Over the last decade, as the cost of oil soared from $10 a barrel to nearly $100 a barrel, many people began to wonder if the world was running out of oil. The world is not running out of oil anytime soon, but there is another problem with oil. Since new sources are significantly more expensive than old sources, there is a diminishing return of energy to the energy invested to discover and develop oil.

Golden age of cheap oil  

Back in the 1930s when places like east Texas were being drilled, 100 barrels of oil were sent to market for every barrel of oil expended finding and producing oil. The energy return on energy invested, EROEI, was therefore 100 to 1. A similar ratio was encountered in places like Saudi Arabia. By the 1970s, the world ratio had fallen to 30 units, still a generous return on energy investment. However, as the easy-to-reach wells play out, the world is left with the more difficult oil.

Energy returns dropping  

Current oil finds deep under the ocean offer energy returns of 10 to 1, and the energy returns on sources such as tar sands are 3 to 1. As for ethanol, there is a debate about energy returns. Clearly, to be worth the effort, the EROEI should be greater than 1 to 1. Supporters show a 1.5 to 1 ratio, while critics calculate a 1 to 1 ratio. If 1 to 1 is correct, ethanol is pointless.


Taking all the world oil sources and alternative sources together, the world EROEI ratio is now about 20 to 1. However, the trend is clear; by 2030 the ratio is likely to drop to 10 to 1. In a span of 100 years from 1930 to 2030, the energy return on energy investment will have dropped from 100 to 1 to 10 to 1. The golden age of cheap energy is nearing an end.

Growing importance of energy conservation  

The consequence of falling energy return is that a greater and greater proportion of the world GDP must be spent each year on energy. Currently, about 5% of world GDP is spent on energy ($3 trillion). By 2020, $5 trillion will be required, and by 2030 the world may have to spend $10 trillion in 2010 dollars. If these projections prove to be correct, energy conservation will become ever more important in the future.