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Quit Repeating Nonsensical Oil Statistics!

Posted By David Kreutzer, Ph.D. On March 31, 2011 @ 12:00 pm In Energy | Comments Disabled

Drilling for oil [1]

“I give out this statistic all the time, and forgive me for repeating it again: America holds about 2 percent of the world’s proven oil reserves.” – President Barack Obama, March 30, 2011

It would be easier to forgive the President’s repetition if it the way he used it made any sense at all. Here is his explanation of why it matters:

What that means is, is that even if we drilled every drop of oil out of every single one of the reserves that we possess—offshore and onshore—it still wouldn’t be enough to meet our long-term needs. We consume about 25 percent of the world’s oil. We only have 2 percent of the reserves. Even if we doubled U.S. oil production, we’re still really short.

The key here is that the President’s favorite statistic refers to oil reserves, not oil production.

We don’t consume 25 percent (actually the number is closer to 22 percent) of the world’s oil reserves, we consume about 22 percent of the world’s oil production. In general, we consume about 22 percent of the world’s production of everything.

Consumption is determined by income, not by available resources, and the U.S. also produces about 22 percent of the world’s output of all goods and services

Now, we don’t produce 22 percent of world output of oil, at least not within out territorial borders.  Rather, our production is somewhere between 6 percent and 10 percent of world production (the numbers vary depending on whether you include things like natural gas liquids). Is that sustainable? Sure. Can we increase our production, even for decades? Sure.

A hypothetical example can illustrate why comparing the percentage of current production to reserves provides no useful information.

Imagine that we cut our use of petroleum to one barrel per year, and the rest of the world eliminated its consumption entirely. We would still only have 2 percent of the world’s reserves, but we would consume 100 percent of the world’s production. You can see how these statistics sound alarming but are misleading.

Of course, we and the rest of the world consume a lot more than one barrel per year. In fact, production needs to be increased. Obama’s own Energy Information Administration (EIA) says we can increase production for decades to come.

If you think we are past “peak oil” and cannot increase our energy production because we’ve gotten all the easy-to-get oil, look at the EIA’s projections. In the most recent Annual Energy Outlook [2] baseline projection, the EIA forecasts a 7.7 percent increase in annual petroleum production between 2011 and 2035. That is, in 2035 they project the U.S. will produce 7.7 percent more than we will this year.

So will we have run dry by that time? Not according to the Obama EIA. It projects that improvements in technology and the economics of extraction, production, and sales actually will lead to a 23.7 percent increase in U.S. reserves—even after extracting billions of barrels of oil in the interim.

The sky is not falling, and straightforward economics still holds true: If we produce more oil, the price of oil will be lower than if we don’t.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/03/31/quit-repeating-nonsensical-oil-statistics/

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[1] Image: http://www.foundry.org/wp-content/uploads/oil-drill100219.jpg

[2] Annual Energy Outlook: http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2011&subject=0-AEO2011&table=73-AEO2011&region=0-0&cases=ref2011-d120810c

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