Update: The World is Awash in OilNovember 16, 2011
“The World is Awash in Oil” is a phrase that I have used repeatedly on this blog, going back to the very first few months. The phrase is actually incorrect – when I wrote “oil,” I really meant fossil fuels, and I tend to also use the phrases Shale Age and The Second Age of Oil interchangeably as well. When I first began using it, just over 3 years ago, the technological breakthroughs in shale production were relatively new and we didn’t really know how abundant the newly economic energy resources would be. We still don’t “know,” as the estimates will probably continue to rise upward, but the Institute for Energy Research has some updated numbers in their new report “The Turning Tide for World Oil Supplies”:
In the 1970s, reports provided to President Carter concluded that our domestic oil resources would be exhausted by the end of the century. At that time, global proven reserves were about 600 billion barrels. Since then, we have consumed over 700 billion barrels of oil globally and proved oil reserves worldwide now exceed 1.4 trillion barrels.
Estimates of oil resources are generated by geologists based on limited physical data, expectations about prices, and existing technology. But expectations and technology change and improve over time. The estimates of the Bakken are one good example. After all, the 2008 USGS estimate of recoverable oil was 25 times larger than the estimate a mere 13 years earlier.
In oil fields, only 35 to 40 percent of oil in place is initially produced. As oil prices increase and as technology changes over time, there are increased incentives to invest in production and technology to squeeze more oil from existing fields. Advances in technology enable companies to increase recovery from existing fields and to produce oil from unconventional sources that were uneconomic at lower prices. As long as the price of alternatives is higher than the price of producing the marginal barrel, it makes economic sense to produce more and to invest in technologies for finding and producing oil.
And so it is with North American and South American oil. The newer finds in Canada, the United States, Brazil, and Argentina are now economic due to technological breakthroughs in drilling and the sustained higher price of crude that make unconventional sources of crude economic. These new finds can make the United States nearly independent of crude oil from the Middle East in the future. To do that, the United States must set policies conducive to their production and consumption in this country.
I go even further than IER – by developing CCS (carbon capture and sequestration), CTL (coal to liquid fuel) and other technologies, by making policy choices that allow us to begin mass substitution of fuels for transportation, the US can maximize it’s tremendous bounty of fossil fuels to become the worlds greatest consumer, producer and exporter of fossil fuels at the same time.
In short, the theory of imminent Peak Oil production is dead. The world will run on fossil fuels for the rest of the century and beyond, even with the rising demand in the developing world. Yes, the world is awash in oil.