This lecture is entitled “The Scarcity Myth.”  Today, we’re going to do Part Five, which is our final piece, discussing the thesis, “How we will never run out of oil.”

We’re on agenda item 9 today, which is “Proven Resources Are Undercounted.”  Proven Resources is a phrase that has a definition, which is “oil deposits that there are current plans to extract.”  In other words, if we know of oil, but have no plans to extract it at that time, if no oil company has announced that they are going to go drill and get that oil right now, that oil does not count as part of our proven reserves.  This gives us billions and billions of barrels of oil that are not counted.  Roger Bentley from the Association for the Study of Peak Oil and Gas said, “Proved reserves (43 years worth) have been very conservative (counted) 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.”  The SEC, the Securities Exchange Commission, which is part of the United States government, has very strict rules about what type of oil can be counted as part of your reserves.  Of course, a company like Exxon is worth more the more reserves that they have.  But the SEC does not allow you to count tar sand, polar oil, coastal oil, ANWR or deep-sea oil.  Some of our best resources are not counted by the SEC, which severely limits how much proven reserves the U.S. has.  Our proven reserves are vastly undercounted.

Remember, that Canada has three times as much oil as Saudi Arabia and none of that is counted!  The United States has even more oil than Canada and of course it’s not counted, because most of it falls into the categories that are not counted, such as coastal oil and tar sands.  The G7, the group of economic superpowers in the world, has pushed for greater transparency and has requested that the oil-producing super nations like Saudi Arabia be more open in their actual reserves.  The Saudi response was very predictable; they said, “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.”   It makes sense that the Saudi’s would not want us to know how much oil they have.  If we knew how much oil was really available, the price would fall dramatically.

Let’s look at undercounting of proven reserves on a country-by-country basis, Saudi first.   One of the huge advantages that Saudi Arabia has is that oil only cost one or two dollars per barrel to produce.  It’s almost like you could stick a straw in the ground and have oil come out.  They have 80 known reservoirs with about 261 billion barrels, but that data is over 40 years old, which makes me wonder two things. Remember yesterday when we discussed how reserves are almost always undercounted at first?  And secondly how the technological factor surely would allow us to find more oil than the 261 billion barrels that they quote?   Currently Saudi Arabia is just using 11 of their 80 known reservoirs.  Why would they use all of their reservoirs?  The market would literally be flooded with oil and the price would plummet. In December of 2004, the Minister of Petroleum and Natural Resources announced that in fact that the 261 billion barrels was really 461 billion barrels!  Even Saudi Arabia has been dramatically underestimating the amount of oil that they have.  And the final kicker: there has been no exploration in Saudi Arabia for the last 35 years, because they don’t need to find any more oil.  Why spend the money to find it when that would suppress the market price?

Other countries are also dramatically underestimating how much oil they have.  Iran claims to have about 125 billion barrels, but outsiders believe that it is actually closer to 500 billion barrels.  Iraq was thought to have 115 billion barrels in reserve and after the United States oil companies entered after the war that number was determined to be 467 billion barrels.  The Gulf of Mexico was originally estimated to have around 6 billion barrels, and it’s already produced 13 billion barrels, and it’s still going. Yesterday we said that it may have as many as 1 trillion barrels of oil, but again they’ll were not counted because of the regulations of the United States government.  Prudhoe Bay in Alaska originally was estimated at 9 billion barrels, but so far it’s produced over 15 billion barrels and is still going.

Tupi field in Brazil was originally estimated at 5 billion barrels (in 2007) and when drilling began they discovered that it really had closer to 30 billion barrels.  The same is true in Italy where they underestimated by 400%, and the United States Geological Service estimated that in North and South Dakota there were 151 million barrels of oil.  They changed their estimate to over 3 billion barrels of oil.

Agenda item number 10: proven reserves are uncounted.  We just gave you a definition of what proven reserves are and obviously we’re not counting a lot of things.  We’re not counting the 1.6 trillion barrels of Canadian oil shale.  We’re not counting any of Venezuela’s heavy oil, because it falls outside of the definition the United States rules.  Western states oil shale of several trillion dollar barrels is not being counted.  Trillions of barrels that are not counted.

Agenda item number 11: oil is being priced in the depreciating commodity, the dollar.   For every barrel of oil that you sell today you get less dollars than you did say 2001.  As the dollar continues to weaken, the cost of oil goes up and it becomes more expensive, in dollars, to buy a barrel of oil.  So when people say that the price of gas is going up, it is not because of Saudi Arabia, it is not because of the war in Iraq. The price of oil is going up is because President Bush and Pres. Obama, both Democrat and Republican, have let the dollar become so weak, which makes our gas more expensive.  If you’re at the pump and you’re upset about the cost of gas, get mad at both political parties.

Finally, I want to sum up with a discussion of in whose interest it is to tell us the truth.  This is agenda item number 12.   Who has a reason to tell us how much oil that we have?   If it were common knowledge that there were trillions of barrels of oil, we wouldn’t pay four dollars a gallon.  Europeans wouldn’t pay seven dollars a gallon.  The price would plummet.   Governments also make a tremendous amount of their revenue based on taxing gasoline, and it is usually based on a percentage of the sales price.  The governments of the world like it when the price of oil goes up, as they make more money. Pres. Obama has even announced that he hopes that the price of gasoline doubles.  This is for environmental reasons, but is also for tax reasons.

Interestingly, OPEC doesn’t want the price to get too high, because if the price of oil gets too high, then the Western industrialist entrepreneurs are encouraged to start looking at other energy alternatives.  So Saudi Arabia and OPEC will work very hard to keep oil somewhere within the $50 to $100 per barrel range.   This brings up one of the most interesting points, that the oil industry’s biggest worry is over abundance, not scarcity.  In the 1980s, oil prices plummeted.  One of the reasons is because for the first time ever we instituted conservation programs.   As I said at the very beginning of this, five days ago, I am an environmentalist.   I’m in favor of conservation.   I’m in favor of cars having high miles per gallon. Conservation makes oil prices plummet.

Our final vested player is the oil industry.   Judging from their profits, it is clear they are doing well. There’s no incentive for them to do anything except to support high cost of gas.  They also generally make a percentage of sales price, meaning high prices help them as well.

OPEC wants the price to be high.  Governments want the price to be high.  Oil companies want the price to be high.   Everyone makes more profit because of the supposed looming shortage.  It justifies high prices.  High prices will only be paid if you think you’re going to run out of oil.

We have come along way in the last five days.  The number one thing that I hope I’ve opened your eyes or is a possibility that we may never run out of gasoline.  Clearly, we are playing games when it comes to counting the amount of gas that’s available, but more importantly I think it’s safe to say that my grandchildren’s grandchildren’s grandchildren’s grandchildren will have plenty of oil to run their cars and they heat their houses.

In about an other month, I’m going to have another lecture series, this one on global warming, which I’m sure will be just as controversial as this oil scarcity myth lecture series.

Have a great day.

 

 Oil Scarcity Myth (Part 5) [14:16m]: Play Now | Play in Popup | Download