Category Archives: Resource Economics

The Scale of Extraction

Mining makes up a small percentage of world GDP and an even smaller percentage of the labor force, so it is mostly “out of sight, out of mind” as an industry.  Look at the pictures below, however, and it will no longer be out of sight!  Though, I can’t say the same for out of mind…

Click on the pictures to view them or right-click them and open them up in a new tab.  All pictures were taken from Google Earth.

Below is the Bingham Canyon copper mine in Utah, USA, and the downtown portion of Boston, MA, USA for size comparisons.  If you look carefully you can make out a landslide in the pit.  The landslide is almost as big as the financial district of Boston!

Bingham Canyon Mine and Boston

Below is the Mission copper mine in Arizona, USA and downtown Boston.

Mission Mine and Boston

Below is the Chuquicamata copper mine in Chile.  It looks like downtown Boston can fit right into the pit, with room to spare!

Chuqui Mine and Boston

Below is an entire copper mining complex consisting of the Chuquicamata mine and the Radomiro Tomic mine in Chile.  The complex includes leach pads, smelters, equipment storage areas, and waste rock piles.  The entire complex is as long as Manhattan.  The waste rock pile or leach pad (looks like a hand fan) in the top of the image covers a larger area than does downtown Boston.  That’s a big pile of rocks!

Copper Mining Complex Chile and Manhattan

Below is the Yanacocha gold mining complex in Peru.  It is almost as long as Manhattan, and definitely wider.

Yanacocha Gold Mining Complex and Manhattan

Below is an iron ore mining complex near Hibbing, Minnesota, USA.  It is also almost as long as Manhattan.  I have little doubt that some of the iron from this mine made it into the infrastructure of Manhattan.  In fact, it looks as if they are mirror images of each other:  flip the mine over and out pops a city.

Minnesota Iron Mine and Manhattan

Finally, here is an industrial agriculture mining complex in a northern section of Texas, USA.  You may not think of this place as a mining complex, but here, industrial agriculture is “mining” topsoil and fossil groundwater.  In other words, these farms are eroding topsoil faster than it can be replenished and pumping out groundwater much faster than the aquifer below is recharged, and let’s not even get into fossil fuel and fertilizer use.  The state of Rhode island is given as a size comparison to this particular industrial process.  Manhattan and downtown Boston are also included, but they are obviously dwarfed by industrial agriculture.  Agriculture can be done sustainably (and a good amount of it already is) but as long as energy and water are considered “cheap” it will also be done unsustainably in marginally arable places like the one pictured below.

Industrial Agriculture and Rhode Island

Even though mining is a small part of the world economy its environmental impacts are obviously enormous.  Also, the rest of the industrial economy can’t operate without mining so it is ignorant to think that just because it is a small part of the world GDP, it is relatively unimportant.  It is easy to think of the economy just in financial terms, but, as these pictures show, there is a physical economy hidden beneath the cloak of finance.

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Petroleum: The Market’s Greatest Illusion

How much value should one put on a gallon of crude oil?  Who knows…

Well, there is this interesting idea:

Buckminster Fuller wrote in his book, Critical Path: “the brilliant Denver, Colorado oil geologist, Francois de Chardenedes … regarding the amount of energy employed as heat and pressure, for the length of time initially that it took nature to photosynthetically process Sun radiation into the myriad of hydrocarbon molecules that comprise all the vegetation and algae … a large percentage of which Sun-energy-nurtured-and-multiplied molecules are ultimately processed into petroleum.

The script of de Chardenedes’ “Scenario of Petroleum Production” makes it clear that, with all the cosmic energy processing (as rain, wind and gravitational pressure) and processing time (paid for at the rates you and I pay for household electricity), it costs nature well over a million dollars to produce each gallon of petroleum.”

This means that if humanity, instead of nature, wanted to “produce” (i.e. create) an energy source with the qualities of oil, it would also cost us a helluva lot of money!  Remember, we extract oil, we do not produce it.  Also, remember why we use oil despite its well publicized bad aspects:  (1) it is energy dense (2) it is easily transportable (3) it is easy to store (4) we can make many different products out of it, other than fuel, and (5) it is already there, we don’t need to grow it like biofuels.  It is an outright fantasy that oil companies (financed by debt) can extract oil for just a few tens of dollars a barrel and say that they are “producing” a product with all of these qualities.  Yet our culture accepts this fantastic illusion quite readily.

