oil prices; Energy transitions;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:40:y:2012:i:c:p:147-158. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/enpol .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.