This is a simple problem. Picture a ball dropping from great height such that it reaches terminal velocity. Its KE will not increase anymore, but mgh is still being lost. That energy has to go somewhere. 1) My friend and I believe the energy is lost to heating the surrounding fluid (what a convenient answer. Always blaming friction or heating...). Do you guys think this is correct? 2) Assuming the above is correct, then I have an extended problem. An object travelling at terminal velocity v will cause heating to the surrounding, but another object (which has a higher terminal velocity threshold) passing through velocity v,v+Δv, etc. will see a region of 'cooler' fluid around it because the energy goes to KE instead of heating? It seems non-intuitive that a faster object will cause less heating of the surrounding fluid. Hope you can understand what I mean. Any comments?