The Scarcity Myth

1
The Scarcity Myth
2
1. Predictions for Oils End

• 1855 - Samuel Kiers Rock Oil ad, Hurry, before
  this wonderful product is depleted from Natures
  laboratory!
• 1874 - PA State Geologist estimates 4 years
  supply left
• 1880s - Oil Exec John Archbold sold own shares
  on fears of depletion
• 1885 US Geological Society announces CA has no
  chance of oil
• 1914 Federal Bureau of Mines announces US has
  10 years of oil left
• 1940 - Federal Bureau of Mines announces US has
  14 years of oil left

3
1. Predictions for Oils End (cont.)

• 1972 Club of Rome announced World supply would
  end by 1990
• 1981 Textbook Economic Mineral Deposits
  predicts end by 2000
• 1989 Oil Production will peak this year. OPEC
• 1995 Nature, 97 Science, 99 Scientific American
• Using ratio of proved reserves to current
  production, Life Index risen from 23 years in
  1948 to 43 years today

4
1. Predictions for Oils End (cont.)

• 1997 Colin Campbell in The Coming Oil Crisis
  predicted war, starvation, economic recession,
  possibly even the extinction of Homo Sapiens.
• Just as the Stone Age did not end for a lack of
  stones, the Oil Age will not end because of the
  scarcity of oil. Adelman, MIT

5
2. Wrong Question

• Instead of asking, How much oil is there? (and
  we have NO idea).
• We should be asking, How much oil is accessible
  for profitable extraction right now?

6
3. Depleted Fields?

• 1899 - Kern River CA Field discovered
• 1942 - Declared Depleted with 54 million barrels
  remaining
• Since 1942 - 736 million barrels have been pumped
  out
• Now - 970 million barrels remain

7
4. Expanding Discoveries

• 1996 - Kashagan Field in Kazakhstan discovered
  with 2 to 3 billion barrels
• Field now estimated at 13 billion barrels
• From 1981 to 1996, the volume of the largest 186
  oil fields went from 617 billion barrels to 777
  billion, not counting new discoveries
• Recovery rate from a field up from 22 (20 years
  ago) to 35 today

8
5. Proved Reserves Undercounted

• Roger Bentley from Association for the Study of
  Peak Oil and Gas said,
• Proved reserves (43 years) have been very
  conservative, indeed. They do not reflect the
  total oil that has been discovered, but only that
  small portion for which definite plans are in
  place for current access.

9
5. Proved Reserves Undercounted (cont)

• SEC rules do NOT count tar sand oil, polar oil,
  FL, ANWAR, or deep sea oil
• Remember, Canada has 3 times as much oil as Saudi
  Arabia, and it NOT counted
• SEC rules do NOT apply outside US
• G7 push for transparency
• Saudi response, Western nations are not dealing
  with the oil producers as partners. Why should
  they have the advantage of knowing details of oil
  producers reserves. Data on reserves is
  information, and information is power.

10
5. Proved Reserves Undercounted (cont)

• Consider Saudi alone (1 - 2 per barrel
  production cost)
• 80 known reservoirs with 261 billion barrels
  data 40 YEARS old tech factor?
• Currently using just 11 of those
• Dec 2004 Minister of Petroleum and Natural
  Resources announced really 461 billion barrels
• NO exploration in 35 years Why?

11
5. Proved Reserves Undercounted (cont)

• Consider Iran
• Announced reserves 125.8 billion barrels
• Westerners figure it closer to 500 billion
• NO exploration since Iraq War
• Consider Iraq
• 115 billion reserve turned out to be 467 billion
  barrels

12
5. Proved Reserves Uncounted

• Canadian Oil Shale
• 1.6 trillion barrels uncounted
• Venezuelas Orinoco belt
• 500k barrels/day of heavy-oil
• US West Oil Shale
• Several trillion barrels

13
6. Vested Interest

• Is it in anyones interest to tell the truth
  about their oil reserves?
• OPEC must keep prices high while dissuading
  Western companies from using their cash windfall
  to explore.
• Tech improvements and high prices attract
  investors, Pickens in Canada

14
6. Vested Interest (cont)

• Industrys biggest worry is abundance, not
  scarcity, for prices plummet.
• Looming shortages justify high prices
• Oil companies NOT buying reserves Why?