How Much Black Gold Is in Them Thar Hills?

by Bill Chameides | April 28th, 2011
posted by Erica Rowell (Editor)

Permalink | 2 comments

Are we oil-rich or oil-poor?

A recent speech by President Obama on America’s need to become “less dependent on foreign oil” has rekindled the debate between “conserve-and-go-clean-energy” types and the folks beating the “drill, baby, drill” oil drum.

The two antipodes reflect starkly different views of America’s oil-producing potential. For Obama and many others on the clean-energy side, America in the big scheme of things is oil-poor and so our choice is to remain dangerously dependent on imported oil or use a lot less.

On the other side are folks like U.S. Senator Lisa Murkowski, a Republican from Alaska, who opined in a recent Washington Post op-ed that America is in fact oil-rich, and all our oil problems could be solved if we would just get busy drilling and pumping in places like the resources in Alaska that are currently off-limits for exploitation.

So Who Is Right?

The part of Obama’s speech that drew the most ire from the “drill here, drill now” blogosphere was his statement that:

“We have about two, maybe three percent of the world’s proven oil reserves; we use 25 percent of the world’s oil. So think about it. Even if we doubled the amount of oil that we produce, we’d still be short by a factor of five.”

I’m not sure what comparison the president was trying to make with the “factor of five.” We produce about 5.4 million barrels a day of crude oil and consume 19.1 million barrels a day of petroleum products. So we are already within a factor of about four of energy independence, and a doubling would get us even closer. So if that’s the factor of five he was referring to, he was clearly in error.

But what about his larger points that, given the share of the global petroleum production that we use (about 22 percent) and the share of the global crude we supply (roughly seven percent of crude or 11 percent of total petroleum), we cannot expect to be able to drill ourselves to oil independence?

Senator Murkowski argues that we can in fact go the drilling route. The mistake the president makes, Murkowski argues, is to assess our oil wealth in terms of “proved reserves” — the oil that we are relatively sure is there, that we can get to and is economical to produce — instead of in terms of what is called our “recoverable” or “potential oil resources” — oil that we’ve yet to discover but that we think is there and technically recoverable but not necessarily economical to produce.

So how large is our recoverable oil resource? Obviously we can’t know for sure, since the resources are there in theory but have yet to be actually documented. But the geologists who do this kind of stuff have had a lot of experience and are probably not far off. As Murkowski notes, our recoverable resources were recently assessed in a Congressional report which she commissioned with Sen. James Inhofe (R-OK). At roughly 150 billion barrels, the recoverable oil resource dwarfs our proved reserves of about 21 billion barrels.

20 Years … and Then What?

But Murkowski is mistaken if she thinks that that a one hundred-odd billion barrel resource is our ticket to an American future filled with happy, inexpensive trips to fill our ever-thirsty gas tanks. Even if every last drip of every last barrel of that recoverable oil resource were extractable (and not even the Murkowski-commissioned report is arguing it is), it would run out in about 20 years at current consumption rates.

And there are some other stark realities that Murkowski’s rosy view of America’s oil plenitude misses.

    • Whether you focus on the reserve or the resource part of the pie doesn’t get around the fact that oil production in the United States has already peaked (for example see here). In spite of all our efforts, our oil production has been on the decline since the 1970s. This has been true whether a Republican or a Democrat sat in the White House and whether Republicans or Democrats controlled Congress.

Source: U.S. EIA

  • Given that oil is a global, fungible commodity and that the size of America’s oil reserves or resources pales relative to global reserves or resources, we will never be able to control the long-term price of oil by upping production. As long as our economy is oil-based, we will be economically vulnerable to oil shocks generated by geopolitical events out of our control.
  • The reason many of the recoverable oil resources (and the unconventional oil resources Murkowski refers to) have not been developed is that at current oil prices, they are not economically viable. Sure, if prices continue to rise, they will eventually become viable. But because their extraction depends on higher oil prices, developing those resources is hardly a recipe for keeping prices down at the pump.

So, what is the answer? Are we oil-rich or oil-poor? I tend to be in the “poor” camp, but there is room for reasonable people to disagree.

And yet this much I know. There are countries that are a whole lot richer in oil than America. Take Abu Dhabi for example. They are by any measure oil-rich —  they hold 95 percent of the United Arab Emirates’ reserves of 98 billion barrels, and in toto the UAE consumes only 0.2 billion barrels per year. And where are they putting their investments to assure their economic future? In clean-energy development. (See here, here
, and here.)

It will be one of the great ironies of the 21st century, if Abu Dhabi becomes a world leader in clean, renewable technologies, while America bets the farm on trying to suck every last drop of oil from the earth to power 20th-century technologies.

filed under: economy, energy, faculty, fossil fuels, oil, renewable energy
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  1. Travis
    Apr 29, 2011

    Why do you assume that because oil currently gives us the most bang for the buck from our energy alternatives that we will try “to suck every last drop to power 20th Century technologies?” Given the technological advances of the “20th Century,” is there no possibility that provided we keep enough freedom to allow what Hayek called the entrepreneurial spirit of discovery to flourish, that someone will actually discover new ways to create and use energy (and they won’t be biomass or wind)?

    • Bill Chameides
      May 17, 2011

      Travis: Possible, yes.

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