Category — Oil
“With only 2% of the world’s oil reserves, we can’t just drill our way to lower gas prices,” President Barack Obama said in his weekly address March 10. “Not when we consume 20% of the world’s oil.”
The claim is, if not blatantly false, at best grossly misleading. If the President didn’t know this, some advisors should be dismissed. If he did, he needs to accept the blame and formally correct it.
… the figure Obama uses—proved oil reserves—vastly undercounts how much oil the U.S. actually contains. In fact, far from being oil-poor, the country is awash in vast quantities—enough to meet all the country’s oil needs for hundreds of years.
The U.S. has 22.3 billion barrels of proved reserves, a little less than 2% of the entire world’s proved reserves, according to the Energy Information Administration. But as the EIA explains, proved reserves “are a small subset of recoverable resources,” because they only count oil that companies are currently drilling for in existing fields.
How much recoverable oil does the U.S. have in addition to the 22.3 billion Obama had in mind? Start with the Green River Formation in Wyoming: 1.4 trillion barrels—sixty-two times as much as Obama counts. [Read more →]
March 20, 2012 7 Comments
Energy at the Speed of Thought (Part 4: Free-Market Alternatives in Illumination and Transportation Energy)
[Editors note: This is the final installment of Alex Epstein's four-part exploration of innovation and creative destruction of the early oil market. Read Part 3 here. References are at the bottom. This post was originally published in The Objective Standard.]
John D. Rockefeller’s improvements, which can be enumerated almost indefinitely, helped lower the prevailing per-gallon price of kerosene from 58 cents in 1865, to 26 cents in 1870—a price at which most of his competitors could not afford to stay in business—to 8 cents in 1880. These incredible prices represented the continuous breakthroughs that the Rockefeller-led industry was making. Every five years marked another period of dramatic progress—whether through long-distance pipelines that eased distribution or through advances in refining that made use of vast deposits of previously unrefinable oil. Oil’s potential was so staggering that no alternative was necessary. But then someone conceived of one: the electric lightbulb.
Actually, many men had conceived of electric lightbulbs in one form or another; but Thomas Edison, beginning in the late 1870s, was the first to successfully develop one that was practical and potentially profitable. Edison’s lightbulb lasted hundreds of hours, and was conceived as part of a practical distribution network—the Edison system, the first electrical utility and distribution grid. As wonderful as kerosene was, it generated heat and soot and odor and smoke and had the potential to explode; lightbulbs did not. Thus, as soon as Edison’s lightbulb was announced, the stock prices of publicly traded oil refiners plummeted. [Read more →]
December 23, 2010 7 Comments
[Editors note: This is part 3 of 4 in Alex Epstein's exploration of innovation and creative destruction of the early oil market. Read Part 2 here. References are at the bottom. This post was originally published in The Objective Standard.]
George Bissell was the last person anyone would have bet on to change the course of industrial history. Yet this young lawyer and modest entrepreneur began to do just that in 1854 when he traveled to his alma mater, Dartmouth College, in search of investors for a venture in pavement and railway materials. 26 While visiting a friend, he noticed a bottle of Seneca Oil—petroleum—which at that time was sold as medicine. People had known of petroleum for thousands of years, but thought it existed only in small quantities. This particular bottle came from an oil spring on the land of physician Dr. Francis Beattie Brewer in Titusville, Pennsylvania, which was lumber country.
At some point during or soon after the encounter, Bissell became obsessed with petroleum, and thought that he could make a great business selling it as an illuminant if, first, it could be refined to produce a high quality illuminant, and, second, it existed in substantial quantities. Few had considered the first possibility, and most would have thought the second out of the question. The small oil springs or seeps men had observed throughout history were thought to be the mere “drippings” of coal, necessarily tiny in quantity relative to their source.
But Bissell needed no one’s approval or agreement—except that of the handful of initial investors he would need to persuade to finance his idea. The most important of these was Brewer, who sold him one hundred acres of property in exchange for $5,000 in stock in Bissell’s newly formed Pennsylvania Rock Oil Company of New York. [Read more →]
December 22, 2010 3 Comments
Energy at the Speed of Thought (Part 2: Individual Planning in the Pre-Petroleum Illumination Market)
[Editors note: This is part 2 of 4 in Alex Epstein's exploration of innovation and creative destruction of the early oil market. Read Part 1 here. References are at the bottom. This post was originally published in The Objective Standard.]
Today, we know oil primarily as a source of energy for transportation. But oil first rose to prominence as a form of energy for a different purpose: illumination.
