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Source link: http://archive.mises.org/5785/the-world-is-not-running-out-of-oil/

The World Is Not Running Out of Oil

October 20, 2006 by

Economic geologist Eric Cheney says: “The most common question I get is, ‘When are we going to run out of oil.’ The correct response is, ‘Never.’ It might be a heck of a lot more expensive than it is now, but there will always be some oil available at a price, perhaps $10 to $100 a gallon.”

The article also notes that Cheney says “Changing economics, technological advances and efforts such as recycling and substitution make the world’s mineral resources virtually infinite… For instance, oil deposits unreachable 40 years ago can be tapped today using improved technology, and oil once too costly to extract from tar sands, organic matter or coal is now worth manufacturing.” This notion of “virtually infinite” resources is, in essence, the same paradoxical conclusion at which both Julian Simon and George Reisman have arrived.

Those who fear “unsustainable development” count up oil reserves, draw a trend line of increasing usage and predict we’ll run out of oil ANY MINUTE NOW! What they consistently disregard is the role of human action in expanding the resources available, finding substitutes and turning previously useless resources (as oil was once considered to be) into resources that meet human needs. See Austrians on the Environment for more. [Thanks Digg]


Björn Lundahl October 21, 2006 at 3:57 am

People do not realize that gas, in a free market, does not suddenly run out.

Gas does not suddenly, in a free market run out. Prices today reflect “expectations” of the available supply and demand for goods and services “today and tomorrow”. If, for instance, the expectation is that oil supply will decrease or will be less than demand in ten years time, it will influence oil prices today. Prices today will go up. People will have the incentive to conserve (demand will decrease) and to develop new alternatives.

Actually, we are probably conserving too much, because of OPEC and Governments taxations are keeping prices higher than they otherwise would be. “That oil soon runs out” is a political slogan that keeps coming up to keep politicians busy. This political slogan sounds true and will, therefore, “in the political market” sell. Only true markets can handle this sort of complex things. Compared to markets, Governments are too simple minded and primitive, because of the fact; they lack the essential tools that are needed to solve these kind of “problems”. They primitively, for example, regulate car manufacturers (and in the end consumers) to produce cars which improve gas mileage and impose upon people speed limits, without knowing if these actions are good or bad. Only markets can tell if conservations are good or bad, because market prices gives people the necessary signals of supply and demand, and people can therefore compare these prices to their own values if they are profitable or not to realize. The essential tools that are needed (which Governments are always lacking) are, as mentioned, “market forces and the market price mechanism”. Without these mechanisms nothing can be done. For example, a scientist will not reach the truth in trying to calculate physical available quantities and compare that to what he expects physical demand will be. It is silly, it is static and mechanistic.

Every individual and every business around the whole world, with all the different knowledge, all the time, and in all possible situations, and which are directly influenced of higher prices, will conserve and try out alternatives. Even people and businesses that are not directly influenced of higher oil prices, also, have incentives to find out alternatives. These things happen all the time with all goods, services, capital and raw materials, and it run smoothly without us even noticing it. If Governments were going to replace the markets, we would probably end up with no available goods and services at all! In a sense, this would solve the “conservation problem” (joke).

To make an example of this lack of knowledge and the belief that you can ignore markets, look at the so called “Club of Rome”, a group that made fools of themselves in the 70s with their book “Limits to growth” http://www.answers.com/the+club+of+rome?gwp=11&ver=
If their predictions were right, we would barely, even, live today!

Alex Kozinski wrote and I quote;

“The Limits of Growth made some very concrete and highly alarming predictions: “there will . . . be a desperate [arable] land shortage before the year 2000 we would run short of gold by 1979, of silver and mercury by 1983, of petroleum by 1990, of zinc by 1988, of tin by 1985 and of natural gas by 1992. The book’s forceful message was that we were headed for a world-wide calamity, and must fundamentally — and immediately — change the way we live. Nor was this merely a question of physical survival; at stake was humanity’s very
soul: “The crux of the matter is not only whether the human species will survive, but even more whether it can survive without falling into a state of worthless existence.””


Björn Lundahl
Göteborg Sweden

Björn Lundahl October 21, 2006 at 4:06 am

See also my above comment!


Regulations on cars manufacturers to improve fuel efficiency and the imposition of speed limits were not imposed to combat pollution but were imposed for the reason to conserve oil and to reduce oil consumption. This started during the 70s.

I quote from answers.com;

“regulations in the United States, first enacted by Congress in 1975, exist to regulate and improve the average fuel economy of cars and light trucks (trucks, vans and sport utility vehicles) sold in the US in the wake of the 1973 Arab Oil Embargo. It is the sales-weighted average fuel economy, expressed in miles per gallon (mpg), of a manufacturer’s fleet of passenger cars or light trucks with a gross vehicle weight rating (GVWR) of 8,500 pounds (3,856 kg) or less, manufactured for sale in the United States, for any given model year. The National Highway Traffic Safety Administration (NHTSA) and Environmental Protection Agency (EPA) regulate CAFE standards.
If the average fuel economy of a manufacturer’s annual car or truck production falls below the defined standard, the manufacturer must pay a penalty, currently $5.50 per 0.1 mpg under the standard, multiplied by the manufacturer’s total production for the U.S. domestic market”.
Please go to;
And to;

Björn Lundahl, Göteborg, Sweden

David White October 23, 2006 at 8:44 am

No, we aren’t going to run out of petroleum, any more than we ran out of kerosene, whale oil, or any other fuel. But this doesn’t mean that decades of state intervention haven’t so distorted the energy market (and thus the market as a whole) that we don’t have hell to pay as we transition out of petroleum.

