Why haven't we run out of oil, yet?

[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

[Critterman]

It really doesn't matter, the earth will melt from gobal warming before we run out of oil.

[Aspenrose]

Or we'll all drown in the floods from the massive meltdown of the polar ice caps, due to that pesky global warming

[Chemist]

Nah, just wait 15-20 years and we'll all be freezing from the yet-to-be-announced impending ice age.

[bradyb]

China and India aren't helping with their emerging markets of cheap gasoline but the cost still has not exceeded the demand. Remember gas is still cheap, cheaper then anything else that you might buy at the grocery store (bottled water, milk, vegetable oil, etc...). I'm sorry but I could care less if I spent $100 more a month on gas. The cost of oil at $100 a barrel is only $1.81 per gallon, the rest is refinery costs and taxes. Even if Oil was $150 per barrel (50% increase) you would only have a $.90 increase. People complain and the democrats are feeding off that for the Nov election. I'm sorry but families are not sacrificing their children's education to pay for gas. My gosh people, cancel your Direct TV/Tivo subscriptions, get rid of one of your kids cell phones, stop smoking cigarettes, eat some PB&J and carrot sticks rather then the double quarter pounder supersized meal if it's so hard to pay $40 rather then $30 when you fill up your Corolla.

If it's so painful to pay a few bucks more at the pump do something and contact your local republican representative and request a lower state and fed tax on your gasoline. This year's Utah State Budget Surplus should exceed $260,000,000!

When gas gets to be about $150 a barrel it will then be cost effective to start refining the oil sand deposits, Utah and Colorado have more oil in Oil shale/Sand then all of Arabia.

[mena661]

Wow! When you put it that way BradyB, the complaining just sounds silly. A $10 or even $20 difference really doesn't mean much at all. I would like to add that most of our incomes aren't static will somewhat compensate for future gas price increases.

[numbbers]

Well, whatever happens, one thing I can garantee you, "George Bush caused it."

[imaj]

Is the Sr. or Jr. Bush...numbbers?

[MyNewSolstice]

THe US sits on over 3 trillion barrels of oil from the dakotas to Alaska It would take 4-5 years to bring online and 5-10 to be autonomous to other factors as far as oil...Sounds like a plan...WAIT there are moose and ELK oh well guess I'll take a recession instead!

[MyNewSolstice]

No one causes it....I just can't get by the Idea of the Oil in alaska being off limits because of Nature yet we continue to cut trees down to make wood..Do you not think birds don't nest in those trees do they matter less than bigger furry animals...It comes down to cuteness and never-seen-one-of-those factors...TRUST me I love to keep nature a rolling and for example am a member of Audobon But Progress is progress and it is just stupid....BUT THE BIGGER ISSUE is refining THat is the infrastructure we lack and the epa is the hand that ties the others and Without the help of Gov't to get it moving it is wortless to drill without Refining facilities. Also Stratigic Oil Reserve could be released overnight with anwar drilling which would drop the gas price by at least 30-50% IMHO It is I believe 3 months of Oil for the US to Survive in Worst case Scinerios....

[silversolstice]

Many of your comments were spot on. My grandfather use to always say, "gas is still cheaper than it was in 1920", which I would reply "that doesn't keep any cash in my pocket today"

Whether or not the WORLD is running out of oil isn't the issue, its a concern on our ABILITY to obtain the oil. US production peaked in 1970 and since then we have just been importing it and importing it giving us stranger and stranger bed fellows. I mean Mexico provides us 15% or our worldwide total second to Canada. I wonder if that leads us to look the other way when half their population runs over?(from An Inconvenient Book)

Energy independence is very important, as much as I hate it we need to keep working on improving and perfecting ethanol just so we have a short term back up plan in case we lose any suppliers. We also need to drill in ANWAR. I mean Alaska is beautiful, but its also BIG. We can definitely leave a small footprint on there and still find possible oil supplies.

I am glad to see a lot of people understand how ridiculous some of our policies are.

[MyNewSolstice]

Originally Posted by silversolstice I am glad to see a lot of people understand how ridiculous some of our policies are.

Remember looking out the window at nature and enjoying it requires having a house with windows so I think that is all we need to know when it comes to priorities!

