The end of the age of oil?

I found this article in World Net Daily the other day. In honor of my father, an economist who passed away July 28, I am forwarding it to the ASA list. I know my father would have heartily approved of the article -- he pretty much subscribed to the classical economics view of the price mechanism. Also in the October 18 issue of Forbes there is an article on how the higher price of oil has spurred new exploration:
 
The Big Plunge
October 18, 2004
High prices at the pump are finally giving oil companies the incentive to make long--and expensive--bets to find new supplies. No one is going deeper than ChevronTexaco.

Glenn will probably disagree, and I'll not argue with him (much), but I thought it would be useful to inject some economics into the oil discussion

To view the entire article, visit http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=41613

Friday, November 26, 2004
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The end of the age of oil?
By Chris Bennett
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Posted: November 26, 2004
1:00 a.m. Eastern

According the Washington Post (June 6, 2004) , the world is on the verge of oil famine.
BBC News declares "as certain as death and taxes, we shall one day be forced to learn to live without oil." Further, "people in middle age today can probably expect to be here" for the terminal oil shortages.

CBS, NBC and ABC have all presented grim and frightening reports of rapacious oil executives, unfeeling consumers, gas-guzzling SUVs and declining oil stocks, mostly in the powder keg countries of the Middle East. The unmistakable conclusion: An energy disaster of epic proportions is just around the corner.
Literally dozens of books and hundreds of websites paint a consistent and alarming picture of the decline of the American Empire and the end of the Age of Oil.
Could this be true? Are we really sliding downhill into a future defined by scarce resources, alternative fuels and mandatory conservation – a nightmare of strong governmental controls and diminished expectations?
The surprising answer: No.
The world has plenty of oil.
According to the United States Geological Survey, the U.S. Department of Energy and many, many other reputable sources, we have sufficient oil resources for at least the next several hundred years, maybe longer. The costs of extraction will likely be higher, but scarcity? No.
Without the emotional "the end of the world as we know it," paranoia from the traditional media, let's actually look at world oil reserves.
Currently, the world's recognized reserves of oil are higher than at any time in history. And, contrary to conventional media hysteria, the world's clearly identified reserves are growing every year. The USGS reports in the "World Petroleum Assessment 2000" that world reserves of conventional crude oil total 3,000 billion barrels. This estimate is an increase from a similar estimate in 1994 of 2,400 billion barrels, up from 1,500 billion barrels in 1990.
But this report considers only "liquid" or conventional oil – oil that's accessible and readily available from underground reservoirs. This does not include highly viscous oils, oil-tar sand deposits or oil shale.
The major media focus with myopic intensity on conventional crude reserves, ignoring stunning reserves of oil located in tar sands and oil shale. At best, this is difficult to comprehend.
For example, little media attention was accorded the dramatic increases in Canadian oil reserves. A December 2003 report in Oil and Gas Journal notes that Canada's oil reserves now total more than 180 billion barrels of oil, with most found in economically recoverable oil-tar sand deposits. In contrast, Saudi Arabia's reserves are estimated at 264 billion barrels.
The Canadian Association of Petroleum Producers sees the oil sand reservoir at a stunning 2,000 billion barrels of crude, of which 315 billion barrels is currently recoverable. This is oil economically viable at prices between $18 and $20 per barrel. Worldwide, recoverable reserves of oil found in oil sands are currently reported in excess of 1,000 billion barrels.
But by far the largest potential reservoir of future oil is held in oil shale.
The U.S. Department of Energy, in a March 2004 study, reports oil shale reserves in the United States alone of over 2,000 billion barrels. Worldwide, oil-shale reserves are estimated as high as 14,000 billion barrels.
To put this in perspective, U.S. oil-shale reserves alone would be sufficient to provide 100 percent of U.S. crude oil consumed at current usage for over 200 years.
Worldwide reserves of 14,000 billion barrels are sufficient to provide the world's crude oil requirements for at least several hundred years.
The truth is, the history of oil prognostication is littered with scaremongers proclaiming false declarations of approaching oil famine. In fact, doom merchants have used oil as a vehicle for "end of the world" scenarios since before World War I. Consider:

   In 1914, the U.S. Bureau of Mines declared that the United States would run out of oil in 10 years.

   In 1939, the Department of the Interior predicted that oil reserves would last only 13 more years.

   In 1950, when the world's estimated reserves were thought to be 600 billion barrels, the Department of Interior again projected the end of the age of oil by 1963.

   Move forward to the 1973 Arab oil embargo, which prompted the highly respected journal Foreign Affairs to publish an article on "The Oil Crisis: This Time the Wolf is Here."

   In 1981, a respected textbook on economic geology predicted that the United States was entering a 125-year-long energy gap, expected to be at its worst in the year 2000 with dire consequences to our standard of living.

   In 1995, a prominent geologist predicted that petroleum production would peak in 1996 and that after 1999 many of the developed world's societies would look like Third World countries.

   In 1998, a Scientific American article titled "End of the Age of Oil" predicted that world oil production would peak in 2002 and that we would soon face the "end of the abundant and cheap oil on which all nations depend."

All of these predictions were wrong. In fact, from 1950 to the present, the world's recognized oil reserves have increased virtually every year.
The current USGS world estimate of 3,000 billion barrels of conventional crude is probably conservative. Consider Iraq. Only 2,300 oil wells have been drilled in Iraq, compared with over 1 million wells drilled in Texas. Furthermore, only 22 of the more than 80 major Iraqi oil fields have been fully explored.
Iraq is reported to have 112 billion barrels of oil reserves. But based on unexplored reserves, many geologists believe that actual number is more than twice current estimates.
Even North American reserves of conventional oil are probably understated since recent deep oil exploration in the Gulf of Mexico has identified a huge vat of oil. President Fox has stated that the new reserves may be as large as 56 billion barrels. Deep oil wells are drilled to 25,000 feet below ground surface and represent a new frontier in oil exploration.
A classic example of oil reserve understatement is the Kern River field in California, where production wells were first drilled in 1899. By 1942, after 43 years of continuous pumping, remaining Kern River oil was estimated at 54 million barrels. Pumping continued, and over the next 50 years, the field produced over 736 million barrels. In 1986, using 3D mapping technology, the reservoir was reported to contain an additional reserve of over 970 million barrels.
Eventually the world will move from an oil-based economy to something better. But given the huge reserves of world oil, it's likely that technology will drive this change, not scarcity.

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Related columns:
WND: Sustainable Oil
BBC: When the Last Oil Well Runs Dry
Washington Post: After the Oil Runs Out
National Center for Policy Analysis: Are We Running out of Oil
U.S. Dept of Energy: Strategic Significance of America's Oil Shale Resource
Rense.com: Canada's Oil Reserves Second only to Saudi Arabia
USGS: USGS: World Energy – Conventional Oil Reserves
Bizjournals: Chevron announces deep oil discovery in Gulf of Mexico

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Chris Bennett manages an environmental engineering division for a West Coast technology firm. He and his wife of 26 years make their home on the San Francisco Bay.

© 2004

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Bill Hamilton
William E. Hamilton, Jr., Ph.D.
586.986.1474 (work) 248.652.4148 (home) 248.303.8651 (mobile)
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Received on Wed Dec 1 12:18:52 2004