Now, Buckminster Fuller had a unique if not controversial way of looking at things, but this idea seems plausible, if it isn’t, it’s still interesting.  I can’t find Francois de Chardenedes’ work online but we can perform a quick back of the envelope calculation to see if his findings were reasonable.  Let’s say it takes 1 kWh of energy per day to create the algae/plankton, bury a few pounds of it, and heat it up to generate a gallon of petroleum. These biologic materials need to be buried and “cooked” for say, a period of 100,000 years (petroleum is generated over geologic timescales, so this estimate is very generous).  At $0.10 per kWh, the production cost would come to $3,650,000 per gallon.  A barrel (42 gallons) would cost $153,300,000 to produce.  Hmmm… YIKES!

1 kWh is not a lot of energy.  It is 0.4% of the average American’s daily energy use (including residential, commercial, industrial and government energy use).  Though at a rate of 1 kWh/d it does add up to a lot of energy over geologic timescales.  Therefore, let’s say we way overestimated the energy needed to make a gallon of petroleum, and it only takes 1 kWh per year over 100,000 years to produce it (0.0027 kWh/d, a total of 100,000 kWh).  It would still cost $10,000 to produce a gallon of petroleum.  A barrel would cost $420,000 to produce.

It seems the drive I took the other day that consumed 1 gallon of gas really should have cost me at least $10,000+ or even $3 million, not $2.90.  Holy crap! It’s a trap!  That’s quite a distorted economic incentive. The fact that people in OECD countries reduce their demand for oil when the price of a gallon of oil reaches $2.38 ($100/bbl) should provide some food for thought.

Fossil fuel subsidies? I don’t know… It seems we are subsidized by fossil fuels.  Which is way worse; as we are entrenched by our society’s fossil fuel inertia.  To give you an idea of this, to de-carbonize 12 TW of fossil fuel power out of 15 TW of total world power, would require the world to build a 1 GW nuclear power plant or equivalent renewable power plant every 3 days for the next 99 years.  12,000 nuclear power plants.  The world currently has ~440 nuclear power plants and many are old.  This sounds expensive, and this is assuming that world power use does not increase over the next 99 years.  However, the simple cost analysis in this post showed that petroleum is way more “expensive” than we think and suggests we should do whatever it takes to move to alternatives ASAP, without even stopping to argue about climate change.

Anyway, I think all of this endless arguing about the oil price slide and whether “Peak Oil” is debunked is a waste of time.  I am guilty of this myself.  By reading more, I have come to realize, as have many others, that peak oil is just a symptom of a larger and more fundamental problem with our culture.  I can’t pinpoint it right now but these questions may shed some light on it:

How much energy or resources does one require in order to live a “good” life? To be happy?

What is the real cost of non-renewable energy or other non-renewable resources? How do depletion problems over time periods of decades factor in?  What about climate change or ecosystem destruction?

How much is the real cost distorted by a culture bent on endless consumption of non-renewable resources to increase its status and wealth?  What is wealth?

Will technology save us from depletion problems, climate change, and ecosystem destruction? How can it if all of the technology that has ever been invented just got us to the point where we are now, asking these questions?

How do we enable the developing world to develop western consumption-heavy lifestyles on only renewable energy and renewable materials? We are having some substantial difficulty doing just that ourselves for any number of technological, economic, political, or social reasons.  On that note, what does sustainability really mean?

I heavily advise taking your savings from this period of low oil prices to invest in energy conservation, solar panels, a hybrid vehicle, a good commuting bike, or something along these terms.  Do not be fooled by the petroplex illusion.  I was for a while, but it is possible to wake up from “the Matrix” (and it’s fun!).

That fact that there are many people in America who still cannot afford these “green” technologies (including a nice bike!) even with our GDP of $17 trillion, is troubling.  This fact is obviously evidence that the free market is distorted for any number of reasons (duh!), but, in my opinion, it is mostly distorted by our individual limits of understanding complex systems (such as our own economy).  It’s possible that our Geodestinies, like Peak Oil, are still far into the future, but we are getting closer to them with every commodity super-cycle that comes to pass.  My advice for the future:  tread lightly.

Happy Holidays!

How Much are Non-Renewable Resources Really Worth?

Crude Oil As an Example

Gasoline prices are falling right now in the USA, but some people still complain from time to time that prices are still too high as they are around $3.45 per gallon, nationwide.  Much of the fall in gasoline prices is due to the drop in the price of crude oil, a non-renewable resource (on human timescales).  A barrel (bbl) of WTI crude oil is worth around $93 as of September 2014, but what the heck does that number really mean?

