|
The recent and continuing surge in gasoline prices has raised concerns and fears about the future of oil-based energy in the coming years. Are we reaching the end of global petroleum supplies in the face of increasing demand that supply seems unable to keep up with? In fact, oil reserves around the world are plentiful, and can keep growing consumption and industrial uses humming for many decades to come.
During the ten-year period, 1997-2007, global production of oil increased by 12.9 percent. Over this same time frame, global oil consumption rose by 15.8 percent, suggesting that demand is outstripping world oil supply.
But oil actually extracted from the earth must be compared with proven oil reserves that represent the known quantities that remain under the earth’s surface, and serve as the basis for future years’ production.
The table below shows that proven reserves have increased from 1,069.3 billion barrels of extractable oil in 1997 to 1,237.9 billion barrels in 2007, or a 15.8 percent increase. The knowledge of proven reserves available for extraction has increased, in other words, at the same percentage rate over the last ten years as global consumption has gone up. 
In 2007, global oil consumption was 31.13 billion barrels. At this current level of consumption, proven reserves in 2007 are sufficient to supply almost 40 years of annual production. Even if we were to assume that growing demand were to rise to 40 billion barrels a year by 2017 before, perhaps, leveling off, these proven reserves would still be enough to supply over 30 years of oil production.
But there is every reason to believe that further geological exploration and advances in oil extracting technologies will assure that even as existing proven reserves are used up to feed current use they will be at least partly if not completely replenished through new discoveries over the years and decades ahead. This was certainly the case during the last ten years when world consumption and proven reserves increased at the same rate.
(And this completely sets aside the vast global known reserves of other energy-providing resources such as shale oil and coal, for example.)
The current oil “crisis” therefore has not been caused by the world “running out of oil.” What has lagged behind global consumption is world-wide extracting and refining of oil into usable energy-supplying forms. A fundamental reason for the short-fall in production has been a conscious decision by the member governments of the Organization for Petroleum Exporting Countries (OPEC), to limit and in fact reduce global supply to maintain high prices for their "black gold."
But also over the last ten years global refining capability has increased by only 12.8 percent, lagging behind the increase in oil consumption and forcing existing refinery facilities, especially in advanced Western economies, to struggle to keep up with the greater demand. In the United States not one new refinery site has been constructed since the mid-1970s. In Europe/Eurasia, refinery capability over the last ten years had actually decreased by 2 percent. In the European Union refinery capacity has only increased by 3.1 percent over the last decade. Government regulations have been a primary factor behind the lack of refinery expansion.
In addition, many of the governments that own and operate their oil sectors so mismanage and abuse the facilities under their control that output has fallen. Hugo Chavez’s socialist government in Venezuela has “succeeded” in bringing the country’s annual oil production down by one million barrels. In the Russian Federation, as the government has directly and indirectly renationalized much of the oil industry, both drilling equipment and refinery sites have fallen into disrepair; Russian refinery capacity is five percent below what it was ten years ago.
With about 80 percent of all the world’s oil reserves in the hands of state-owned oil companies, the failure of oil production to keep up with oil consumption is another lesson in the unworkability of socialism.
|
A plot of the world’s proven reserves since the mid 1940s shows that there has always been between twenty-five and fifty years of proven reserves at then-current production rates. That is, oil producers find enough proven reserves for a reasonable production future at current rates of consumption. As consumption rises, so does production; as the horizon of proven reserves shortens, oil producers send out more exploration teams.
A similar story could be told for all natural resources. For example, since the 1940s the annual production of aluminum has risen by a factor of more than ten; proven reserves have risen by about the same factor and the price of aluminum has been falling—indicating that, even in the face of enormously increased demand, “peak aluminum” has not occurred. Doomsayers have predicted the end of aluminum, tungsten, tin, manganese, lead, zinc, copper, iron, phosphate, bauxite, and every other natural resource. And they are always wrong because they discount the advance of technology, which offers the market more efficient production methods and better substitutes.
Meddling with markets on behalf of some “noble cause” has always been a mistake. I am happy that our ancestors didn’t halt technological progress in the name of saving enough whale oil for their projection of today’s needs.
http://hsgac.senate.gov/public/_files/052008Masters.pdf
Where is this going? How do consumers change this situation? US consumers are also US voters, so we can tell our representatives what we want, but this is a multi-national problem. We have less influence on other governments: we have our government's influence and we have our consumer's vote - the dollar. I suspect our consumer's vote is more powerful, but It's also hobbled by government intervention. How do we influence change? Should a bunch of us get together, buy a bunch of land (or an old oil derrick 51 miles off the coast) and build a refinery?
http://www.peakoilassociates.com/PeakOilAnalysisOctober6-2007.pdf
Of course we will never "run out of oil" but will be facing increasing costs of production to the point where the ratio of energy returned on energy invested for development will approach 1, at which point oil will no longer make sense.
