Tuesday, April 12, 2011

Alta and Blackstone Aim to Turn EROEI On Its Head

The conventional wisdom among peak oil doomers and religionists says that the EROEI -- energy returned on energy invested -- is too low to allow most unconventional substitutes for crude oil to become economical.

But Blackstone Group and Alta Resources are teaming up -- investing US$ 1 billion -- to prove that unconventionals can indeed substitute for crude oil and other conventional fuels.
Blackstone Group LP (BX), the world’s biggest private-equity firm, agreed to form a joint venture with natural-gas explorer Alta Resources LLC to invest $1 billion in North American gas fields.

The entity will be called Alta Energy Partners, the companies said today in a joint statement. The new company will focus on acquiring leases and drilling wells in so-called unconventional fields, or geologic formations previously regarded as too hard to penetrate. _Bloomberg
Blackstone Group (BX.N) is investing in the lucrative area of shale, following rivals such as Kohlberg Kravis Roberts & Co (KKR.N).

North American shale fields are drawing billions of dollars from companies that are eager to learn the techniques to tap into the difficult geological formations.

...Unconventional assets include shale rock fields that may hold vast quantities of oil and gas but are more expensive to tap than traditional energy reservoirs. _Reuters
Devoted believers in EROEI as a sort of "barrier wall" preventing the economic use of difficult fossil fuel resources, have been unable to wrap their minds around the concept of dynamic technology -- on many levels. At one time, the EROEI for conventional crude oils in Texas or Saudi Arabia were much too low for profitable production at any scale. At one time, the EROEI for coal in most coal mines of England was far too miniscule to allow Englishmen to substitute coal for wood as a common fuel. And so it goes.

EROEI is not a static ratio. It changes over time, as society's needs drive both technology and the broad range of economic and political considerations.

Alta and Blackstone are attempting to push EROEI to its limits in regard to various forms of unconventional fossil fuels. They are putting significant resources behind the attempt. By doing so, they are likely to push ahead of some significantly better financed -- but less bold -- multi-national oil giants.

Current artificially inflated oil prices will tend to drive investments into alternative fuels acroass the entire wide spectrum of possibilities. Until the speculative bubble of political peak oil pops, of course. Then the cyclic process begins again -- but on a somewhat higher cost level, reflecting the ongoing phenomenon of political peak oil (designed energy starvation) and the ongoing intentional debasing of fiat currencies by central banks.

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