Think Again: Oil

It protects wealthy autocrats, poisons the environment, and fuels international conflicts. Yet it won't be the false threat of scarcity or the rise of an Asian energy axis that convinces the world to finally kick the oil habit. An auto revolution courtesy of Silicon Valley and Shanghai may deliver an end to the defining addiction of our age.

BY VIJAY V. VAITHEESWARAN | OCTOBER 11, 2007

"The World Is Running Out of Oil"

Hardly. The world has more proven reserves of oil today than it did three decades ago, according to official estimates. Despite years of oil guzzling and countless doomsday predictions, the world is simply not running out of oil. It is running into it. Oil is of course a nonrenewable resource and so, by definition, it will run dry some day. But that day is not upon us, despite the fact that a growing chorus of "depletionists" argue that we've already reached the global peak of oil production. Their view, however, imagines the global resource base in oil as fixed, and technology as static. In fact, neither assumption is true. Innovative firms are investing in ever better technologies for oil exploration and production, pushing back the oil peak further and further.

The key is understanding the role of scarcity, price signals, and future technological innovation in bringing the world's vast remaining hydrocarbon reserves to market. Thanks to advances in technology, the average global oil recovery rate from reservoirs has grown from about 20 percent for much of the 20th century to around 35 percent today. That is an admirable improvement. But it also means that two thirds of the oil known to exist in any given reservoir is still left untapped.

The best rebuttal to the depletionists' case lies in the world’s immense stores of "unconventional" hydrocarbons. These deposits of shale, tar sands, and heavy oil can be converted to fuel that could power today's ordinary automobiles. Canada, for example, has deposits of tar sands with greater energy content than all the oil in Saudi Arabia. China, the United States, Venezuela, and others also have large deposits of these energy sources. The problem is that the conversion comes at a much greater environmental and economic cost than conventional crude oil. But the very same high oil prices that doomsters claim are a sign of imminent depletion also provide a powerful incentive for the development of these mucky deposits -- and for the technology that will allow us to extract them in a cleaner fashion.

 SUBJECTS: ENERGY, OIL, CHINA, ENVIRONMENT, RUSSIA
 

Vijay V. Vaitheeswaran is correspondent for The Economist and coauthor, with Iain Carson, of Zoom: The Global Race to Fuel the Car of the Future (New York: Twelve Books, 2007).