Shooting fish in an oil barrel

Ken Layne, Max Power, Tim Blair, and VodkaPundit have lined up to praise Mark Steyn for his smackdown on the United Nations Global Environmental Outlook. Steyn turns his usual witty phrase in mocking this latest doomsday report, which like most others before it seems willing to extrapolate growth and usage trends without allowing for the possibility of technological advancement.

I think it would be wise, though, for the triumphalists to keep in mind that Steyn's was a political piece rather than a critical examination by an expert in the field. For example, when Steyn writes

[I]n 2002, with enough oil for a century and a half, the planet awash in cut-price minerals, and less global famine, starvation and malnutrition than ever before, the end of the world has had to be rescheduled.

he doesn't exactly cite any sources to back up his claims. This being the Internet, and this being a day off for me, I thought we could take a closer look at some of this. In particular, let's look at the claims about oil.

Here are a few words from an industry leader about the future of oil exploration and production:

Oil is the world's largest source of energy, supplying nearly half of total primary energy demand. Three-quarters of world oil reserves are in OPEC countries and of these, two-thirds are in just four countries: Iran, Iraq, Saudi Arabia and Kuwait. It might be expected that priority would be given to producing Middle East oil, given its abundance and the fact that it is relatively cheap to produce. However, as a result of economic, political and strategic considerations, the search for oil has extended into remote parts of the earth, both onshore and, increasingly, offshore.

Exploring for and producing oil offshore is both difficult and expensive. Oil companies will continue to seek technical innovations needed to make such activities cost-effective. Improved geological and seismic data have led to more accurate estimates of oil reserves. In some cases, reservoirs have been reassessed and reserves upgraded in the light of prevailing economics. On the production side, improved drilling techniques and the use of lighter materials on platforms have cut costs considerably, sometimes by as much as a third.

Oil supply can be augmented by unconventional sources such as oil shale and tar sands. There are major oil shale deposits in the Western United States, Australia and Morocco, and tar sands occur in Canada, Venezuela and Madagascar. Such sources are more expensive to produce than conventional oil and therefore tend to be uneconomic to develop in times of low oil prices.

So much for oil supply. But what about oil demand in the future? Demand in developed countries is likely to show little growth, due to energy conservation measures and moves towards greater energy efficiency and alternative energy sources. Well-insulated homes require less heating, modern car engines use gasoline more efficiently. Demand in the developing countries, on the other hand, is likely to increase, owing to greater industrialization and population growth, especially in urban areas. As people become more affluent, there are more cars on the road and demand for oil - still the main transport fuel - therefore increases.

In the early 1970s, there were concerns that the world's oil might be running out. This view has now changed and it is believed that with today's technology there is enough oil to last well into the next century. Public debate is now focused on the environment and the term 'sustainable development' has become increasingly familiar. People want a higher standard of living, but not at the expense of permanent damage to the environment. The use of all fossil fuels, including oil, will depend not only on technical, political and economic decisions but, increasingly, on environmental considerations.

"It is believed that with today's technology there is enough oil to last well into the next century" is not quite as strong as Steyn's assertion, which implied that all that oil has been found and merely awaits extraction. Most of the oil that Shell is talking about has yet to be found, though we have a pretty good idea of where it's likely to be and how much will probably be there.

The more pressing question is how expensive will it be to actually find and extract it? As noted, half the world's known reserves live in Iran, Iraq, Saudi Arabia, and Kuwait, a thought that should give pause to cheerleading. Many oil companies are turning offshore for new discoveries, but again as noted, that's harder and more expensive. There may be plenty of oil out there, but what happens if it only becomes economic to extract it at $50 a barrel? There's a difference between the total supply of oil and the total supply of cheap oil. That difference may turn out to be minor, but it's too soon to dismiss it.

Indeed, some in the oil patch think the supply of cheap oil will peak in the next ten years or so. This is a controversial position, but it's not Greenpeace that's pushing it. Again, all I'm saying here is that Steyn is behaving a bit like Pollyanna. Responding to silly doomsaying with silly blue-skying is, well, silly.

Even in places that are now friendly (or at least friendlier) to us and which have a fair amount of oil, there's much to be done before it can be reliably transported to us. This article about oil production in Russia gives a good overview. Russian oil will eventually help us lessen our dependence on OPEC, but we'll have to reduce our rate of consumption if we ever want to get that monkey fully off our backs.

Steyn himself fails to make note of the consequences of his free market prescriptions:

Thirty years after the first doom-mongering eco-confab in Stockholm, it should be obvious even to the UN frequent-flyer crowd. Markets aren't the problem, but the solution to the problem. The best way to clean up the neighbourhood is to make people wealthier. To do that, you need free markets, democracy, the rule of law and public accountability. None of those things exist in the Middle East, which is the real reason they'll be taking communal showers once a month in 2032.

Since 1970, when the great northern forest was being felled to print Paul Ehrlich best-sellers, the U.S. economy has swollen by 150%; automobile traffic has increased by 143%; and energy consumption has grown 45%.

So if free-market democracy comes to the Middle East and raises everyone's standard of living - and don't get me wrong here, this is a highly desireable thing - we can expect the rate of consumption of oil, among other things, to greatly increase. What effect will that have on the rate of depletion of the reserves? The Shell report seems to take this into account when discussing how much oil there is left, but let's face it: The rate of economic growth and natural resource consumption resulting from third-world countries transitioning to free-market democracy is pretty darned unpredictable. We just don't know.

Finally, while the free market is good for many things, it's not a panacea:

[Also since 1970], air pollutants have declined by 29%, toxic emissions by 48.5%, sulphur dioxide levels by 65.3%, and airborne lead by 97.3%.

Call me crazy, Mark, but I think the Clean Air Act may have had something to do with that. Go read Steven den Beste's discussion of spoiling the commons for the reason why government has a vital role to play.

I have no intention to monger fear on this issue. Among the many things I don't worry about when I crawl into bed at night is whether we'll run out of oil in my lifetime. That doesn't mean there's nothing to think about, however. Mark Steyn would be wise to give it a little more thought.

(If you want to give it a little more thought, go back to the beginning of this Shell article and read their excellent overview on the history and technology of exploration and production.)

Posted by Charles Kuffner on May 31, 2002 to Technology, science, and math