World trade is not ending

Peak oilers and energy decline theorists both believed that world trade would rapidly come to an end around 2005. They believed that world trade would collapse as oil peaked and started declining, or as a consequence of declining ERoEI. This was one of the cornerstone beliefs of the peak oil and energy decline movements.

As usual, it was totally wrong. World trade did not collapse. In fact, the opposite happened. World trade, and especially ocean-going trade, has increased tremendously since that time. For example, the panama canal is now booked to capacity every single year, and must be expanded. The Suez canal must also be expanded.

In this article I will examine why world trade has not collapsed, and why it is not collapsing in the foreseeable future. I will divide my discussion into separate sections for the different modes of transportation (ships, trains, and trucks) and will explain why the transportation of cargo for that mode is not declining.

SHIPS

Cargo transportation by ship will not decline in the foreseeable future. That's because ships are becoming more fuel-efficient at a rate of about 2% per year and will continue doing so for decades, thereby offsetting any declines in oil production.

To a significant extent, shipping companies choose the fuel efficiency they want. Shipping companies could easily order ships with twice the fuel efficiency as those of today. Or, they could order ships with half the fuel efficiency. Ships which are more fuel-efficient are more expensive, so are only worth it when fuel prices are high enough to justify the added cost of the more expensive ship. As fuel prices increase, however, shipping companies order more fuel-efficient ships, and thereby drive down the amount of fuel consumed per ton-mile, and offset the decline in oil production.

The fuel efficiency of ships is a function of their size and speed. Larger and slower ships are far more fuel efficient. By halving the speed of a ship, fuel consumption is reduced by 75% per ton-mile. Furthermore, by quadrupling the size of a ship, fuel consumption is reduced by another 50% per ton-mile. As a result, a ship which is 4x the size and half the speed, consumes only about 12.5% as much fuel per ton-mile.

Ships have been getting much larger and slower over the last few decades. As a result, the amount of fuel per ton-mile has been deceasing for decades, and continues to decrease. When oil prices tripled back around 2006, the largest shipping company (Maersk) responded by ordering the triple-E class of ships which consume half the fuel per ton-mile as the average long-distance ocean ship of today. Other shipping companies followed suit. By just ordering the same kind of ship for the next 30 years, shipping companies will reduce the amount of fuel per ton-mile by half over that period, as they gradually retire their older and less-efficient ships and replace them with more efficient ones.

As a result, even if oil peaked today and declined by 2% per year for the next 30 years, we could still deliver the same amount of cargo in 30 years as today, because of increases in fuel efficiency which are happening anyway and will offset declines in oil production. By just ordering the same kind of ships which they are ordering now, the fuel consumption per ton-mile will drop by half over the next 30 years as older and less-efficient ships are retired.

Of course, there is a limit to the fuel efficiency of ships. When ships are traveling at only 8 knots, it saves no fuel to slow down any further. Also, ships could only be made approximately 4x larger than those of today before they start to buckle under their own weight. As a result, it would be impossible to improve the fuel efficiency of ships by more than 8x relative to today.

However, that is still enough to offset any plausible declines in oil production, well into the future. Even if oil production peaks in 2020 and follows a bell-shaped Hubbert curve, the shipping industry will offset the declines of oil by increasing the efficiency of ships, until at least 2050.

Of course, it would be possible for shipping companies to accelerate the improvement of fuel efficiency if fuel became scarce, so the shipping industry could withstand greater than 2% yearly declines without a reduction in cargo ton-miles.

Even after oil production has peaked and declined by 80%, it still will pose no serious problem for the shipping industry. Ships fundamentally do not require oil for their propulsion. Ships can be built with STEAM TURBINE engines, and such engines do not require oil. Steam turbine engines can be designed to use virtually anything that will burn as fuel. Ships with steam turbines could use coal, gas, wood pellets, old newspapers, pelletized switchgrass, pelletized animal shit, sewage, corn husks, weeds, old paper plates, or whatever else. Steam turbine engines can also use very low-quality fossil fuels, such as oil shale (without extracting the oil), which are found in vastly greater quantities than crude oil ever was. Steam turbine engines were the most common kind of ship propulsion from 1950 to 1970, and could become so again. Since those ships can use almost any fuel, we are not running out of fuel for ships.

Some of the possible fuels are renewable, such as wood pellets or switchgrass. These fuels have an ERoEI of approximately 10 (or 3 if you subtract waste heat losses), making them only slightly worse than oil in terms of ERoEI. Such fuels can be grown indefinitely on marginal land.

TRAINS

Cargo transportation by train is not ending. More likely, it will increase in the decades ahead.

Trains fundamentally do not require oil for their operation. Trains can easily operate using electricity from overhead wires. This is already the case in many parts of Europe and Russia. The technology to do this is older than the widespread adoption of internal combustion engines. As a result, we could gradually replace diesel-burning trains with electric ones and so remove oil as a fuel from train transport altogether.

