Don't Bank Our Future on Oil We May Not Have
Over the weekend, I noticed that an op-ed in Investor’s Business Daily took me to task for citing “proven” oil reserves in my FrumForum post, The GOP’s Oil Drilling Pipe Dream.
The author, an economics professor at George Mason University (GMU) named Donald Boudreaux, makes the case that government estimates of “proven” or “proved” reserves are irrelevant because the estimates of “unproven” reserves are so much higher.
Different agencies and groups have slightly varying definitions of “proved” reserves, but the Central Intelligence Agency (CIA) sums it up nicely:
Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with a high degree of confidence to be commercially recoverable from a given date forward, from known reservoirs and under current economic conditions.
Estimates of “unproven” reserves mostly refer to “undiscovered, technically recoverable oil.” In other words, oil that geologists estimate might be in the ground and recoverable using existing or reasonably foreseeable technology. Such estimates are intriguing, but too speculative to take to the bank. They do not take into account the quality of the oil that might be there or the economic profitability of production.
Such numbers can change as we learn more. For example, while the United States Geological Survey (USGS) has dramatically increased its mean estimate of undiscovered, technically recoverable oil in North Dakota and Montana’s Bakken Formation from 151 million barrels to 3.65 billion barrels, the same agency recently revised comparable estimates for the National Petroleum Reserve-Alaska (NPRA) downward from 10.6 billion barrels to 896 million barrels—roughly 10 percent of its 2002 estimate.
Considering that the U.S. currently consumes roughly 7 billion barrels of oil per year, the notion that we can bank our energy future on unproven reserve estimates represents little more than an imprudent roll of the dice.
Then, of course, there is economics. A significant fraction of undiscovered oil reserves, assuming that they really exist, are in remote locations and consist of heavy oil, both of which are not profitable to produce if prices are low. How high does the price of a barrel of oil need to be before this oil could be economically produced? Is it $100 per barrel? $150 per barrel? We are not talking about cheap or easy oil.
Cheap and easy oil, to the extent that it remains, is mostly located outside of the United States.
Anyone who claims that unproven reserves are the answer to high gas prices is either uninformed or trying to hoodwink the public.
Mr. Bourdreaux, echoing a common refrain of petro-peddlers like Sarah Palin and Congressman Joe Barton (R-TX), contends that government restrictions are the only thing preventing our nation from producing all of the oil we could ever need.
It is a claim driven far more by special interests and political agendas than by anything approximating reality.
Unproven reserves are just that, unproven.
While the amount of proven reserves will fluctuate based on the price of oil, new discoveries, and technological advancements, the current proven reserves estimates remain the most prudent guide for making decisions about our energy future—along with the knowledge that oil is a finite resource.
In addition to being more certain, proven reserve numbers exist for all of the major oil producing countries. We can see how we compare with other nations and better assess our economic and strategic vulnerabilities. That is not the case for unproven reserves.
In making policy decisions, we must evaluate the risks of perpetuating dependence on oil and exposing our economy and security to price spikes and supply uncertainties caused by events over which we have little control.
Mr. Bourdreaux teaches at GMU, whose team nickname is the Patriots. I think that true patriotism requires us to pin our country’s energy future on something more reliable than unproven reserves.
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