Sunday, March 16, 2014

Net vs. gross energy: Is it wise to be complacent?

Everyone knows that when a potential employer makes a job offer, the salary or wage he or she proposes isn't what you'll be taking home. What you'll take home is your net pay. The number the employer offers you is your gross pay, and that's just what it says on your pay stub.

It's not quite a perfect analogy with net energy versus gross energy. But it's an everyday analogy that most people can understand. Net pay is what you have to pay your bills today. And, net energy is what society has in order to conduct its business (and its fun) on any given day. Net energy is what's left after the energy sectors of the economy--oil and gas, coal, nuclear, hydroelectric, renewable energy industries, and farming which provides food for human and animal energy and crops for biofuels--expend the energy they must to extract energy from the environment and then sell the surplus to the rest of us.

We don't often think of these sectors of the economy because for most people they are out of sight and therefore out of mind. And, until the last decade food and energy have been so consistently cheap in the last 60 years or so, that few people ever paused to ponder the fact that it takes energy to get energy. And, after all, cheap energy is an indication that it takes very little energy to extract huge amounts of energy from the environment. So, why worry about that?

However, as food and energy costs have risen dramatically in the last decade, the public and policymakers have begun to notice. What they don't seem to understand is that this rise results from the fact that it is now taking significantly more energy (and therefore money) to extract the energy we desire, both from fossil fuels in the ground and farm crops on the land (yields of which are currently heavily dependent on fossil fuel inputs). An obvious symptom is that wealth is flowing into the energy-gathering sectors of the economy mentioned above. But, that means there is less wealth left for the other sectors of the economy where the vast majority of people work, at least in so-called developed countries.

Still, as costs to extract energy continue to rise for those in the energy-gathering sectors of the economy, even their profits and wages will ultimately get squeezed. Yes, everyone eventually suffers when society must use more and more energy just to get the energy it needs to allow the non-energy parts of the economy to function properly.

Since 86 percent of the energy consumed worldwide is derived from burning finite fossil fuels, we are faced with a serious dilemma. Eventually, the energy we get from these fuels will turn down--and not for the reason that most people think. The world continues to extract more gross energy in the form of oil, natural gas, and coal each year. And yet, it takes energy to find, extract, refine and deliver that energy to society. So, are we still getting more net energy from those fuels each year? No one knows the answer.

One thing is clear. Because fossil fuels are finite, one day their rate of extraction will peak and then begin an irreversible decline. When that will occur, no one can know. But, before that happens--perhaps many, many years before it happens--the net energy from fossil fuels will peak and then begin an irreversible decline.

There are clues, obvious clues, that we may be nearing a net energy peak, even as the energy companies tout new records of gross fossil fuel extraction. High prices and now shrinking profits are evident in the oil and gas industry. Executives in the linked article give many explanations for falling profits, but none of them have to do with the declining net energy from their extractive activities. And, if the executives understand the latter cause--and I'm not sure they do--announcing it would hardly boost oil company stock prices.

But the word is out now that high costs for developing new fossil fuel energy sources are finally biting into energy company profits despite continuing high prices for oil and rebounding prices for natural gas.

One way the companies are fighting the high cost of developing new resources is simply to cut back on investment. But, this could create a self-reinforcing cycle in which exploration and development cutbacks lead to supply reductions worldwide which lead to higher prices which lead to recession and thus lower demand--and finally to much lower prices which discourage exploration and development.

But, back to my answer to the question, "Are we still getting more net energy from those [fossil] fuels each year?" My answer was that nobody knows. It's curious that in the information age no one has thought to examine this question very deeply except a few energy researchers who have been too ill-funded to gather and analyze extensive data on the subject. Charlie Hall and his students come to mind. They have gone to heroic lengths to obtain at least some data and analyze it in order to explore this question.

It is instructive that the premier energy statistics agency on the planet, the U.S. Energy Information Administration (upon which I rely heavily for accurate historical energy statistics), does not even have a category in its tables for net energy, nor any mention of it (in the sense I mean it) anywhere on its site that I can find.

The real peak then in fossil fuel energy will come not when the rate of extraction of oil or coal or natural gas peaks. As far as society is concerned, it will come when the net energy from these sources peaks and begins to decline. The fact that we won't even be able to see this when it arrives means we're headed for trouble already.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now, The Oil Drum,, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at


Eric Blood Axe said...

I believe that the growth of the human population over the last couple of centuries, is due to the use of "Fossil" fuels. When these run out, the populations must decline to pre-fossil-fuel levels!
The "Easter Island" syndrome

Adam Ash said...

Thanks Kurt! A useful reminder about how deceptive production figures can be.

I wonder, for example, when production from tar sands is examined, do they take into account the high proportion of solvent they add to the tar to make it fluid enough to pump south? The solvent is not part of the production as it just goes around in circles. But I suspect its double counted as 'production' at the border.

If you search for 'EROEI peak oil', of course you will come across all the fine work done by your old friends at the Oil Drum and beyond. Not a new concept, but an important one to bear in mind.

St. Roy said...


Net energy is the issue. Did you catch
John Thackara's post "Thriving on Fie Percent".

Anonymous said...

Thank you Kurt for this article and for your work as a whole.

This short comment could be titled “the good, the bad and the ugly in the oil and gas industry Canadoil Thailand and the Sozzi Family”. For a short back ground: in the middle of the 2000s The canadoil group decided to build new factories in Thailand to support the Canadoil group growth strategy. Canadoil pipe, Canadoil asia and Canadoil plate were born. The business looked good but after a couple of years of activity the goals weren’t met. The company fell into default shortly after drawing down USD 150m of the Credit Suisse-arranged USD 250m facility in early 2011 ( Debtwire 11-Mar-14 by Chaim Estulin for a story summary). In short, the Canadoil business in Thailand is now dying and the Sozzis try to get as much money as they fill ridiculous USD 1.5 bn claims against the existing dying companies (500 employees). Giacomo Sozzi was already sent to trial in Canada for fraudulent management suspicions within Canadoil group of companies. It is also commented the direct and indirect transactions the Canadoil companies had been involved with Iran despite the UN bans…

I personally work in the oil and gas industry and I totally am aware of the high costs also the huge profit this industry creates but our first purpose is to deliver energy everywhere to those in need. The point is I am getting mad at greedy guys like this. What do they think about? Those guys are responsible for the bad reputation this industry has.

So yes fossil fuels are finite and it certainly is an impacting factor on prices but so are greedy management and lack of empathy.

Tim B. said...

@anonymous “the good, the bad and the ugly in the oil and gas industry Canadoil Thailand and the Sozzi Family” LOL. Do you have more stuff on this story? Can you send MP?