Already, much of Europe has electrified its rail lines. Russia has already electrified the entire trans-Siberian route. A large fraction of cargo delivered by rail in the world is already propelled by electricity. This transition away from fossil fuels is already underway, and will gradually reduce and then eliminate the oil required for rail transportation.

The rail network could easily be expanded to come within 5 miles of 95% of the population.  In fact, in 1910 in the US, the rail network was approximately three times longer than today, and actually did come within 5 miles of 95% of the population. There was a rail line going to almost every little town, in 1910. If we revive and electrify the rail network which existed in 1910, then cargo could be delivered to almost every town or city in the US without using any oil.

Bear in mind that the United States has vastly greater wealth, infrastructure spending, and manufacturing capability than it did in 1910. As a result, the rail network of that era could be revived much more easily than it was built. Europe would have an easier time still, because of higher population density.

It’s worth mentioning briefly that trains could be powered by reciprocating steam engines (like old-fashioned steam locomotives) which could use almost anything as fuel. Apparently, modern reciprocating steam engines can be about 18% efficient which is double what the old locomotives achieved in the 19th century. There is even an association in the USA that wishes to start making steam trains and powering them with “bio-coal” (apparently some kind of charcoal made from trees). Personally, I’m not sure it’s a viable idea, but if you’re a nostalgia buff then you might want to look at the coalition for sustainable rail (http://www.csrail.org/).

TRUCKS

What about trucks? Long-haul trucking isn’t even necessary. In the United States, in 1910, most cargo was delivered by rail. The interstate highway system didn’t exist back then. In fact, long-haul trucking is fairly recent. As oil became cheaper, we gradually shifted from trains to trucks. When fuel becomes more expensive, we will gradually shift back the other way, from trucks to trains, thereby using less fuel.

If we revive the rail network from 1910, then long-distance trucking wouldn’t even be necessary. We could use short-haul battery-electric trucks to deliver goods the final few miles from the railway depot to the store. If it were necessary, we could also use trolley-trucks powered by electricity from overhead wires.

CONCLUSIONS

We do not face significant declines in long-distance transport of cargo, over any time period, at least not from energy shortages. We have vastly more fuel than is required, and vastly more options than are required. We could increase the quantity of cargo delivered, far into the future, regardless of when oil peaks and starts declining. We could easily offset any plausible rate of oil decline, using obvious and well-understood technologies.

These adjustments will be carried out automatically, as the result of basic market mechanisms. As prices for one thing become higher, shipping companies automatically switch to something else. When it becomes cheaper to electrify rail, then rail is gradually electrified. Shipping and transport companies already carry out these calculations and procedures routinely. They already order ships or trains based upon fuel prices going forward, and thereby gradually adjust to changing fuel availability and cost. This is already happening and will continue to happen. Also, municipalities will allow the re-activation of long-dormant rail lines if fuel prices are high enough to require it. No action on your part is required to make this happen.

Peak oilers and energy decline theorists reached a different conclusion. They believed that world trade would collapse around 2005. However, they made four incorrect assumptions, as follows: 1) peak oil was imminent; 2) oil is the only fuel which can power long-distance transportation; 3) ships and trains cannot be any more efficient than they are today; 4) the mode of transportation used must be the same as today. All four of those assumptions were clearly and obviously wrong. Peak oil has not occurred yet. Even after peak oil has occurred, we could increase the efficiency of ships, and so offset oil declines for at least 4 decades. Even after oil has been practically exhausted, we could switch fuels, from oil to any number of other fuels. Furthermore, we could change the mode of transportation from trucking to rail. As a result, we do not face any inevitable decline in long-distance transport of goods, regardless of when oil peaks, or how rapid the decline is.

Of course, world trade may decline slightly or gradually in the future, for a variety of reasons. For example, it may become uneconomic to ship extremely bulky and inexpensive products (like iron ore) over long distances, since those products are barely worth shipping long distances now (they can be mined almost anywhere), and would become uneconomic to ship long distances with even slight increases in shipping costs. Also, there are other factors such as wars, depressions, and disasters which could decrease world trade. Furthermore, there is wage convergence, whereby wages in the third world are gradually catching up with those of the first world, which may reduce the volume of trade in the future. However, there will never be any abrupt drop-off in world trade because of energy shortages. World trade will remain more extensive than it was in 1990, far into the future, unless some genuinely unexpected event (like war) changes that.