Given that crude oil is a finite (i.e. non-renewable) resource, there will be a point when oil becomes so scarce and the price becomes so high, that people will be prompted to look for alternatives (according to standard economic theory).  Obviously, this has already been happening since 2005, when oil reached $50+/bbl, and it is happening even more today with $90+/bbl oil.  However, $93/bbl is equal to $2.21 per gallon (42 gallons constitutes 1 bbl of oil).  That means that even at today’s “high” prices, a gallon of oil is still cheaper than a gallon of milk.  Amazingly, back in the 1990s, oil was worth less than $1 per gallon.  While it may seem that the laws of supply and demand are working well to give us an accurate price for oil, something seems amiss.  How could the lifeblood of the modern economy be worth so little, although most of us think of it as expensive? Our modern society has constructed almost all of its transportation network based on a non-renewable resource that we value at only $1-$3 per gallon.  I personally believe that this is not a very wise valuation.  It appears that the price and value of crude oil are not the same (like a lot of other stuff in life), as the importance of crude oil to the global economy cannot be understated.  A lot of people willingly spend $100+ for designer sunglasses or a smartphone, but get angry when the core fuel powering their lifestyle costs more than $2 a gallon.  Talk about misplaced values.

Given that oil is non-renewable and faces depletion concerns (i.e. peak oil) and climate change concerns, many of us would like to construct a renewable energy infrastructure to replace oil and the other fossil fuels.  However, the construction of a renewable energy infrastructure will require vast amounts of energy and capital, things that are in short supply in today’s energy-constrained global economy.  Hence, we face what physicist Tom Murphy calls the energy trap, or the incentive to hold on to our current energy sources (fracking boom) instead of investing energy and capital (which are now in short supply) in replacing the fossil fuel system with renewable alternatives.

Well, maybe we should have started building our renewable energy infrastructure in the 1990s when oil prices were much lower, and the economy was doing much better!  However, the very fact that prices were lower meant there was no incentive to invest in alternative energy sources or transportation replacements (EV’s, buses, etc.), which is unfortunate in hindsight.  Nevertheless, Marion King Hubbert did tell the USA way back in 1956 that peak oil would be a problem in the future, so we can’t say we didn’t see this rise in oil prices coming.  Market forces (with respect to non-renewable resources) seem to only work well on short-term information, given that the world did not seem to expect the rise in oil prices that started around 2003.

To me, it appears that this problem of getting society off of fossil fuels stems from the price of oil not taking into account that oil is a finite resource.  Indeed, It seems as if the market (on the supply side) considers only the capital and labor (wells, pipelines, geologists, engineers, etc.) we are willing to expend to extract the oil, not to produce it.  Most of the oil in the Earth was produced tens to hundreds of millions of years ago!  We do not pay for the production of oil, as it is a freebie created by solar power, ancient algae/plankton, and tectonic forces over geologic time (i.e. hundreds of millions of years).

Extraction of oil from an oil field in west Texas.  The field of view is 8 miles across.
Extraction of oil from an oil field in the Permian Basin of West Texas. The field of view is approximately 8 miles across. Image from Google Earth.

Other Non-Renewable Resources

The same argument I made for oil could be made for the other fossil fuels:  natural gas and coal.  In addition, a similar argument could be made for the other non-renewable resources we mine such as copper, iron, nickel, zinc, uranium, gold, silver, platinum, lithium, phosphorous, rare earths, and others.  These elements were created (i.e. produced) in supernovas billions of years ago, before the Sun and the planets even formed (1).  On Earth, many of these useful metals that were originally dispersed widely throughout the crust were concentrated into ores over hundreds of millions of years by geologic processes (tectonics, groundwater flow, etc.).  Again, it seems that we pay only for the extraction of these elements and not for the production or concentration of them.  I will note here that humanity has in fact already developed a technological process that can produce elements from other elements:  neutron capture in nuclear reactors and particle accelerators.  This process is used to create Americium, for use in smoke detectors, and Technetium, for use as a radioactive tracer in radiology, as these two unstable elements are not found in nature (1).  However, we have had this technology for over 50 years, and yet in 2014 we still have mines that are approaching depths of 2.5 miles into the crust.  That tells me that neutron capture may not be economically viable as a replacement for ores even with the higher metal prices and lower ore grades nowadays.  This is probably so preciously because we do not pay (i.e. value) the ancient supernovas or geological processes for creating and concentrating these minerals that we mine.

The Chuquicamata copper mine in northern Chile.  The field of view is approximately 7 miles across (Google Earth).
The Chuquicamata copper mine in northern Chile. The field of view is approximately 7 miles across. Image from Google Earth.

