American Elephants

The President’s Energy Policy Leaves a Lot of Energy Out. by The Elephant's Child

In Obama’s big Energy Speech, at the truck plant in North Carolina, he reiterated his usual excuse that “America has just two percent of the world’s oil, but we use twenty percent of the world’s oil.” President Obama’s  two percent is that teeny little red pyramid on the top. That represents our “proven” reserves. It is dwarfed by the mass of oil that we have in real reserves. Sometimes a visualization helps to explain things.  (click to enlarge)

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“It is dwarfed by the mass of oil that we have in real reserves.”

Wrong terminology. The whole pyramid could be referred to as “total resources”, or the petroleum “endowment”, not “real reserves”. “Proven” (not “proved”) are those reserves that can be produced at current market prices and whose existence has been proven to a high degree of certainty. Below those are “probable” reserves (differing only in statistical certainty), and so forth. Technically recoverable is not governed by the same economic criterion, and some of those quantities would require higher prices (or cost reductions) to be profitable to produce.

If one were to plot the production cost of the “undiscovered resources” against production costs, there would be a wide dispersion around a log-normal function, with the mean well above current costs (assuming using current technology). That is precisely because there is a bias in exploration: companies tend to target their search for hydrocarbons in easier-to-work areas. So the remaining undiscovered resources are undiscovered for a good reason: their chance of being as profitable to produce is less. Not zero, by any means — there is always a chance of a big find (Israel recently discovered a huge natural-gas field offshore) — but less.


Comment by Subsidy Eye

[…] whopper. See here. So what ends up happening is the price is impacted not just by us, but by everybody, in the amount […]


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