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© 2006 Daniel J. McLaughlin

Running On Empty Again

The world is running out of oil.  We have been for 100 years.  In 1914, there was only enough supply left for 10 more years, according to the US Bureau of Mines.  In 1939, we only had 13 years to go.  In 1951, we still only had 13 more years of reserves.  In the 1970ís, it became obvious to everyone that the world was running out of fossil fuels during the oil crisis.  It was predicted that, if consumption didnít increase, known reserves would last 31 years.  In 2004, as a result of our addiction to oil and significant increase in consumption, we only had 44.6 years of oil left.  Whatís wrong with this picture?

The known oil reserves that are reported is not all of the oil known to exist.  The reported reserves are only those that are both currently accessible and economically feasible to extract and process with the current technology.  At the end of 1980, known reserves of crude oil were approximately 660 billion barrels.  At the beginning of 2004, according to the Oil And Gas Journal, there were 1.27 trillion barrels of known reserves of oil and 6,100 trillion cubic feet of natural gas.  That is 53 billion barrels of oil and 575 trillion cubic feet of natural gas more than that of 2003, only one year before.   According to the US Energy Information Administration, known oil reserves in 2025 may be twice as much as estimated today.  Their 2002 report indicates that there are possibly thousands of years of crude oil and crude oil substitutes remaining.

The peak oil theory implies that we have used up all of the easy sources of fuel.  As time goes on, ever more energy will be expended to recover the reserves and the cost of fuel will skyrocket, crippling society and bringing progress to a grinding halt.  It sounds plausible, and many people embrace it. 

What that theory is not taking into consideration is that in every industry in a free market, there is a natural tendency toward significantly increasing efficiency and declining costs with new technology and improved methods.  This can be readily seen in the oil industry over the years.  New methods of extraction make previously unprofitable reserves profitable, more oil is extracted from fields that were thought to be depleted. 

When a shortage occurs for whatever reason, from natural causes, or government interference, the price of fuel increases, making further exploration profitable.  As new reserves open up, the price of fuel decreases again.  Low prices of the last couple of decades made exploration less profitable.  With the current higher prices, exploration is accelerating and more reserves will be opened up, bringing prices in line with the historical levels.

The United States currently gets a very large portion of itís petroleum products from other parts of the world.  The known reserves in America have decreased from 36 billion barrels in 1985 to 29 billion in 2005.  This does not mean that this country is running out of oil.  The US Geological Survey has estimated that there are onshore recoverable resources of 112.3 billion barrels in the United States.  There are offshore resources of an additional 75 billion barrels, according to the US Minerals Management Service. 

The problem is not a lack of oil.  The problem is interference with drilling and production by government.  About half of the land mass of the United States is owned by government.  While officials are sending people into a panic about foreign oil dependence and dwindling US supplies, they impose severe restrictions or wonít allow drilling on most of the land and offshore sources.  No new oil refineries have been built in 30 years, not because of the market, but because they cannot get permission from the government.  US supplies are artificially restricted by politics.

The higher prices of the last couple of years are not the new norm.  Various factors contributed to the higher prices, including rapid economic development in China and India, destruction of significant refining capacity due to heavy hurricane damage in 2005 and low investment in development due to low prices of the last couple of decades.  The good side is that those higher prices, and the profitability of the oil business, are planting the seeds for an increased supply and lower prices in the future, barring significant political mischief.

There are many sides to the energy issue.  Though you wouldnít know it from the popular press, running dry is definitely not one of them. 

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Daniel Mclaughlin
Copyright © 2006 [Daniel McLaughlin]. All rights reserved.
Revised: 03/18/08

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