The End of the "End of Oil"

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The End of the "End of Oil"
People who are spreading fear about the world running out of oil are either trying to distort the markets, or they fail to understand the underlying realities of the business that delivers gasoline to the pumps and petroleum products to nearly every niche in our modern economy.

To properly forecast the future of oil, you need to start with the realization that oil is a commodity business. Commodity businesses are driven by price. Whenever you predict the amount of oil available in the world, you have to specify your assumptions about future prices. In other words, if oil is selling at $25 a barrel on the open world market, and it costs a company $30 a barrel to get it out of the ground, then in effect, that oil doesn’t exist because no one is going to bother extracting it. Under such conditions, predictions will always tend to show that we’re running out of oil.

In fact, despite panic in the 1970s, output in the year 2000 was 25 percent above the output of 1985.

How can that be? How can experts keep saying we’re running out of oil even while we’re finding more all the time?

The first explanation lies in the fact that the Earth is a very big planet. The surface of the Earth comprises about 500 million square miles of area. The crust of the Earth, in which the oil will be found, can be as much as 25 miles thick. The reality is that only a miniscule fraction of the total Earth’s crust has been touched by oil exploration, never mind drilling.

So despite aggressive efforts to find new oil, which are going on and expanding all the time, the truth is that we really don’t know how much oil there is. Moreover, any prediction of when we’ll reach the end of oil has to be wrong because we don’t know what the demand will be, any more than we know what the supply will be.

In the 1930s, no one could have predicted the enormous market for kerosene brought on by the advent of jet airliners, which burn it in the form of Jet-A fuel. In the 1960s, no one could have predicted that the efficiency of cars would double by 1985.

One thing we do know: There’s a lot more oil down there than we’re using right now. Another thing we know: The technology for finding and extracting it is advancing at a rapid pace.

According to the World Watch Institute, there are at least 200 billion barrels of recoverable oil in the U.S. alone.1 With the price of oil spiking to as much as $80 a barrel, there are a lot of options opening up for companies scrambling to exploit our domestic oil resources in ever more inventive ways...

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