Will the U.S. Run Out of Oil in 8 Years?
I want to post a quick rant on the uselessness of statistics about a country’s oil reserves. I was preparing this afternoon to write a blog post about the revolution in oil production in the US, caused by the adoption of new technologies of fracking and horizontal drilling in areas like the Bakken Shale and the Eagle Ford Shale.
The USGS reports that, with perspective additions, the U.S. holds 32 billion barrels (bb) of oil, 291 trillion cubic feet (tcf) of natural gas, and 10 billion barrels of natural gas liquids in mean potential undiscovered reserves. This is a substantial upwards revision from last year’s estimate – showing how the new technologies are revolutionizing America’s energy outlook.
Then I started doing the math. The U.S. uses about 18.7 million barrels of crude oil equivalent per day (mbd), according to the EIA. Of that consumption, we’re importing about 8.7 mbd, and producing about 10 mbd. That works out to a total annual consumption of about 6.875 bb of oil, of which about 3.65 bb is from domestic production. At those rates, America would completely exhaust its total reserves, as estimated by the USGS at 32 bb of oil in eight years, nine months. So, by April or May of 2021, the United States would no longer have any oil – if these reserve estimates went unchanged.
Clearly, the markets do not believe that the United States, the world’s third largest oil producer, is going to run out of oil by 2021. If people expected the U.S. to stop producing oil in 2021, there would be a significant run on the oil markets.
Now, this may simply be a difference between the specific, geologist-driven language in which you only state that which you absolutely know, but this needs to be clearer. The oil market, and the amount of U.S. production in particular, is at the center of this year’s election debate. Something is lost in translation.
This leads to statements from our politicians like this one from President Obama: “The United States consumes more than 20 percent of the world’s oil, but we only have 2 percent of the world’s oil reserves.” While that is true, it is irrelevant. The truth is that those 2% of world oil reserves are constantly being updated by new oil finds and by new technology that makes previously uneconomic reserves useable.
The problem, I think, lies in how the geologist’s language is translated by the political mind. A politician hears a statement like the USGS’ saying that we have 32 bb of oil in reserves, and thinks of it like a glass of milk with a straw in it. You can drink the milk at whatever rate you like, but when you reach the bottom, you’re out of milk (and presumably will have to import it from your crazy neighbors).
Of course, we know it’s not that simple: reserves are a measure of oil fields that have been discovered, confirmed and are economically recoverable. There is a great deal of undiscovered reserves still remaining, as well as reserves that are not economically recoverable, at this time. Future increases in prices or advances in technology that reduce the price of extraction could bring more reserves as well.
We need a new language for politicians to use when they talk about oil; something that gives an idea of how much oil the U.S. has, and at what price level it would make economic sense for an oil company to extract it. I’m not sure how we translate it, but we should do better.
For more on U.S. and global oil reserves, Robert Rapier did a nice job of sifting through and charting the data in How Much Oil is Left in the World?