Changing How We Value Non-Renewable Resources

Looking back on the past 250 years of the industrial revolution (has it really ended?), it seems kind of shortsighted that we based most of our entire technological and economic systems off of non-renewable resources (though, I am grateful for it, these resources were used to make this computer I am typing on).  Even 35+ years after the major fossil fuel shocks of the 1970s, the world still relies on fossil fuels for a majority of its energy use.  Also, the world still mines a lot of metals even with increased recycling rates nowadays.  Alas, we have built ourselves into quite a corner, and I think we will all learn our lesson with this present energy/materials shock (it is not over, although many of us would like to think it is).

Given that non-renewable resources inevitably face depletion problems and increasing environmental concerns, I think we should value non-renewable resources much more than we currently do.  Lifestyles in developed countries (i.e. OECD countries, especially the USA and Canada) are highly dependent on non-renewable resources that are continuously being extracted from the Earth. The higher prices for these resources we find in today’s economy indicate that we maybe running close to the limits of how many resource-intensive lifestyles the global economy can maintain.  By valuing the resources at even higher prices (higher tax?) by taking into account that they are finite and that they have other negative externalities (social and environmental), we could increase rates of conservation and recycling.  We would probably have to tax mining as well, to prevent the higher prices from causing the rates of extraction to increase.

Another possible choice to avoid depletion problems would be to scale down our developed world lifestyles and find or invent renewable substitutes for all of the non-renewable things we use (i.e. some kind of biological economy).  That would render many non-renewable resources as worthless, and hence there would be no need to worry about depletion problems (except for land, water, nutrients, and topsoil).  Actually, this “biological” economy is somewhat how all human economies worked prior to the industrial revolution (i.e. the economies were predominantly agricultural, and most of the energy used to fuel them was biomass).  Indeed, a lot of developing countries today operate with that type of economy.  However, to keep our currently highly technological lifestyles in developed economies, we would need our organic chemists and chemical engineers to invent replacements for all of our non-renewable materials with carbon based materials at low cost.  Obviously this would be a very difficult and drawn-out endeavor, and it would be, most likely, impossible to complete.

The Challenges Ahead

All in all, as opposed to hoping for technological developments to solve the depletion problems of non-renewable resources, it may be the wiser choice to voluntarily scale down our developed world lifestyles and think these big-picture problems through a bit.  I look out at today’s global economy and see that it is performing increasingly desperate maneuvers to extract non-renewable resources from the Earth to keep our “business-as-usual” lifestyles going.  The US oil industry is drilling into impermeable source rocks for oil instead of permeable reservoirs (and calling it a “technological revolution”); farmers in California are drilling 2,000 feet below the surface into depleted aquifers to extract fossil groundwater; and miners are depleting high grade ore reserves and are going after much lower grade ores.  These desperate maneuvers will be increasingly difficult to maintain in the future due to diminishing returns.  Consequently, it may be the wiser path for developed countries to voluntarily cut down their consumption (and thereby mining) of non-renewable resources to avoid depletion problems. It would be quite hypocritical to call for developing countries to cut back their resource use as their per-capita consumption rates are still nowhere near the rates in developed countries.  Though, the world economy may reach the point soon where even developing countries will no longer be able to increase their consumption rates of non-renewable resources.

We all look for people to blame for higher resource prices and the economic and environmental problems associated with extraction (e.g. politicians, oil industry, mining industry, speculators on Wall Street, etc.).  However, the main reason these people do what they do is that they are trying to satisfy the seemingly insatiable demands of our developed world lifestyles.  If you truly “value” your non-renewable resource fueled lifestyle, then I encourage you to try and dig an 800 meter deep open-pit mine, extract the metals yourself, and do it all while protecting the environment.  Go get some quartz and try to purify it into solar panel-grade silicon, all while not expending any fossil fuel energy.  Go build a dense plasma focus device to make your own elements and avoid extraction/depletion problems.  As these examples show, extracting non-renewable resources and turning them into useful products are not trivial things to do, and they invariably come with harsh “side effects.”  In my opinion, the more we all understand how truly valuable non-renewable resources are the better we as a society can change our expectations of the future (unlimited economic growth) to match up with reality (there are limits).

In my next post I will discuss how much our society values renewable resources and ecosystems (i.e. the biosphere).

References:

1)  Bardi, Ugo.  Extracted:  How the Quest for Mineral Wealth is Plundering the Planet.  White River Junction, Vermont:  Chelsea Green Publishing, 2014.