The Big Energy Lie, Revisited

Your President has been telling you things that simply aren’t true. Things like “We can’t drill our way out of our energy problems.” Or “Oil and gas are the fuels of the past.” Or “The U.S. consumes 25% of the world’s oil, but controls only 2% of the world’s reserves.”

Well, that last one may be technically true, but it is used to convey a falsehood. In a post called The Big Energy Lie (Dec. ’09), I attempted to explain the deception. In this post, I’ll attempt to show you graphically in terms that the lay person should understand.

KEY CONCEPT #1: “Reserves” are not “Inventory”

U.S. Crude Oil Reserves and Production, 1986-2010This graph depicts the history of U.S. oil reserves and production over the last 25 years. In 1986, reserves were estimated to be nearly 27 billion barrels. In 1986, we produced 8.7 million barrels a day, or an annual total of 3.2 million barrels. The ratio of reserves to production is 8.5 years — often incorrectly reported in the press with alarm: “We have only 8.5 years of reserves left! We’re running out of oil!”

If this were true, we’d have run slap out of oil in 1995. The dashed line on the graph shows the cumulative amount of oil produced since 1986. Sure enough, by 1995 we had produced over 27 billion barrels, and we still had reserves in the ground of over 22 billion barrels.

Fast forward to 2010: we’re still producing 2 billion barrels a year, and we still have over 20 billion barrels in the ground. In fact, we’ve produced 58 billion barrels since 1986, over twice the 1986 reserve total.

Magic!

Well, not really.

Imagine if you managed a shoe store. On January 1, inventory shows you have 10,000 pairs of shoes on hand, and you sell 500 pairs per day. Would you forecast that you would be completely out of shoes in 20 days?

Only if you can’t replenish supply. (Or if you’re a former community organizer really crappy manager.)

In oil and gas, reserves are replenished by drilling new wells. (Reserves can be added other ways, too, but the ultimate key is drilling.) By drilling, “resources” are upgraded to the much more restrictive and valuable category “reserves”. And the U.S. has plenty of resources to draw from. We should be encouraged by the fact that, even with a period of persistently low product prices and relatively low drilling activity from 1986 to 2004, the reserve base has only declined by a little over 20% in 25 years.

KEY CONCEPT #2: “Reserves” are only estimates.

Oil and gas reserves often cannot be estimated with a great deal of precision. Even if the recoverable quantity were known accurately, by definition reserves must be economic to produce. That means that changing economic conditions (especially changes in oil and gas prices) will effect the estimated reserve quantity. When prices are higher, wells can be produced that would otherwise be plugged.

Bottom line, reserve estimates change all the time.

The dark green bars show the rate of oil production over the 25 years. The gold bars show the year to year change in reserves. Production causes reserves to decrease, but new additions from drilling can offset production. Reserves can also be revised — up or down — due to geologic and engineering studies, or changes in economics as described above.

One more graph — the “Reserve Life Index”, or Reserves to Production Ratio. We saw that it is often misinterpreted to represent how many years of production remain. Our national R/P ratio has grown over the last 25 years, perhaps a reflection of better technology or higher prices.

There you have it. Our relatively low reserve number is not an indication that “we’re running out of oil!”, it’s merely a wake-up call that we need to get busy and shore up our domestic supplies. The only thing we are running low on is the political will to do it.

Cross-posted at RedState.com.

Follow VladimirRS on Twitter

About these ads
This entry was posted in Energy and tagged , , , . Bookmark the permalink.

15 Responses to The Big Energy Lie, Revisited

  1. Pingback: The Big Energy Lie, Revisited « Mb50's "Liquid Mud" Blog

  2. Pingback: The Big Energy Lie, Revisited | RedState

  3. Pingback: North America’s Energy Bounty, By the Numbers | Maley's Energy Blog

  4. Pingback: Energy: Deja Vu at the SOTU | Maley's Energy Blog

  5. Pingback: Energy: Dejà Vu at the SOTU | Maley's Energy Blog

  6. Pingback: Energy: Dejà Vu at the SOTU | RedState

  7. Pingback: Energy: Dejà Vu at the SOTU

  8. Pingback: Correcting Rush on the Big Energy Lie | Maley's Energy Blog

  9. Pingback: Correcting Rush on The Big Energy Lie | RedState

  10. Brad says:

    The biggest assumption for the Left is that petroleum is a finite resource but scientific research indicates petroleum is; 1) not the product of decayed prehistoric plants and animals, 2) not a finite resource 3) a natural byproduct of the earth 3) is a plentiful as lava since it is manufactured deep within the earth’s mantle. Note the following links:
    http://dimensionalbliss.com/2010/12/04/is-oil-actually-a-renewable-resource/
    http://viewzone2.com/abioticoilx.html

    • Steve Maley says:

      Well, the success of the shale plays lends credence to the conventional view that O&G are organic in origin. Even if the abiotic theory were true, it’s kind of a moot point since depleted reservoirs don’t seem to be recharging at anything close to a rate that would matter.

  11. Pingback: Correcting Rush on The Big Energy Lie

  12. Pingback: Morning Examiner: A NATGAS test for Senate GOPers | M.WashingtonExaminer.com

  13. Pingback: Morning Examiner: A NATGAS test for Senate GOPers | Campaign 2012 | Washington Examiner

  14. Pingback: Obama, Energy Promises, and Empty Rhetoric | Maley's Energy Blog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s