The Oil Spigot Running Dry?
By Michael Fumento
Scripps Howard News Service, May 6, 2004
In 1914, the U.S. Bureau of Mines predicted American oil reserves would last merely a decade. In both 1939 and 1951, the Interior Department estimated oil supply at only 13 years. "We could use up all of the proven reserves of oil in the entire world by the end of the next decade," declared Pres. Jimmy Carter gloomily in 1977. In fact, the earliest claim that we were running out of oil dates back to 1855 - four years before the first well was drilled!
Still, with gasoline oil prices seemingly rocketing past the moon and towards Mars, and newly-published books like Out of Gas: The End of the Age of Oil, it seems fair to ask if the world's fuel tank needle isn't finally tilting towards "E."
Yet historically, prices aren't particularly high. Adjusted for inflation, they're slightly below what they were back in 1950 when we falsely recall gasoline flowing like water. Then the national average was $1.89 in today's dollars, compared to $1.84 at this writing. In 1981, gas was almost a dollar more per gallon than it is now when adjusted for inflation.
Further, this is not your father's gasoline. Now it's unleaded and reformulated in other ways to burn cleaner. (Or, alas, to pander to the gasohol lobby.)
Crude oil prices have also almost reached an all-time high when not adjusting for inflation, approaching $40 a barrel. But again, when adjusted, the cost is far less than it was from 1973 to the mid-1980s.
But there's no denying the sharp increase over the last several years. Are we really just experiencing a short-term spike due to voluntary production cutbacks, political unrest in places like Iraq and Venezuela, and a huge decline in the value of the dollar? Or are current prices indicating that reality is finally beginning to catch up to the Cassandras' predictions?
Certainly supply isn't declining yet. "Proved" oil reserves increased from 677 billion barrels in 1982 to 1048 billion in 2002, a 55 percent increase. ("Proved" means quantities that can be recovered with reasonable certainty from known reservoirs under existing economic and operation conditions.) Meanwhile, worldwide consumption increased only 13 percent. That's not a particularly spooky trend.
Much oil goes to electricity production, home heating and industrial purposes, in competition with natural gas and coal. So it's also important to know that proved natural-gas reserves have increased by more than 60-fold since 1982 while coal reserves are also increasing. If necessary, almost all oil not used for vehicle fuel could be replaced by these other resources as well as nuclear energy.
What about the future? According to a just-released Energy Information Administration report, oil production will continue to steadily increase until the last year of the projection, which is 2025. Oil consumption will increase correspondingly. This will be partly from population growth, albeit growth that's leveling, and partly from worldwide improvements in living standards that allow people to trade in shoe leather and bicycles for cars. Even so, if consumption continues to increase at an average rate of 1.4 percent a year and not a single new drop is found, we still won't exhaust proved reserves until 2056 according to a 2003 National Center for Policy Analysis (NCPA) report.
Further, the "nice aspect" of high oil prices, if those driving around in gas-slurping SUVs will forgive the term, is that they are the greatest motivator for discovering and exploiting new reserves. This includes Canada's oil sands, containing a tar-like substance convertible to oil. These hold an estimated 1.7 trillion barrels of petroleum, of which 255 billion barrels (about equal to the entire proved oil reserves of Saudi Arabia) is currently considered recoverable. Because of reductions in production costs, some of this goop is already being extracted and sold. But if oil prices remain anywhere near current levels, oil-sand development will replace hockey as Canada's national obsession.
Oil sands worldwide could provide more than 500 years of oil at current usage rates, calculates the writer of the NCPA report, David Deming. He's a professor of geology and geophysics at the University of Oklahoma in Norman.
Five hundred years? Civilization should be so lucky as to consider this a worry.
SEPP Comments: For perspective: world oil production (and consumption) are headed for 80 million barrels per day, of which nearly one-quarter is consumed in the US. [80 mbd = 29 billion barrels per yr.] We tend to agree with Fumento and Deming, and are skeptical of books like "Hubbert's Peak" that predict world oil production will peak before 2008. See our writings in past TWTWs on this and on Canadian tar sands.