# The Big Energy Lie, Revisited

## The truth behind all that 'The U.S. has only 2% of the world's oil reserves' malarkey.

Your President has been telling you things that simply aren’t true. Things like “We can’t drill our way out of our energy problems.” Or “Oil and gas are the fuels of the past.” Or, perhaps worst of all, “The U.S. consumes 25% of the world’s oil, but controls only 2% of the world’s reserves.”

Well, that last one may be technically true, but it is used to convey the false notion that to strive for energy security is an exercise in futility. In a post called The Big Energy Lie (Dec. ’09), I attempted to explain the deception. In this post, I’ll attempt to demonstrate, in layman’s language, using graphs based on the government’s own data.

KEY CONCEPT #1: “Reserves” are not “Inventory”

This graph depicts the history of U.S. oil reserves and production over the last 25 years. In 1986, reserves were estimated to be nearly 27 billion barrels. In 1986, we produced 8.7 million barrels a day, or an annual total of 3.2 billion* barrels. The ratio of reserves to production is 8.5 years — often incorrectly reported in the press with alarm: “We have only 8.5 years of reserves left! We’re running out of oil!”

If this were true, we’d have run slap out of oil in 1995. The dashed line on the graph shows the cumulative amount of oil produced since 1986. Sure enough, by 1995 we had produced over 27 billion barrels, and we still had reserves in the ground of over 22 billion barrels.

Fast forward to 2010: we’re still producing 2 billion barrels a year, and we still have over 20 billion barrels in the ground. In fact, we’ve produced 58 billion barrels since 1986, over twice the 1986 reserve total.

Magic!

Well, not really.

Imagine if you managed a shoe store. On January 1, inventory shows you have 10,000 pairs of shoes on hand, and you sell 500 pairs per day. Would you forecast that you would be completely out of shoes in 20 days?

Only if you can’t replenish supply. (Or if you’re a former community organizer really crappy manager.)

In oil and gas, reserves are replenished by drilling new wells. (Reserves can be added other ways, too, but the ultimate key is drilling.) By drilling, “resources” are upgraded to the much more restrictive and valuable category “reserves”. And the U.S. has plenty of resources to draw from. We should be encouraged by the fact that, even with a period of persistently low product prices and relatively low drilling activity from 1986 to 2004, the reserve base has only declined by a little over 20% in 25 years.

KEY CONCEPT #2: “Reserves” are only estimates.

Oil and gas reserves often cannot be estimated with a great deal of precision. Even if the recoverable quantity were known accurately, by definition reserves must be economic to produce. That means that changing economic conditions (especially changes in oil and gas prices) will effect the estimated reserve quantity. When prices are higher, wells can be produced that would otherwise be plugged.

Bottom line, reserve estimates change all the time.

The dark green bars show the rate of oil production over the 25 years. The gold bars show the year to year change in reserves. Production causes reserves to decrease, but new additions from drilling can offset production. Reserves can also be revised — up or down — due to geologic and engineering studies, or changes in economics as described above.

One more graph — the “Reserve Life Index”, or Reserves to Production Ratio. We saw that it is often misinterpreted to represent how many years of production remain. Our national R/P ratio has grown over the last 25 years, perhaps a reflection of better technology or higher prices.

There you have it. Our relatively low reserve number is not an indication that “we’re running out of oil!”, it’s merely a wake-up call that we need to get busy and shore up our domestic supplies. The only thing we are running low on is the political will to do it.

Reserves
Production

Cross-posted at SteveMaley.com.

* Fixed – Thanks!

• dog_nut

Great post Steve. How do we get the 1.5 trillion barrels of shale oil out west moved from resources to reserves, by beginning E&P ? I’m invested in small oil companies in the Bakken & Niobrara reserves that are just crankin’ out the oil.

• hertfordkc

If only the politicians and media could bother to understand and disseminate your information. Unfortunately, the subject doesn’t offer opportunities for class warfare.

• paramedichess

of total FAILURES by the Bush administration when they ran the House and Senate. I continue to be amazed at just how poorly the Republicans ran the country when they held all the cards. If we are going to work our tails off for a R in the White House and a new Senate majority in 2012, we have to get ourselves some better candidates.

