Is the World Running Out of Oil? - WSJ

October 8, 2005; Page A5
THE MAIN EVENT
Oil prices stayed above $60 a barrel for a 10th straight week, stoking fears about inflation and fueling the debate over whether the world's supply is running short.
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With the Gulf Coast and oil markets battered by Hurricane Katrina, President Bush last month made an appeal to the public to conserve energy in order to help alleviate the strain of tight supplies. And last week, he called for more oil-refinery construction. "The storms have shown how fragile the balance is between supply and demand in America," President Bush said.
A beached oil rig after Hurricane Katrina hit.

But the big question is whether the current imbalance is a temporary disruption or an indication that oil output has peaked and is no longer sufficient to meet global demand. Pessimists argue there's simply not enough oil to meet the booming demands coming from developing countries like China and India and still satisfy the voracious appetites of U.S. consumers. Optimists point out that some experts have been predicting a scarcity of oil for nearly a century -- and yet the oil keeps coming.

To be sure, oil is a finite resource. The U.S. Geological Society estimates there is only enough oil from traditional sources to last between 30 and 40 years, based on current rates of consumption and world reserves estimates.

But that doesn't take into account the wealth of nonconventional resources, such as oil shale or sand oil, which lie largely untapped because of cost.

The Athabasca region in Alberta, Canada, for instance, theoretically could produce about 1.7 trillion to 2.5 trillion barrels of oil from its 54,000 square miles of oil-sands deposits -- making it second to Saudi Arabia in oil reserves. The Athabasca reserves remain largely untapped because getting the oil out of the sand is expensive and complicated. It takes about two tons of sand to extract one barrel of oil. But if oil prices remain near current levels -- indeed, if prices stay above $30 a barrel, as they have since late 2003 -- oil-sands production would be profitable. Limited investment and production has been under way in Athabasca.

There are also an estimated 800 billion barrels of oil contained in oil-shale deposits in Colorado, Utah and Wyoming. That is more than triple the proven oil reserves of Saudi Arabia. But with the currently available technologies, analysts say that crude-oil prices would have to rise to somewhere around $70 a barrel, and stay there, in order to make extraction financially viable.
The oil-sands and oil-shale reserves suggest that the question may not be so much whether the world is running out of oil, but rather, what price is necessary to encourage more supply?
Higher oil prices could also encourage the development of some alternative-energy resources, such as corn-based ethanol, which haven't gained ground in the past because oil was a cheaper and easier alternative.

In all of these cases, the issue isn't just price -- but price stability. If investors knew the price of oil would stay at current levels, they'd be more willing to invest in developing alternative resources. But Department of Energy estimates, based on projected costs and prices, show alternative fuels making up just 2.2% of light-duty vehicles' fuel consumption by 2025.
And then, of course, there's conservation. As prices rise, energy consumers become more cost-conscious. Already, high prices for oil and gas seem to be damping consumers' appetites: In the past month, demand for gasoline has been 2.6% below the same period last year, and sport-utility vehicle sales are off sharply.

-- Compiled by Lauren Etter

POINTS OF VIEW OVER THE YEARS

"Hurry, before this wonderful product is depleted from nature's laboratory!" -- Advertisement for Kier's Rock Oil, 1855

"The United States [has] enough petroleum to keep its kerosene lamps burning for only four years." -- Pennsylvania geologist, 1874

There are "oil wells drying up all over the world." -- President Carter, 1979

"At present rates of exploitation, the U.S. will exhaust its own petroleum reserves in about 10 years ..." -- Alan Madian, Foreign Policy magazine, 1979

"In moving towards 1990, the industrialized countries will be walking an 'oil tightrope'." -- International Energy Agency, 1981

"Both oil and natural-gas availability have been severely impaired, and the effects of this will reverberate through the economy of this country for some time. The main thing that U.S. citizens can do is conserve." -- Samuel Bodman, U.S. energy secretary, 2005

"World oil discoveries peaked in the 1960s. You can't pump what you haven't found. Where will that additional oil production come from and at what price?" -- Rep. Roscoe Bartlett (R., Md.), 2005

FACTS

China recently surpassed Japan as the No. 2 oil consumer behind the U.S. In 1994, there were 9.4 million vehicles on the road in China. In 2004, there were 28.6 million vehicles. In 2020, the Chinese government predicts, there will be 140 million.

The Alaska Arctic National Wildlife Refuge (ANWR) contains about 10.4 billion barrels of oil. Based on current rates of consumption, that is enough to meet U.S. energy demands for 1.4 years.

The Strategic Petroleum Reserve, which is in the Gulf of Mexico, currently holds about 690 million barrels of oil, near its peak. That is down slightly because the U.S. government has tapped into it since Hurricane Katrina.

A 10% increase in the price of gasoline could ultimately result in a drop in gasoline demand of 546,000 barrels of oil a day, based on a Federal Trade Commission report. The U.S. currently consumes 20 million barrels of oil a day.

A 10-miles-per-gallon rise in the fuel economy of cars driven in the U.S. ultimately would cut petroleum consumption by 610,000 barrels of oil a day.

The last year a refinery was built in the U.S. was 1976. Arizona Clean Fuels Yuma LLC's planned refinery in Yuma, Ariz., is the only U.S. refinery that has obtained most of the regulatory approvals needed for construction. It would have the capacity to produce 150,000 barrels of fuel every day.