Doomberg Embarrasses Himself
Doomberg’s recent views about oil on Thoughtful Money were painfully amateurish and often just wrong. I have always respected Doomberg even when I disagreed with him but I was embarrassed for him in this podcast discussion with my friend Adam Taggart.
Doomberg thinks that he has made some big discovery—that oil should include natural gas liquids (NGLs) and condensate.
“We have a pretty unique definition of what oil is”—Doomberg
No you don’t. The International Energy Agency (IEA), Energy Information Administration (EIA) and OPEC have included NGLs, condensate (and more) in what they consider oil for decades. You just don’t know enough about oil to know that.
He doesn’t think that proved reserves include condensate.
“Condensate is not currently counted in the world’s oil reserves.”—Doomberg
He thinks that gas-to-liquids (GTL) technology is a plug-and-play app that will add five or ten million barrels of oil per day to global supply.
“GTL plants are nothing more than sophisticated refineries.”—Doomberg
The definition of what oil is or is not is largely irrelevant. Here’s what’s important. Natural gas liquids are useful products but do not have the same energy content as crude oil nor can they be used to make most of the things produced from oil.
In 2022, ethane accounted for 65% of NGL consumption in the United States. A lot of ethane isn’t even used as a fuel. Most is used as a feedstock to make baggies and other plastics; the rest is a substitute for natural gas. Propane, butane and natural gasoline account for most of the remainder of NGL consumption. They are used mostly for heating, cooking, camping stoves and lighters. The average spot price of NGLs is about half the price of crude oil for a reason—NGLs don’t contain as much energy as oil and are not as useful as oil.
Doomberg’s argument that NGLs are really oil is like saying that beer is really whiskey. Both contain alcohol, after all.
His view of EROI (energy return on energy invested) is beyond wrong.
““Let’s say we produce 100 BTUs in the Permian and it cost us 20 BTUs to do that…What if that 20 was co-produced in the Permian on site and so…the buyer of that hundred BTUs doesn’t care where that 20 BTUs came from because it didn’t come from the existing grid. And so the pessimists would say the energy return on energy invested is five-to-one…The energy return on energy for consumers is infinite.”—Doomberg
What I think he’s saying is that if the energy from the NGLs were used to produce the oil instead of flared with the natural gas and wasted, then the EROI would be close to zero at least to the consumer. I’m not sure—and I’m not going to try to explain it further because I can’t. It’s absurd.
Oil company executives understand the trade-offs between flaring gas and its NGLs versus the capital expenditure to build pipelines and pay processing plants to strip NGLs from the gas. That’s what EROI is all about—adding up all of those energy inputs and outputs and deciding if the balance makes sense.
“People radically underestimate the sheer technical brilliance and the horsepower embedded in the fossil fuel industry.”—Doomberg
Does he believe that those brilliant people are wasting resources and have never thought about the value of NGLs?
He expands his inscrutable EROI logic to liquefied natural gas (LNG) export.
“LNG is a very poor energy return on energy invested material but not to the Europeans who buy all the energy. What went into producing it doesn’t matter when the carrier shows up and offloads its enormous amounts of BTUs into the European grid.”—Doomberg
Europeans are glad to be able to replace lost Russian gas supply with LNG imports, and are willing to pay for them. That doesn’t make the EROI infinite.
He mistakenly thinks that energy prices in Europe have now normalized.
“Beginning with the near miss in the winter of 2022-2023, Europe has now shifted to a period where I think it’s pretty undeniable that we’re at the global level integrated across markets. We are experiencing a period of relative energy abundance.”—Doomberg
European gas prices have decreased since their peak levels in the summer of 2022 but remain double what they were before Russia’s invasion of Ukraine. In fact, the higher price of energy, the capital expenditures for LNG import terminals and the need for governments to subsidize consumer energy costs have weakened the European economy.
He believes that Europe could reduce its energy dependence on imports if it just got over its political and regulatory stupidity.
