• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Running Out of Oil?

    Drilling for oil

    As recent as last summer an article in The Independent, citing assessment from the lead economist at the International Energy Agency (IEA) warned that “The world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production.” The 2008 report urged that we are at a crossroads and we need to transition rapidly to a low carbon fuel economy. It’s certainly not a new argument; it was a consensus in the 1970s that we were running out of oil too. Since oil is a finite resource, as a matter of physics, we will eventually run out of oil says George Mason professor Don Boudreaux. But,

    Conventional wisdom, however, often is handicapped by a poor grasp of economics. And among the important lessons of economics is that the supply of resources is less a matter of physics than of, well, economics. First, no mineral, no plant, no geographical location, no anything becomes a resource unless and until human creativity and ingenuity figure out how to put that thing to use in a manner that satisfies human wants. Petroleum was no resource to our ancestors who had yet to grasp the fact that it can be refined and burned in ways that improve the quality of life. In fact, I suspect that whenever that gooey, noxious black stuff appeared in freshwater creeks in pre-Columbian Pennsylvania, natives of that region regarded it as a nuisance.

    So economically, the Earth’s supply of nonrenewable energy resources was, back then, much smaller than it is today. Human creativity and effort turned a nuisance into a resource. Human creativity and effort also are at work finding not only substitutes for oil, but also new supplies of oil. Each success on this front increases the supply of oil. The reason is that oil deposits that remain unknown are economically nonexistent. The same is true of oil deposits that are known to exist but are currently too costly to tap. Oil in the Earth’s crust that is out of reach with existing technology is no more of a resource today than is oil on Pluto. But if and when human creativity discovers cost-effective techniques for extracting that oil, it then — and only then — becomes a resource. In effect, more of the resource “oil” is created.”

    It was new technologies that led us to the discovery of new oil fields beneath the ground. Three decades ago, proven oil reserves were 645 billion barrels; five years ago it was 1.28 trillion and in 2009 it was 1.34 trillion. New, innovative technologies, as well government policies put in place to support them, will help recover that oil and discover more. Unconventional sources could soon become conventional. And if they’re not economically viable, then they’ll stay in the ground and we’ll transition to different sources of energy – perhaps sources of energy we haven’t heard or thought of yet.

    Competition bodes well for the American consumers, but the notion that we need the government to force a transition away from oil overnight because we’re sucking the well dry is an absurd one. Congress should implement policies do not discriminate or bias investments in order to allow the most efficient and promising innovations to flourish. The latest, that has promise but also has a lot of help from the government is the Bloom Box, “a silent, refrigerator-sized, fuel-cell power generator that will one day provide energy to your house from your own backyard.”

    Generating electricity at eight to ten cents a kilowatt hour (under the national average of eleven cents), the Bloom Box received a significant amount of press in conventional papers and the blogosphere. Hailed as a major breakthrough (more so than the major breakthroughs you forget about a week later), how does the Bloom Box fare without generous state and federal subsidies?

    “The unsubsidized cost would be 13-14 cents/kWh, with about 9 cents/kWh from the capital costs of the Bloom box and 5 cents/kWh from natural gas costs, according to Luz Research. If natural gas prices rise or fall 50% (gas prices are often volatile), overall price would fluctuate from 11.5-12.5 cents/kWh to 20.5-21.5 cents/kWh. That unsubsidized price is still too high to compete in most markets with retail electricity without subsidy. However, this is the first generation, and if Bloom can bring prices down (and/or natural gas prices are stable/low), there could be a significant market for this fuel cell.”

    “Could” is the operative word here. And if there is a market for the Bloom Box, or any other ground-breaking supplier of energy, the market will let it be known. But if it continues to rely on government handouts, like other renewable energy sources, it will be frozen in a perpetual state of mediocrity with no incentive to reduce costs.

    Posted in Energy [slideshow_deploy]

    4 Responses to Running Out of Oil?

    1. William C. Heard, Jr says:

      I've read several articles about hugh oil deposits in western states that environmentalists are keeping us from opening. Why doesn't someone get on the bandwagon on this if it is in fact accurate.

    2. Don Harper, Lubbock, says:

      This is part of a response by "Happy Chappy". I thought it to be a good idea.

      "It should be clear to all that the government is incapable of inventing or selecting

      an alternative energy or supporting those who would invent it. A classic example of this is our current ethanol from corn program. The evidence shows that it takes 30% more energy, from fossil fuels, to create ethanol than the energy we get out of it. This has been known for years and every year the government increases the subsidy to the ethanol industry while the states continue to increase the demand by mandating ethanol in gasoline. Will this wasteful farce of an “alternative” ever go away? The simple answer is "no!", not as long as the government continues

      to subsidize it. Worse, the fact that the program exists prevents a viable alternative from being discovered. In fact, if today some genius discovered a cheap and effective additive to gasoline that would reduce pollution and decrease the need for oil, the ethanol industry and congress would fight it and probably legislate it out of existence. The problem IS the government! The problem IS the subsidy. By definition, a viable alternative energy source would not require a subsidy. None of our current crop of alternatives are viable. Wind power is the most promising and it costs 4-10 times what a fossil fuel generation plant would cost. Photo voltaic is the most well known alternative and it costs more to purchase the system than it will ever return in the form of generated electricity. In fact it requires more energy to build and install all the components of a PV system than it will ever produce. In other words it isn’t viable. However it is subsidized, it is anointed by government and special interests. If we want viable alternatives, we must establish a system that allows new alternatives to

      compete and be judged by neutral experts and scientists, not politicians or lobbyists. Set up a standard with goals and requirements that must be met. Provide a cash prize for the winner as an incentive but no subsidy. Let the industry and individuals choose from those alternatives that can pass the test. Do not allow the federal or state government to “subsidize” or otherwise

      choose the winners. "

    3. Michael Maveal says:

      Oil is a RENEWABLE RESOURCE! The Earth is producing more oil as we speak. It is a result of the rock cycle process. When it comes out that oil NOT going to run out the entire conversation about resources and their use will change. The idea that the oil will run out is not true. It is just being used to further a socialist agenda. This needs to be discussed.

    4. Mike Hawk says:

      I believe we will use all our oil in the next 50 years

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×