For millennia, men had limited success overcoming the darkness of the night with man-made light. As a result, the day span for most was limited to the number of hours during which the sun shone—often fewer than ten in the winter. Even as late as the early 1800s, the quality and availability of artificial light was little better than it had been in Greek and Roman times—which is to say that men could choose between various grades of expensive lamp oils or candles made from animal fats. 16 But all of this began to change in the 1820s. Americans found that lighting their homes was becoming increasingly affordable—so much so that by the mid-1860s, even poor, rural Americans could afford to brighten their homes, and therefore their lives, at night, adding hours of life to their every day. 17
What made the difference? Individual freedom, which liberated individual ingenuity.
The Enlightenment and its apex, the founding of the United States of America, marked the establishment of an unprecedented form of government, one established explicitly on the principle of individual rights. According to this principle, each individual has a right to live his own life solely according to the guidance of his own mind—including the crucial right to earn, acquire, use, and dispose of the physical property, the wealth, on which his survival depends. [Read more →]
December 21, 2010 1 Comment
[Editors note: This four-part post examines the innovation and creative destruction of the early oil market. It was originally published by The Objective Standard.]
The most important and most overlooked energy issue today is the growing statist threat to global energy supply.
There is no substitute for available, affordable, and reliable supply. Cheap, industrial-scale energy is essential to building, transporting, and operating everything we use, from refrigerators to Internet server farms to hospitals. It is desperately needed in the undeveloped world, where 1.6 billion people lack electricity, which contributes to untold suffering and death. And it is needed in ever-greater, more-affordable quantities in the industrialized world: Energy usage and standard of living are directly correlated.1
Every dollar added to the cost of energy is a dollar added to the cost of life. And if something does not change soon in the energy markets, the cost of life will become a lot higher. As demand increases in the newly industrializing world, led by China and India, 2 supply stagnates 3—meaning rising prices as far as the eye can see.
What is the solution?
We just need the right government “energy plan,” leading politicians, intellectuals, and businessmen tell us. Of course “planners” such as Barack Obama, John McCain, Al Gore, Thomas L. Friedman, T. Boone Pickens, and countless others favor different plans with different permutations and combinations of their favorite energy sources (solar, wind, biomass, ethanol, geothermal, occasionally nuclear and natural gas) and distribution networks (from decentralized home solar generators to a national centralized so-called smart grid). But each agrees that there must be a plan—that the government must lead the energy industry using its power to subsidize, mandate, inhibit, and prohibit. And each claims that his plan will lead to technological breakthroughs, more plentiful energy, and therefore a higher standard of living. [Read more →]
December 20, 2010 14 Comments
In the last few weeks, rhetoric about America’s oil addiction has resurfaced, years after being pushed by former President George W. Bush. It is meant to explain the inability of Americans to become energy independent or at least to significantly reduce consumption. The implication is that consumers are either foolish or brainwashed, and that the government is a slave to the oil industry’s lobby.
I submit that this claim reveals an ideological bias, as well as a degree of energy illiteracy.
Such illiteracy is not new and is often battled by economists. For example, when I was at MIT, one class was taught by an engineer who believed that oil was underpriced because it cost less than mineral water. I didn’t have the heart to tell him that this is a common misconception: the prices of the two are completely unrelated.
Now there is a new litmus test for energy illiteracy, namely the claim that America is ‘addicted to oil.’ Those stating this are either being less than honest (politicians and special interests) or have failed to comprehend either addiction or economics. For example, why say Americans are addicted to oil, but not food, housing and clothing? Or cement or steel? It is easy to compare the traditional types of addiction with the reliance on these substances to see where oil falls on the spectrum.
What is ‘Addiction’?
Addictive substances typically cause changes in brain behavior, create a sense of euphoria but also reduce productive activity, making citizens less capable and/or less interested in being productive. They serve primarily to stimulate pleasure and often distort mental processes, creating biochemical dependencies to the point where those consuming the substances sacrifice their careers, livelihoods, families and everything they hold dear to acquire it on a continual basis. While there are many functioning addicts, there are also huge numbers whose lives have been ruined by their addictions. (Just watch “Behind the Music” on VH1.) [Read more →]
July 21, 2010 8 Comments
In a post on his blog and then again on the Huffington Post, Joe Romm challenged me to a wager on oil prices, claiming prescience concerning the price rise in the past decade compared to my 1996 forecast of low prices for two decades. He seems to be implying that that I have refused to wager him, having closed the webpage to any further comments.
