Lets get a little historical perspective. 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!
Whats more, historically prices arent particularly high. Adjusted for inflation, theyre slightly below what they were back in 1950 when we falsely recall gasoline flowing like water. Then the national average was $1.89 in todays dollars, compared to $2.00 at this writing. In 1981 gas was almost a dollar more per gallon than it is now when adjusted for inflation.
A book with this title could have appeared 150 years ago – maybe it did!
So each and every headline youve seen about "record" gasoline and oil prices is false.
Yet theres 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 isnt 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 with reasonable certainty can be recovered from known reservoirs under existing economic and operation conditions.) Meanwhile worldwide consumption increased only 13 percent.
Thats not a particularly scary trend.
What about the future of oil production? 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.
But oil consumption will continue to increase. This will be partly from population growth, albeit growth thats 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 wont exhaust proved reserves for more 40.6 years, according to the "BP Statistical Review," known as the industry-data bible.
A front-page Wall Street Journal piece of May 18 spun this to show us running out of oil, comparing it to the 44.7-year supply in 1989. But why 1989? Because that was the highest level ever. Just four years earlier, however, there was only a 32.9 year supply and in 1980 it was merely 28.9 years. Thus the Journal could have said current world supply is more than a third higher than it was over two decades ago – hardly a harbinger that were running out. But then it wouldnt have had an article, would it?
Inside material like this could be enough oil to supply the world for half a millenium.
Further, while automotive fuel cells are nowhere near ready for prime time, they are inherently more efficient than combustion engines and each year the technology leaps forward. Not for nothing does everybody whos anybody in the automotive world, from GM to Toyota to Hyundai, have one or more fuel-cell prototypes on the road. Most use natural gas as their stock, which is then converted to hydrogen.
Moreover, the "nice aspect" of high oil prices, if those driving around in gas-slurping Hummers will forgive the term, is that sustained high prices push the market both towards making more efficient use of something (which is why SUV sales dropped 15 percent in April) and for making or discovering more of it.
This includes Canadas oil sands (oil shale), containing a tar-like substance convertible to petroleum. 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. (Scotland was the first nation to do so – 150 years ago!)
But the Canadian Energy Research Institute says that sustained oil prices of only $25 U.S. a barrel would make a huge portion of Canadas oil sands worth developing. That assumes (falsely) that there will be no efficiency improvements in the extraction process. Oil sand development could soon replace hockey as Canadas national obsession.
Five hundred years? We should have other global problems as worrisome as this.
Read Michael Fumentos other work on fuel.