08 May 2012

The Case for Energy Optimism

Economics, Oil 3 Comments

Rob Bradley has a really good essay at EconLib this month. He leads off with this amusing quote:

“I’m sorry for you—coming to Texas [in 1915] to look for oil. Don’t you know there is no oil in Texas?!” —Wallace Pratt, Consultant.

Then he drops some facts on us:

Petroleum…is an example of an expanding “depletable” resource. The first estimate of proved crude oil reserves worldwide, made in 1944, was 51 billion barrels. Today, that number is 1.4 trillion barrels, and cumulative production in the last 66 years has been twenty times the original estimate. Natural gas and coal proved reserves have also increased several-fold despite decades of production. Reserves of tin, copper, iron ore, lead, and zinc were also higher in 2000 than in 1950, despite the fact that production in the half century in between substantially exceeded reserves in 1950.6 The story would be similar for other minerals, from bauxite to uranium.

If you want to see an eloquent explanation of the theoretical framework for the above, counterintuitive results, read Rob’s essay. (NOTE: Rob wrote his dissertation under Murray Rothbard, though Rob wasn’t at UNLV.)

In related news, the Institute for Energy Research (IER), which was founded by Rob Bradley, has recently come out with “Hard Facts.” It includes information (largely relying on the U.S. government’s own reports, for better or worse) such as (bullet points taken from Rob’s post at his own blog):

• In 2011, the United States produced 23.0 trillion cubic feet of natural gas, making it the world’s largest natural gas producer.

• In 2011, the United States produced 5.67 million barrels of oil, making it the world’s third largest oil producer.

• Proved conventional oil reserves worldwide more than doubled from 642 billion barrels in 1980 to more than 1.3 trillion barrels in 2009.

• The United States is home to the richest oil shale deposits in the world—estimates are there are about 1 trillion barrels of recoverable oil in U.S. oil shale deposits, nearly four times that of Saudi Arabia’s proved oil reserves.

• The United States has 261 billion tons of coal in its proved coal reserves. These are the world’s largest coal reserves and over 27 percent of the world’s proved coal reserves.

• The United States has 486 billion tons of coal in its demonstrated reserve base, enough domestic coal to use for the next 485 years at current rates of consumption. These estimates do not include Alaska’s coal resources, which according to government estimates, are larger than those in the lower 48 states.

• The federal government leases less than 3 percent of federal lands for oil and natural gas production—2.2 percent of federal offshore areas and less than 5.4 percent of federal onshore lands.

3 Responses to “The Case for Energy Optimism”

  1. George says:

    What are your thoughts on the article linked here, “Exponential Economist Meets Finite Physicist” ?

  2. joshua says:

    The natural gas revolution seems to have caught everyone by surprise.. I see it as a bit of a white swan event. US oil production has also quietly been reversing the last few years and is now back to turn-of-the-century levels, complicating claims that US Peak Oil was reached decades ago. Additionally, if demand lessens through slowed population growth, aging population, better vehicles, etc, we may never reach a crisis regardless of how much we do or do not subsidize wind and solar…

    • Vangel says:

      Production is increasing but shale oil and gas are not profitable because the cost of production is higher than revenues generated by that production. The trouble is that there are only a few very profitable wells that can be found in the core areas but little profit to be made elsewhere in the formations. That means that once the access to cheap financing is over the producers will have to write down the ‘assets’ on their balance sheets to reflect reality. Once that happens the shale oil production rates drop at around 30-50% per year until we are back on the previous trend.

      What is lost on a lot of people is the fact that higher prices will not necessarily lead to new supply. If the geology makes reaching previous production levels uneconomic the production levels will go down. But that does not mean that we run out of oil or that we cannot find substitutes. The trouble with the shale bubble, and it is a bubble, is that it sends the wrong signals to the markets and makes it difficult for those looking for workable solutions to attract investment capital.

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