Peak Oil – Net Energy Argument

Peak Oil is known to represent a global peak in conventional oil production, and eventually unconventional production. However, there is a higher meaning that must be considered. Peak Oil also represents “Peak Energy”. Peak Energy represents the moment at which the world no longer has as much net energy available to do work as before the peak. If you consider the problem from this perspective, then any debate about replacements to fossil fuels become moot without discussion of the net energy gain or loss.

Oil is the most energy-dense material available to mankind. It has been used as a replacement to other energy resources precisely because of this unique quality. When you look at all available energy production combined, you get a similar graph as you get when looking at conventional oil production graphs. This is because oil has such a huge influence in the total energy available to society.

Net energy is the energy available to society to do work after you remove the costs to obtain the energy.

If you consider that peak oil means moving from the best energy source available (oil) to less energy dense sources (anything except fusion?), it is logical to assume that net energy available will decline. No matter how fast you try to ramp up production of any other energy resource, the energy available after costs to extract have been removed will be less.

This is quite simple if you think about it. Here are some of the consequences of a net energy peak and decline:

  1. There is less energy available to use for food production.
  2. There is less energy available to move people and products around the world.
  3. There is less energy available per capita (actually in decline since the late 70’s – early 80’s), which means less energy per person to perform your daily work.

These reasons are why a move towards localization is not just recommended, but will be required. Globalization requires higher levels of energy than will be available.

Society as a whole will have to sluff off the more complex layers of technology (the ones requiring the most energy) to make up for the energy shortfall.

So the big question is whether Technology can economize to the point that will allow less dense energy resources to be harvested with the same or greater net energy.

As yet, there is no such technology available. Even technologically advanced conventional oil recovery results in lower net energy than the production yields from the last 50 years.

I am not sure this argument has been effectively refuted as yet.

Received via e-mail from Markets and Money reader David S.

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, Markets and Money is published in 7 countries with a worldwide readership of almost 1 million people.

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3 Comments on "Peak Oil – Net Energy Argument"

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I think one effect is that telecommunications are going to become much more important.

The internet, as well as virtualisation (that is, doing in software things that used to require special hardware) have a great amount of potential in terms of reducing energy usage.

This potential hasn’t been used yet because energy is still cheap and plentiful, but in future, it may be explored more fully.


This is just more oil worship. There is plenty of energy. As the world becomes more electrified, energy use can go down, not because there is not enough, but because it a much better energy source than oil. The useful energy return on oil is about 2 to 1. The useful energy return on renewable electricity powering PHEVs is about 10 to 1. Maybe we are at peak energy, peak energy wastage that is.


I would like to see the localisation vs globalisation issue explored more fully. I believe there are a number of issues besides oil that warrant further investigation, viz. energy consumption (mentioned above), global warming (transport comes at an environmental cost), skills loss and the associated increase in dependence on others for foodstuffs and manufactured goods.

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