The myth of oil as a dwindling resource

By Bruce Everett | August 18, 2008

Obama tells us in his Lansing speech:

We know that we cannot sustain a future powered by a fuel that is rapidly disappearing. … Not when the rapid growth of countries like China and India mean that we’re consuming more of this dwindling resource faster than we ever imagined. We know that we can’t sustain this kind of future.

Natural resources are limited by definition, but how limited? At the time of the Trojan War, the Greeks relied on bronze, an alloy of copper and tin, for their armor and swords. With limited technology, the Greeks mined surface deposits of copper with very primitive techniques. There is archeological evidence that Europeans were recycling bronze, normally an indication of high prices, as early as 4,000 years ago.

World copper production has been increasing more or less continuously for at least 6,000 years. Since 1900, annual global copper output has increased by a factor of 300. Why haven’t we run out of this limited resource? The answer is that resource economics are a race between depletion and technology. Technology can win over very long periods of time, in this case thousands of years. We have moved from searching for surface concentrations of copper to mining ore deposits containing less than 1% copper at an altitude of 14,000 feet in Chile.

When people talk about limited oil resources, they tend to mean proven reserves of conventional oil – a very limited definition referring to oil deposits that have been identified and can be recovered with 90% certainty with today’s prices and technology. But the world is full of hydrocarbons that we just haven’t figured out how to produce yet.

Estimates of proven conventional oil reserves are around 2 trillion barrels (42 gallons per barrel), and we’ve already used about half that amount. At our current consumption rate of 85 million barrels per day, we have about 32 years’ of supply left. If oil production continues to increase, this time period will get shorter. Pretty scary, right?

Not necessarily. First, we haven’t discovered all the conventional oil yet. The US Geological Survey estimates that another 2½ trillion barrels are yet to be discovered. That would give us over 110 years of supply.

We also have large amounts of what is known as “unconventional” oil – heavy oil in tar sands and other formations located primarily in Canada and Venezuela. We’re starting to access these resources using a combination of mining and oil production techniques, and the resource is very large – at least another 4½ trillion barrels – taking our potential supply to over 250 years. And we’re not done yet.

Shale oil, a primitive form of petroleum generally locked in tight rock formations, is estimated at another 2½ trillion barrels. And most of it is in the United States. We also have 4½ trillion barrels worth of coal and 2½ trillion barrels of natural gas, both of which can be converted into liquid fuels with known technologies. That gives over 500 years of hydrocarbons, not including such exotic resources as methane hydrates (natural gas locked in an ice matrix on the ocean floor) which could be over 30 trillion barrels in the US alone.

It is certainly true that we don’t know how to access these new resources yet without environmental damage or prohibitive cost. We also, however, do not yet know how to produce solar or wind power economically. Technology is an enormously powerful force, and it is a major shaper of our society. If history is any guide, we will find better ways in the future of not only accessing available hydrocarbons but of mitigating the environmental impacts.

I have often offered my students “Everett’s hypothesis” which states that at any time in human history, proven reserves of essential materials tend to grow to about 30 years’ supply and no more. Why? Because the discounted future value of anything more than 30 years in the future is very small, and hence not worth much time and effort. This hypothesis is unprovable, but, if true, suggests that available resources would have appeared “unsustainable” at any point in human history if we assume no continuous technological development.

My personal guess? The world will consume more hydrocarbons a hundred years from now than it does today at a lower real price and with less environmental impact.