I find myself taken aback, as my experience with the blogosphere is somewhat limited. My experience is primarily as an academic, writing articles for refereed journals and books, as well as working papers, with an intention to make them carefully sourced and referenced. A blog can consist of nothing more than a rant, and the comments appended to them often worse (and usually anonymous). I will not however yield to the temptation to follow suit (even if our illustrious moderator would permit it, which he won’t).
Having put up approximately 20 posts on the subject of peak oil, it might be thought that Romm is an expert on the subject. But so far as I know, he has a grand total of one article on oil, his famed, “Mideast Oil Forever” Atlantic Monthly piece (co-authored with Charles Curtis), which is the source of his pride on the subject.
A careful reading of “Mideast Oil Forever” shows that his argument was not so much that prices would soar, but that global dependence on Middle East oil would soar, which has not happened. My argument was that the forecast of rising Middle East market share was likely to be incorrect, and it was (see Figure), so that economic fundamentals would not imply ever rising prices.
Forecasts of OPEC Market Share from 1996/97
Which is a far cry from saying my forecast was wrong and Joe’s correct. In my testimony, I specifically stated,
“The reality is that prices may go up in the future. And Persian Gulf oil production and exports will rise. However, the most likely scenario, given what we know about oil supply and demand and what we have learned about forecasting in the last 10 to 15 years, is that OPEC is going to be under continued pressure for at least the next 10 years, possibly for much longer, that they will be fighting with each other for market share. And, it’s going to require some very substantial changes in the world to see prices rising.” (See my opening statement on pp. 127-128.)
Arguably, the price collapse leading to the rise of Hugo Chavez, the September 11 terrorist attacks and the Bush Administration’s decision to invade Iraq, are those ‘substantial changes’. Certainly, not the soaring Middle East market share predicted by Romm. (Since he downloaded the transcript of the hearing, it’s not clear how he missed this.) [Read more →]
March 5, 2010 1 Comment
The latest peak oil news is simply astounding: a whistleblower inside the International Energy Agency (IEA) claiming that “the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.”
The fact that this report appeared in the Guardian, which has published questionable articles on peak oil, is suggestive.
First and foremost, one is tempted to conclude that this story represents poor reporting, bringing to mind an earlier Guardian story claiming that Fatih Birol, the IEA official in charge of the World Energy Outlook, acknowledged peak oil. It turns out that Fatih was misquoted. And while I might be biased, considering Fatih a friend, the nature of the present story is close to ridiculous, rather than misleading. (Sadly for him, Birol is often a lightning rod for any disagreement about energy forecasts.)
This is a long-standing problem with peak oil advocates, many of whom misrepresent comments as agreeing with them. [Read more →]
November 11, 2009 16 Comments
“A reliable and affordable supply of energy is absolutely critical to maintaining and expanding economic prosperity where such prosperity already exists and to creating it where it does not.”
- John Holdren, “Memorandum to the President: The Energy-Climate Challenge,” in Donald Kennedy and John Riggs, eds., U.S. Policy and the Global Environment: Memos to the President (Washington, D.C.: The Aspen Institute, 2000), p. 21.
Julian Simon (1932–98) is an inspiration to many of us here at MasterResource. Indeed, this blog is named for Simon’s characterization of energy as the master resource. In honor of Simon, I have reproduced some quotations from the vast literature on that theme.
The primal importance of energy is recognized across the political spectrum as the views of John Holdren, Paul Ehrlich, and Amory Lovins attest. Affordable, reliable energy is thus the starting point for public policy debate. And oil, gas, and coal are the backbone of energy plenty, as even politicians are realizing now that government-forced energy transformation (energy rationing) is under debate.
“The future belongs to the efficient,” it has been said. And the foreseeable future belongs to the carbon-based energies.
Here are some quotations, beginning with Julian Simon’s classic. [Read more →]
July 3, 2009 3 Comments
Over the past year, as the party in power has proposed one restrictive measure after another for the oil and gas production industry, analysts have been busy guessing how much this would cost us in foregone production and tax revenue. In an analysis featuring welcome candor, the Energy Department’s Energy Information Administration (EIA) has estimated oil and gas production in the United States with and without restrictions. By the end of the next decade (2019), restrictive permitting and tax policies will reduce the potential annual government tax take from oil and gas production by more than the total expected yield of the Obama tax program in the oil and gas sector. In the ten years to 2019, the time-frame used in the government’s tax increase proposal, restrictions and new taxes will have reduced the tax take from oil and gas production by more than $118 billion, or about 4 times the expected yield of the new taxes. Some deal, eh? [Read more →]
June 2, 2009 2 Comments