[Chet-O]

I can't venture to guess what the oil reserves might be (known and unknown), but I can guarantee that the oil companies, and politicians that profit from them, use the media to create the impression of lower supplies in order to increase the price at the pump.

During the seventies "gas shortage" we were told there was not enough oil being pumped to meet demand, while at the same time, there were tankers lined up in excess off the coast of New Jersey waiting to be unloaded.

Fear creates control, and control increases the cost to the consumer. Will we ever learn from the past?

[Zerohero]

Caveat: I believe in the underlying hypothesis surrounding Peak Oil. If you apply Terry Goodkind's "Wizards' First Rule" its because I'm afraid its true.

L. King Hubbert and his "peak oil" curve basically says production follows a bell-shaped curve, for any producing fields... you add production until you reach some maximum capacity, and then as the field depletes (ie, pressure drops etc) you have declining production.

Historically, he was spot on in predicting the peak of the oil curve in domestic US production from back in 1956 or so (he predicted 1970, as I recall).

The production curve basically follows the discovery curve by about 10 years or so -- it takes about 10 years to bring a field online.

Note that you never run OUT of oil; its just that it becomes more and more expensive to extract. Think of sucking water out of a sponge with a straw -- you'll never get all the water out.

Current figures put worldwide capacity at something like 3 trillion barrels of oil, of which about 1/2 has been produced.

Oilman T. Boone Pickens said back in the earlier part of the decade that he thought peak global production would be about 84 million barrels a day, and while I've looked for contrary evidence, it does not seem to me that production has been able to continue to grow along with the predicted demand curves. Remember Cheney making statements as to the global demand for oil being 120 million barrels a day in 2010 when he had his energy meetings about 6 years ago?

One BIG thing to keep in mind is that the current PRICE of oil is not entirely a reflection of its scarcity as much as it is also a reflection of the devaluation of the US dollar. You could probably make a case that the US won the cold war because oil was denominated in dollars, and the US was, for a long time, the largest oil producing nation in the world (we're still up in the top 5, I think). My gut feel for the current price/barrel is about 1/2 of the difference from 4 years ago is inflation (devalued dollar) and the rest is due to increased demand coupled with flatlined production.

What I'm worried about is that there are signs that the oil peak has occurred -- but they won't be provable because the data lags so much for about 10 years after it happened. Going back to the dollar denomination, we're really screwed when OPEC decides to use the Euro rather than the dollar to price Oil. The Administration has gone to some efforts to prevent that from happening.

Peak Oil isn't the end of the world -- at least, not until the supply drops to the point where demand destruction kicks in -- but you get a lot more of an "a-ha, maybe ethanol does make some sense" if you anticipate continued reductions in petroleum output. Without peak oil, ethanol makes *no sense*. Even with peak oil it makes limited sense -- because the natural gas production curve follows the petroleum curve by 10-20 years and fertilizer (used to grow the corn to make the ethanol) is made from natural gas.

Another interesting factoid is that most of the food eaten in the US is produced more than 1000 miles away from where it is consumed. Liquid fuel (petroleum) is used to deliver it.

My (admittedly suspicious) mind sees a lot of data which when assembled indicate that there's a really big energy crunch coming, as petroleum and natural gas deplete in conjunction with more nations desiring the same energy sources. For example, look at the price of uranium -- there's a move afoot to open a mine in Virgnia and reopen mines in Nevada since the price per ton of ore has gone from $10/ton to $150/ton (and that's unrefined ore!)

There's a lot more scary stuff out there which I'm afraid of, in contrast to say "global warming" which I think is a bunch of hooey -- although I do believe in environmentalism for aesthetics -- I want the world I live in to be beautiful.

[JonW]

Oil affects every sinlge one of us in every way imaginable. All the way from seed being planted in the ground to the growing of the food to processing and shipping it. Even the plates we eat from require petrolem products to manufacture. Food is just one tiny example of how deep our dependence on petroleum products run.

The entire population of this country anyhow comes in contact with product that relies heavily on oil every minute of every day. Just looking around my desk I cannot find one thing that didn't require oil for me to be able to have it. I think a lot of poeple know this but I also think a lot of people just think of how it affects them at the gas pump and the gas pump is just a small factor in how oil touches all of us.