(Note: This article was edited on Sept 7, 2014)

Renewables have higher ERoEI than fossil fuels

One the central claims of the peak oil/energy decline movement, is that renewable sources of power have extremely low ERoEI. Therefore, it is claimed, renewables are no substitute for fossil fuels, because they cannot provide enough “net energy” to power civilization. In support of this claim, energy decline adherents often post graphs like this one, showing that renewables (especially solar PV) have low ERoEI compared to fossil fuels. More recently, Hall and Prieto have published a book, Spain's photovoltaic revolution, in which they claim that the ERoEI of solar PV in Spain is only 2.45, which is far lower than the ERoEI of fossil fuels.

In fact, those claims are entirely wrong. Renewables have ERoEI ratios which are generally comparable to, or higher than, fossil fuels. Although peak oilers reach a different conclusion, that is because they are carrying out the calculation incorrectly. They are ignoring or not including massive waste heat losses (generally 60% or more) from combustion engines which drastically reduces the ERoEI of fossil fuels. Those waste heat losses provide no energy services to society, and should be counted as losses, but are wrongly counted as "energy returns" by peak oilers. Furthermore, peak oilers are ignoring or not counting other large energy losses of fossil fuels. Those omissions exaggerate the ERoEI of fossil fuels relative to renewables. When the calculation is carried out correctly, renewables have higher ERoEI ratios than fossil fuels.

In other words, the notion that renewables have ERoEI ratios which are lower than fossil fuels, is simply mistaken. It arises from performing invalid, apples-to-oranges comparisons, or from not counting energy losses of fossil fuels.

Fossil fuels have very low ERoEI ratios

Take this graph as an example. It compares the ERoEI of solar PV for electrical power, against the ERoEI of coal and gas for heat. That comparison is invalid, because it’s an apples-to-oranges comparison. Thermal power plants (like coal-burning plants) waste approximately 2/3ds of their energy as waste heat. Waste heat is radiated out into the atmosphere from the power plant, and provides no energy services to society. This massive energy loss from fossil fuels is not counted in that graph of ERoEI, thereby artificially inflating the ERoEI of fossil fuels. If we subtract the energy losses from conversion of thermal energy to electricity, then the ERoEI of fossil fuels declines by approximately 2/3rds relative to solar PV. Conversely, we could also increase the ERoEI of solar PV by approximately 3x, thereby providing an energy quality correction. As a result, the ERoEI for thermal power plants which generate electricity is approximately 2/3rds lower than the graph indicates, or (conversely) the ERoEI of solar PV is approximately 3x higher.

It’s simply meaningless to compare the ERoEI of electricity generation from renewables, against the ERoEI of heat from fossil fuels, because heat is an extremely low-quality kind of energy which is far less capable of performing work. This is an elementary principle of thermodynamics. In order to convert heat to work, we must lose the vast majority of that heat as waste. For example, the vast majority of energy from fossil fuels is simply rejected as waste heat from power plants or internal combustion engines, and so shouldn’t be counted as an “energy return” in ERoEI calculations.

In general, the ERoEI of fossil fuels is extremely low. Natural gas may have an ERoEI of 10, but that falls to 5 when considering the massive waste heat losses emitted from natural gas turbines (generally less than half of the energy in gas is converted to electricity). Coal may have an ERoEI of 30, but that declines to 10 when considering that coal power plants lose approximately 2/3rds of the energy of the coal as waste heat.

The ERoEI of oil is particularly low because it's used in inefficient internal combustion engines inside of vehicles. Most car engines lose about 80% or more of the energy from gasoline, as waste heat, when you include both engine and transmission losses. As a result, the ERoEI of energy which actually turns the wheels of the car (rather than heating the outside atmosphere) is not 14.5 for oil, as commonly claimed, but only 2.9.

Renewable sources of energy do not suffer from those tremendous losses. Although renewables sources of energy do suffer from power grid losses, those losses are minor (usually less than 5%).

As a result, the ERoEI ratios of renewable sources of power are often much higher than their fossil fuel counterparts. Wind turbines have an ERoEI of 18, compared to 10 for coal or 5 for natural gas. Solar PV panels powering battery-electric cars have an ERoEI of about 7 (deducting grid losses and recharging heat losses), compared to 2.9 for oil in gasoline-powered cars.

Incidentally, the extremely low ERoEI of oil for driving cars and trucks (2.9), refutes the notion that an ERoEI less than 8 would lead to the collapse of industrial civilization. That claim is extremely common in energy decline circles, but it was pulled out of thin air and was wrong to begin with for several other reasons. In fact, modern industrial civilization has been growing for decades (especially China and Korea) with ERoEIs far lower than 8.

Hall and Prieto’s criticism

More recently, a book by Hall and Prieto, has become all the rage in energy decline circles. That book claims that the ERoEI of solar PV is grossly exaggerated. Hall and Prieto adjust the ERoEI of solar PV downwards, by adding all kinds of incidental energy costs. They add every incidental energy cost they can think of, like the energy costs of building fences around the solar farm, and so on. They even add energy costs for things like corporate management, security, taxes, fairs, exhibitions, notary public fees, accountants, and and so on (monetary costs are converted into energy by means of a formula). Sometimes, their estimates of those costs are absurdly high. According to Hall and Prieto, the ERoEI of solar PV is only 2.45 when all those things are added.

