Thursday, June 03, 2004

Supply-siders Chime in on Oil Resources

Being the only real newspaper in the energy capital of the US (my hometown) the Houston Chronicle has decided to chime in on what is behind the runup in oil and gasoline prices. Despite what the wingnuts say, the Chronicle is really a model for other papers in the practice of attempting to bring balance to the discussion by inviting writers with dramatically different perspectives to write about these issues. However, Mr. H. Sterling Burnett who believes there is Enough Oil To Last to 500 Years has been playing fast and loose with his facts and figures, and his article brings to mind Mark Twain's famous comment "There are three kinds of lies: lies, damned lies and statistics."

This guy is a true supply-side geek and writes for the National Center for Policy Analysis. As stated on their website, "The NCPA's goal is to develop and promote private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. Topics include reforms in health care, taxes, Social Security, welfare, criminal justice, education and environmental regulation."

Mr. Burnett is very effusive about our oil-based energy future. However, he makes some claims in his editorial that I find to stretch the truth a bit. In his article he writes the following:

The history of the petroleum industry is one of predictions of near-term depletion, followed by the discovery of new oil fields and the development of technologies for recovering additional supplies.

Though the statement above is true, the current problem is that there are just no more places to look for oil. As I have written about here before, the kinds of places that major oil companies are currently looking to find oil almost defies belief. Most of these companies are spending billions of dollars looking for oil underneath 1 to 2 miles of seawater hundreds of miles from any shoreline. There is almost no where on earth that at least one oil exploration well has not been drilled.

Looking for new opportunities to find and produce oil is what I do for a living. If you run into a geologist working for Exxon, Chevron, BP, Shell, or Saudi-Aramco ask them how much oil they think is left to be discovered in the world. I think you will be extremely surprised by the overall pessimism of this group.

Mr. Burnett also makes the following statement:

If world oil consumption continues to increase at an average rate of 1.4 percent a year, and no further resources are discovered and no improvements are made in the technology used to recover oil, the world's presently known supply will not be exhausted until 2056.

While I could quibble with his numbers and think they extrordinarily optimistic, the most egregious slight-of-hand that he engages in is pretending that the "world's presently known supply" can continue to be produced at a rate to meet the world's demand. My analogy is the following: Over a person's life, assuming he drinks a lot of Lone Star Beer, it is reasonable to assume that he could fill up a swimming pool with his urine. However, if his house is on fire he won't be able to put it out by pissing on it.

Though I am a pessimist here, the best work I have seen to predict when demand will outstrip supply predicts a date of 2008, or 4 years from now. This was a change from the previous estimate of 2010. 2008 may not be the right year, but it won't be 2030.

Now, I'm a liberal, but I'm all for making money, so my question is what is the best way to make money on this inevitable situation?