“Germany has an enormous amount of fracking potential and it’s just politically decided it’s not going to do that. There’s all manner of fracking resources around the world that are waiting to become reserves.”—Doomberg
The geology of Germany does not support his statement and Germans have a different view of the balance between environment and energy. Germany’s politics seem to reflect what its people believe is important.
“It is very uncertain what contribution fracking could make in Germany to strengthening security of supply.”—Karen Pittel, Institute for Economic Research
As far as the fracking resources around the world, it’s mostly a geological and less of a political problem. Most shale in the world has the wrong kind of organic carbon, is not at the right level of thermal maturity or is not buried deeply enough to have the pressures needed for production.
Doomberg brings his expanded view of NGLs and EROI to a crescendo with a discussion of gas-to-liquids technology. He correctly states that Shell’s Pearl GTL plant in Qatar currently produces diesel, jet fuel and natural gas liquids from natural gas.
“What happens if the world were to bring online 5 or 10 million barrels per day of GTL capacity? Natural gas would become, in effect, just another variant of “oil.” GTL plants are nothing more than sophisticated refineries.”—Doomberg
The first thing to understand about Pearl and Oryx (the other GTL plant in Qatar) is that the gas is provided free by the Qatari government. That makes the awful economics of building a $20 billion plant and its outrageous energy input costs less awful. The natural gas is largely stranded in the giant North Field in the Persian Gulf so monetizing its cost is important to Qatar.
More importantly, we have to think about the physics. GTL plants use the Fischer-Tropsch process to convert methane to petroleum liquids. The input to the plant is methane from natural gas. Its energy density is 0.4 megajoules per liter (MJ/l). The diesel produced has an energy density of 37.3 MJ/l—almost a 100-fold increase. How does that happen? By adding a lot of energy in the form of electric power. No free lunch.
That’s where EROI becomes important and perhaps why Doomberg wants to ignore it.
“The whole system reveals the electricity-to-FT [Fisher-Tropsch] liquids efficiency of 51.0% in lower heat value (LHV) and 54.8% in [the higher heat value] HHV.—Luo et al (2021)
That means that the EROI of GTL is about 1:2. It takes as almost twice as much energy to produce the liquids as they contain.
“GTL penetration has an impact only under very extreme assumptions…It is also necessary for natural gas to be still cheaper to produce than the current shale revolution in the US has realized. These very negative results obtain assuming no restrictions on carbon emissions, which is another generous assumption that favors the profitability of GTL. Our results make clear that with limits on carbon, GTL is a fortiori not economical.”—Ramberg et al (2017)
This civilization simply cannot function on EROIs or thermal efficiencies as low as GTL regardless of economics.
Doomberg has built his thesis of energy abundance on a house of cards.
“We have a pretty unique definition of what oil is and once you widen that definition—which isn’t necessarily always captured in the official quote-unquote oil production statistics—you then can see that we have a tsunami of hydrocarbons coming online especially in the US and that is a significant head wind for prices.”—Doomberg
He doesn’t have a unique definition of what oil is. His “unique” definition has been used as the standard for decades, for better or for worse.
NGLs are not going to create a tsunami of hydrocarbons. They are not oil in the real world of energy. They have real value but that’s old news to people who—unlike Doomberg—actually know something about oil.
Liquids production from natural gas in Qatar is an outlier. It’s stranded gas and it’s free to the plants. There’s a reason that U.S. gas processors prefer LNG export to GTL synthesis.
EROI is important even if it is a blunt instrument. There’s nothing blunt about a GTL process than uses more energy than it creates. There is no infinite EROI in the universe. It defies the laws of thermodynamics.
Oil production will peak and decline at some time sooner than later. That’s not pessimism, just thermodynamics. All the fantasies about technology and efficiency in people’s imaginations won’t change that.
I sincerely regret having to write this post, Doomberg. All the cards in your energy abundance thesis have collapsed. Let’s talk.
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