Once again, the calculation is incorrect, and the comparison is invalid. Hall and Prieto are adding every incidental energy cost to solar that they can think of. However, such energy costs are not included in the ERoEI calculations of fossil fuels. For example, the ERoEI of oil does not include the costs of security in the middle east, or the costs of pipelines, tankers, tanker trucks, road wear from tanker trucks, construction of gas stations, energy costs of driving to the gas station to refuel, the highway patrol, and countless other things. If those costs were counted, then ERoEI of oil (which is already low, at 2.9, when including waste heat losses) would only decline further.

It's necessary to perform an apples-to-apples comparison here. If we're going to add up every incidental energy cost of solar PV, then we must perform the same procedure for oil. Only then would we have a valid comparison.

If you carry out a detailed accounting procedure for both solar and oil, then the ERoEI of oil will be even lower in comparison, than it already was. The incidental costs of oil are almost certainly higher than those for PV. Whereas oil is a scarce substance which requires massive extraction and transportation costs, silicon is the most abundant mineral in the Earth’s crust (sand, rocks) and does not require expensive or elaborate techniques of extraction or transportation. Whereas oil comes from unstable regions and requires massive security and military costs, silicon requires only a few security cameras. Whereas oil is subject to ongoing transportation costs, silicon needs to be transported only once during the lifetime of the solar cells. In general, the incidental costs of oil are far higher than those for solar PV. As a result, if we include those incidental costs in both cases, the adjusted ERoEI of oil will be even lower in comparison than it already was.

Again, when you perform valid, apples-to-apples comparisons, the ERoEI of solar PV is higher than that of oil or natural gas. Oil for transportation in cars has an ERoEI of only 2.9 (because of waste heat losses), but that is before we include incidental costs such as security, infrastructure, and so on, so oil’s total ERoEI would only decline, and would likely be lower than 2.

Hall and Prieto’s analysis is mistaken in other ways. Their estimate of 2.45 for PV is certainly far too low. They include things like taxes and land leases, which are not energy costs, but redistributions of money. Taxes provide services for society, so they should be counted as energy returns, not energy costs. If taxes in Europe on gasoline were counted as an energy cost, then the ERoEI of oil there would certainly fall to below 1. Also, Hall and Prieto include massive energy costs for premature retirement of solar cells because of rapidly advancing technology, but those cells won't be prematurely retired because they are paid for in advance and almost free to operate at that point, regardless of their efficiency compared to newer panels (newer panels would simply be added for future projects). Also, Prieto and Hall include things like administrative expenses, employees’ salaries, and so on, using a formula for converting dollars to energy which is far too high and is just wrong. You would obtain a far lower figure by converting salaries to energy using a more reasonable formula, of dividing the entire energy expenditure of a country by its entire GDP in order to obtain a conversion factor.

A correct calculation of the the ERoEI of solar PV including everything, would be more like 6, not 2.45. You can derive this figure by removing everything from Hall and Prieto’s analysis which is not an energy cost (such as taxes or land leases), and by using a more reasonable formula to convert monetary costs to energy.

Conclusions

In short. Renewables generally have higher ERoEI ratios than their fossil fuel counterparts. When you carry out a valid, apples-to-apples comparison, the ERoEI of renewables is generally better. This is because the ERoEI of fossil fuels is actually very poor--generally less than 5--when you correctly subtract the massive waste heat losses of combustion engines, and also subtract the massive incidental costs (such as security costs) of fossil fuels.

The only circumstance where fossil fuels have a higher ERoEI for renewables is when generating heat for smelting of ores or making cement or glass. That’s because such applications do not take place inside inefficient combustion engines, and so don't require subtracting the enormous waste heat losses of such engines. As a result, such applications still favor fossil fuels. Coal has a much higher ERoEI for this purpose than solar thermal plants, and (more importantly) is much cheaper. However, those uses are only a small fraction of total energy usage. Those uses will probably be the last energy uses which are converted from fossil fuels to other sources of energy, possibly more than 100 years from now.

Not that ERoEI matters much anyway. The whole idea is a mistake. What matters is the cost (in money) of net energy, for an energy source. If the cost of net energy is low, then the ERoEI is just totally unimportant. For example, if it were possible to build a 1 GW fusion power plant very easily out of duct tape for only $10, then it wouldn’t matter at all if it had an ERoEI of less than 2. We could just build more of them, and thereby produce the same amount of net energy as a higher-ERoEI (but more expensive) energy source. As long as an energy source has an ERoEI higher than 1, the ERoEI ceases to matter, and what matters is the total cost of net energy. This is discussed further here.