• juumanistra

This is, at best, the Middling Energy Fib: A conscious aversion of certain facts by those who dislike domestic hydrocarbon production to advance their point. As a talking point it’s disingenuous, but no more than some of the more outlandish claims ascribed to “drill, baby, drill.” (Too many on our side, alas, do not grasp that while the U.S. does have the ability to produce substantially more oil than it does, we don’t have 15mn/bbd of resources waiting to be tapped. Or that even if we did, we would not particularly want to.)

At any rate the Big Energy Lie remains, as it has since 1977, that nuclear power is anything other than the safest and cleanest form of electricity generation available, with all of the rank lying and mindless radiophobic fearmongering that goes to support the Big Energy Lie.

• http://stevemaley.com Steve Maley

I don’t disagree with your main point. I do not and I never have taken “Energy Independence” to be any more than a political talking point. If, however, we were to focus on “Energy Security” and improve access, I believe it is realistic we could build 3-5 million B/D of domestic crude oil production, which in itself might be a game changer.

If we were to supplement that with increased use of nat gas as a transportation fuel (the only inexpensive and abundant alternative to gasoline) and judicious and wise development of nukes, we could put a serious dent in non-North American imports.

• juumanistra

I did not mean to impute unto you a belief in energy independence: Merely raising it as something closely tied to Drill, Baby, Drill that tends to get exaggerated by politicos and rank-and-file members of the Right. (I admit, the recent Politifact brouhaha has had me fulminating over such, which is probably what drove me to broach the subject in the first place.) Mea culpa for implying such.

Three-to-five million barrels a day of increased American production would indeed change the face of petroleum geopolitics: The upper bound of which marks a rather potent political rallying cry, as such would effectively double American output and, conveniently enough, spit on the grave of Hubbert’s peak. For point of comparison, the most potent long-term geostrategic argument in favor of Operation Iraqi Freedom was the chance to remake the map of oil politics that a reasonably democratic, reasonably Western-oriented Iraq would offer: National avarice would drive such an Iraq to expand its extant production capacities from 2 million barrels per day to ~6 million, its “natural” maximum given what was known of its reserves at the time. The impact of a comparable increase in American production is hard to wrap one’s head around.

On natgas as a fuel for motor vehicles, I remain leery of it due to its energy density issues. Of course, this isn’t really an issue for vehicles that’re big enough that CNG tanks don’t devour big chunks of the usable interior, so I suspect the real gains would be soaked up the long-haul trucking industry if and when natgas makes its way to our local gas stations. (LNG has energy density comparable to gasoline, but…well, it’s a cryogenic fuel. Not just a little cryogenic, either. The amount of engineering required to keep it cryogenic when the vehicle’s off would be impressive, let alone keeping it cryogenic and contained in an accident.)

My own preference for a superior alternative to gasoline is…well, gasoline, though that which is created by the Fischer-Tropsch process with process heat provided by a nearby atomic pile. Cures the whole issue of dependency upon oil being pumped out of the ground. (I’m you’re recoiling in horror at that.) Production is infinitely scalable, with your bottlenecks becoming hydrogen sources, carbon sources, and reactor-building materials, all of which can be procured via well-known and established industrial processes and methods. Of course, just because the chemistry makes sense, it doesn’t mean that the economics do. Or ever will.

• http://stevemaley.com Steve Maley

…imagine that in order to replenish inventory, you have to take shipment of 3,000 pairs of shoes in the next week.

Only your store is closed on Sunday.

Saturday is your busiest shopping day.

You can’t get a permit to access your loading dock, because neighboring stores say “Not In My Back Yard”.

Street sweeping days are Tuesday and Thursday. No curb access.

All the Italian styles won’t clear Customs until Wednesday afternoon.

And now you find out that the delivery truck can’t get permission to operate because of excessive CO2 emissions.

That’s what we’re facing.

• jeffex11

The shoe store analogy is right on the money. The progressives has the useful idiot electorate convinced that there is no oil and gas….and even if there was we can’t get it out safely and efficiently.

The great transformers have convinced a generation that America is a country of “can’t -ers”

Just as the posters analogy points out ….especially when the government raises the production cost of oil and natural gas with costly regulations and permits…All designed to do exactly what is the plan. To save those energy reserves for when they collapse our Republic and usher in their newly re-branded form of Marxism….