A few years ago I was speaking before a group shortly after a local oil company discovered what was characterized as the biggest find of oil on land in the United States in 30 years. The president of the company refused to speculate about the size of the find other than to say that it was “significant.” The media suggested that it might amount to one billion barrels.
I mentioned this find to my audience and asked them how long they thought one billion barrels would last the world at the current rate of consumption. Guesses ranged from six months to three or four years. The correct answer was 12 days. Naturally, people were astonished and dismayed.
That is why I think it would prove useful for a warning label to come with each public announcement of a large oil or natural gas discovery. I understand that the companies that make these large finds are anxious to emphasize the size of the reservoir since this tends to goose the stock price. And, it is reserves that investors seem to react to, though, as it turns out, reserves are probably the least important factor in deciding whether a find is worth producing. (See my recent piece, “Reserves are bunk” for more on this.)
Now, I don’t expect any government agency to issue a regulation requiring a warning label on oil and natural gas discoveries. But the next best thing would be for journalists reporting such finds to put them into perspective using a days of world consumption figure, or if the find is natural gas that will only be marketed domestically, days of domestic consumption. Journalists would also do well to explain that depletion rates for existing oil wells run between 6 and 9 percent and that this depletion must be overcome before any growth in supplies takes place. Providing this context would serve to alert policymakers and the public to the true significance (or insignificance) of each find.
Let’s look at how some recent large finds might have appeared with the warning label I suggest:
|
Date
|
Description
|
Type
|
Recoverable Resource Claimed
|
Days of World Consumption*
|
| July 2000 | Kashagan | Oil | 9 to 16 billion bbls | 119 to 211 |
| Sept. 2006 | Gulf of Mexico Lower Tertiary | Oil | 3 to 15 billion bbls | 36 to 178 |
| Nov. 2007 | Tupi (Brazil Offshore) | Oil | 8 billion bbls | 94 |
| Sept. 2009 | Ngassa-2 (Uganda) | Oil | 310 to 710 million bbls | 4 to 8 |
| Jan. 2010 | Davy Jones (Gulf of Mexico) | Natural Gas | 2 to 6 tcf | 32 to 95** |
| Year End 2008 | Proven U. S. Shale Gas Reserves | Natural Gas | 32.8 tcf | 517** |
*Based on previous year’s consumption **Days of U.S. domestic consumption, 2008
Keep in mind that I am not quibbling with the recoverable resource estimates. Nevertheless, we should remember that things don’t always work out as oil and natural gas production companies would like. Some will say I should include industry estimates of how much shale gas is likely to become available in North America over time. I say that we should wait and see if the industry projections actually work out. Caution should be our watchword when it comes to making public policy based on industry hype that is largely designed to make a company’s stock price go up.
This kind of table, though not a perfect tool, would tend to temper the enthusiasm of the public and policymakers for a course that assumes that oil and natural gas will remain abundant for decades to come. If we want to create a robust society that will weather the inevitable energy transition away from fossil fuels, we might start by looking squarely at what recent large discoveries actually amount to. And, we should proceed, as I suggested in a recent piece, to make our society forecast-proof insofar as fossil fuels are concerned. In short, to paraphrase the current chief economist of the International Energy Agency, we should leave fossil fuels before they leave us.
