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[achieftain]

Okay, first off a disclaimer: if this subject gets out of hand or any discussions get too heated I'll send my own thread to the TWW, but for now I just want to pique everyone's brain capacity a bit and cause you to pause and think.

Background: I have a vast collection of Popular Mechanics magazines dating back to 1950, with a few older ones thrown in, and while dusting them off the cover story of the May, 1944 issue intrigued me: How Much Oil Is Left? Here we were, in the middle of WWII, not quite to D-Day, and of course oil reserves were a concern. Estimates at that time said we had 20 billion barrels at home. But

"...Mr. and Mrs. America are wondering if we will be running short of petroleum 10, 15 or 50 years."

Here's the kicker,

"History, however, has a way of repeating itself. Theron Wasson, chief geologist for the Pure Oil Company, and a recognized authority on oil reserves, finds reassurance for apprehensive Americans by turning the pages back to 1021. He points out that published reports of the American Petroleum Institute show that in that year geologists and engineers made a report to the government estimating our known reserves at 9 billion barrels. From 1921 to the close of 1943 more than 22 billion barrels of crude oil have been produced within the United States. And today we have assurances that a minimum of 20 billion barrels more exist which can be recovered by known methods.........................The estimate of our reserves at 20 billion barrels is conservative. Certainly new fields will be discovered - they always have been, and the geologist of today is much more competent than 15 years ago. And there are new tools developed for his use.
So far we have brought 28 billion barrels of oil to the surface in the United States. We know where there are 20 billions more. No oil geologist would say we are even close to the end of our oil discoveries.
We shall find more oil - lots of it. History makes us certain."


Now fast forward with the aid of technology and an artcle from The Wisconsin Policy Research Institute in April, 2007

WISCONSIN POLICY RESEARCH INSTITUTE Are We Running Out of Oil? by Scott Niederjohn To most, the answer to the question posed in the title of this essay would seem elementary. Why, of course, we are. Just do a quick web search on this subject and you’ll find yourself bombarded by more than 151,000 hits. These include recent news articles with such dire headlines as “The Looming Oil Crisis” or “Life after the Oil Crash” or, my favorite, “Running out of Oil – And Time!” The Malthusians seem to be making a comeback. It’s no longer our desire for sex and food that will kill us but rather our commute to work in an SUV. The oil depletion hysteria has a long history. Consider this quote from the past: “[W]ith no assured sources of domestic supply in sight, the United States is confronted with a national crisis of the first magnitude.” Believe it or not, this statement was made by a U.S. Congress/Senate publication called Petroleum Resources of the United States in 1916. Yes, that wasn’t a typo, 1916. In the early 1970’s, the world had 531 million barrels of provable oil reserves. The world’s consumption of oil at that time was 16.5 million barrels per year. That means we had 32 years of oil left. So, what was that fluid I pumped into my car this morning? These calculations suggest that we would have been plumb out of petroleum by now. We’re not. In fact, today’s count of provable oil reserves totals 1.2 trillion barrels while world consumption is more than 30 million barrels per year1. Well meaning scientists today continue to make the same mistakes Malthus did over 200 years ago. And, like many other misconceptions in society, these mistakes are grounded in a lack of economic literacy. Provable oil reserves refer to the amount of oil that can be extracted today with current technology and at current prices. Market incentives, however, lead us to make decisions that benefit all. Adam Smith referred to this as an “invisible hand”. Markets have a way of solving even the most vexing of problems and without a central planner or government bureaucrat at the wheel. Malthus didn’t realize we would get better at producing food as technology improved. The late Julian Simon put it this way:2 “The ultimate resource is people—especially skilled, spirited, and hopeful young people endowed with liberty—who will exert their wills and imaginations for their own benefit and inevitably benefit the rest of us as well." The increase in demand for oil causes an increase in price (you remember the graph). This is a powerful signal to both consumers and producers. Consumers begin to conserve and seek out alternatives. Case in point, after the oil shocks of the late 1970’s, gasoline consumption fell 12 percent and didn’t reach 1978 levels again until 1993. Here’s the other part of this story. Producers respond to higher prices by increasing supply. How can you increase the supply of oil when it’s a scarce and limited resource? You extract oil from fields that were previously not economical. You invest heavily in R&D. You develop new exploration and extraction methods. Interestingly, from 1987 to 2006, Exxon Mobil invested more in R&D than it earned ($279 billion versus $266 billion). Further, oil companies make about 13 cents per gallon of gas sold. The state of Wisconsin makes over 30 cents per gallon. Even today, the real price of gasoline (inflation adjusted) is at about the same level it was at in 1982. These supply and demand changes appear to be taking place again today. As the price of oil has risen, so has the demand for hybrid vehicles and other products that save energy. Oil companies continue to invest fortunes in both exploration and alternative energy sources. It looks like Smith’s invisible hand still works. 1 These data are from the Energy Information Administration and CIA World Fact Book respectively. 2 Cato Policy Report, 1995. 3 George Will. “Same Old Soaring Gas Prices”, Thursday April 5, 2007. Washington Post