Let me add a few words, if I may.
The most powerful mechanism for solving people's economic problems is the competitive market. When individuals are able to persue their own interests and keep any profits they may earn from satisfying the comsumer demands of others, the engine of innovation and ingenuity is productively set loose.
If a resource -- any resource -- is becoming more scarce relative to people's demand for it, its price tends to rise. The higher price, over time, acts as the profit stimulus to find other supplies (if possible) of this resource, or to creatively find or devise useable alternatives.
This applies to oil as much as any other resource or commodity. Are there potentially more discoverable proven reserves under the ground that might in the years ahead be drilled for? Only the geological facts and the profit motive will enable us to find out.
As Robert Samuelson points out in his op-ed piece in today's "Washington Post," 75 percent of the world's serves are in countries in which the respective government's own and control the oil fields and production. And in many of them, those governments are not allowing oil companies to undertake new explorations. Thus knowledge of potential new reserves is being blocked.
If and when it becomes really profitable for substitutes for oil to be developed and marketed they will. They do not need artificial government support, subsidy, or protection. Governments did not have to subsidize or artificially stimulate more coal production when coal increasingly replaced wood as a source of heat and energy. Nor did governments have to do so when oil came to replace coal as a major source of energy production.
The reason the current crop of oil substitutes -- solar, wind, etc. -- require government subsidization and special treatment is that they are really NOT economically viable under present market conditions.
If they were considered to be so, billions and billions of private (unsubsidized) dollars would be pouring into these sectors of the economy. Markets go where the profits are -- and the market is saying they are not, if not sufficiently subsidized by government.
As for the possible response that markets don't think ahead far enough, so governments have to do so through such support and subsidies, I would suggest that I've not seen a government yet (which means the politicians and bureaucrats) who think beyond the next election, which is a very short horizon.
Furthermore, how do governments come to have the wisdom and ability to know what will be or should be the "winners" they should financially back with taxpayers' dollars?
The government decided to back bioenergy production, and it has ended up diverting an estimated 25 percent of the U.S. corn crop. This has helped raise the cost of food on the American family's dinner table.
Governments (that is, politicians) have strong incentives to talk about "benefits" from government programs and ignore the inescapeable costs that always accompany whatever government does.
In the process, companies like Archer, Daniels, Midland have laughed all the way to the bank as the American taxpayers have subsidized their profits from the marketing of biofuels.
Dr. Richard Ebeling
That said, we are a resourceful species and good things are certainly possible. (How good? Good enough to avoid major hardships for my great grandchildren?)
To that end, governments certainly can and should do better as part of the solution, whether by production management, or by divesting and supporting liberty for private enterprise, or by effective regulation.
Also, for every drop of ink and every byte published about improving management of fossil energy, for every government decision, for every dollar spent on it -- at least that much should be devoted to incenting and otherwise supporting alternative energy R&D. I hear far more griping about inconvenient prices than about success stories or incentives for alternatives.
For decades, the feds have "tried" to set the mpg for car manufacturers. Thanks to lobbyists, they were never enforced. It took an "oil crisis" to get car co.'s to do what they should have done all along.
Exxon Mobil is now advertising a "patented" battery that will improve car efficiency. We'll see more oil co.'s putting forth their "patented" batteries as time goes on. They are the ones who have a strangle-hold on this technology.
Feds in DC are conducting hearings on oil price manipulation. How much of a role does hedge funds play in this drama? Anyone invested in oil doesn't want to see the price go down. Dubai is now opening up their own exchange. Anyone remember Enron? This will make the market more susceptible to manipulation outside any Fed juristiction to intervene.
Ironically, the oil companies are getting huge government subsidies in addition to making obscene profits in this market. Republicans swayed the congressional vote to keep from taxing these oil co. profits. From taxes to the pump the public is paying in spades for "big oil".
The "oil" mindset is to increase drilling. How about thinking outside the box? We have the technology and know-how to drastically reduce oil consumption. The problem is, it would hurt the oil companies, investors and those ancillary interests.
Oil will continue to be short supply because the demand will continue to exceed the available supply, and barring a world wide economic depression, the price will continue to trend up.
High gasoline prices are good for us because investment will gradually be encouraged in alternative, clean energy sources and we will see some long overdue creative destruction - entrepreneurship and innovation - which capitalism badly needs at the moment.