After all, there’s a US battle group bearing down on the Strait of Hormuz at this very moment, is there not?

TokyoTom October 24, 2006 at 2:34 am

Great observation, David.

We can probably make a rough distinction between domestic interference in energy markets and our foreign meddling. Both have been tremendously costly, but the second is really spiralling insanely out of control.

Jonathan October 24, 2006 at 10:14 am

Not all peak oilers are Malthusians in disguise. There are those who believe that we are nearing a time when total oil output will decline because man’s ingenuity will reduce our need for oil (alternative energy etc).

As an aside, the Austrians who hunger for the gold standard might want to contemplate a plan b when sub atomic manipulation makes gold as replicatable as, say, paper money.

RogerM October 24, 2006 at 10:21 am

Bjorn, I enjoy your posts! Keep them coming. I try to remind myself that the news media and politicians are in the horror show business because without a looming crisis, no one pays attention to them. So they maintain huge staffs to fabricate crises when none are apparent. The “end of oil” and “global warming” are just two of their most enduring and endearing fabrications.

David White October 24, 2006 at 10:36 am


To understand the import of the Cheney quote below, along with the context in which his words were spoken, is to understand that market “intervention” is such a gross understatement as to be all but meaningless:

“By some estimates there will be an average of 2% annual growth in global oil demand over the years ahead along with conservatively a 3% natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional 50 million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously controlling about 90% of the assets. Oil remains fundamentally a government business. While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies.”



When “subatomic manipulation” — i.e., nanotechnology — is able to realize the alchemist’s dream (and we are probably no more than a few decades away from doing so), mankind will have overcome scarcity altogether, and universal abundance will be the norm. That is, “the economic problem” will have been solved, and mankind will move beyond his present (biological) state to achieve its enormous potential, in accordance with the ancient (originally Latin) apothegm: “There is nothing greater in nature than man, and there is nothing greater in man than mind.”

At least if we can survive the near-term insanity of a world enslaved by statism.

Björn Lundahl October 24, 2006 at 1:09 pm


Thank you! Yes, you are entirely right. It is a political circus. It is amazing and at the same time, quite frightening.

Björn Lundahl

Dennis Sperduto October 24, 2006 at 1:48 pm


Me thinks that your less than respectful mention of a certain issue may elicit a response from Tokyo Tom.

RogerM October 24, 2006 at 5:04 pm

Dennis, TT and I need to get lives! Seen any good used ones for sale on Ebay?

David White, Interesting thoughts on the end of scarcity. But consider this: we might reach the end of material scarcity, but look at what has happened to rich economies. We demand fewer and fewer manufactured things (the things that nanotechnology would end the scarcity of) and more services. People supply services, but not just any people. For example, pro sports requires special people with special talent and their numbers are limited and therefore scarce. So as technology ends the scarcity of things, it could usher in a greater scarcity of services.

David White October 24, 2006 at 7:43 pm


Google “technological singularity” and you’ll find this seminal paper by mathematician Vernor Vinge — http://mindstalk.net/vinge/vinge-sing.html — and the scientific universe (now mainstream) that it has spawned, including virtual athletes and actors that will soon be indistinguishable from their originals.

Hudson Luce October 24, 2006 at 9:30 pm

Eric Cheney states: “The most common question I get is, ‘When are we going to run out of oil.’ The correct response is, ‘Never,’” said Eric Cheney. “It might be a heck of a lot more expensive than it is now, but there will always be some oil available at a price, perhaps $10 to $100 a gallon.”

Peak Oil isn’t about running out of oil totally; it’s about running out of cheap oil, and cheap gasoline/diesel fuel. Currently, the US uses about 21 million barrels per day of oil, of which about 58% is light sweet crude from the Middle East and the heavier oil from places such as Venezuela. The light sweet crude contains about 38% gasoline and similar fractions, and the heavier oil from Venezuela contains about 10% gasoline, albeit with a high sulfur content. The recent discovery in the Gulf of Mexico is estimated to contain at most 15 billion barrels of recoverable crude oil, which would suffice for about 2 years of domestic usage assuming no growth in consumption.

Oil is a non-renewable resource which depletes as it is removed from the ground. This means that the supply is ever-decreasing. Yes, it’s true, the supply of oil insofar as anyone reading this is concerned will be “infinite” over our lifetimes, even if the reader is five years old today. As we use up the light sweet crude reserves (Al Ghawar is on secondary and tertiary recovery, Kuwait has halved its proven reserves as of last year, and so on), we must use heavier oils. When it becomes necessary to use these high-sulfur content heavy oils which contain about 10% gasoline at most, the price will increase because the supply will be rather more sharply limited than before, assuming that Hugo Chavez wants to sell to the US. or in the alternative, that the US will invade and just seize the oil.

When Venezuela’s oil becomes depleted enough so that it becomes economically feasible to start extracting oil from oil shale and tar sands, which contain about 5 gallons of oil per ton of raw material, then we will see the $10.00 to $100.00/gallon oil of which Eric Cheney speaks. This oil will probably be heavy oil, with low gasoline/lighter fractions content, say, 10% gasoline. At $10.00/gallon for wholesale crude, the price of a gallon of gasoline would be close to $100.00 – wholesale. This doesn’t include excise taxes or profit.

Yes, technically we won’t run out of oil. But market forces will force us to seek other means of transportation and power. Perhaps we are looking at a nuclear future, where nuclear reactors produce electricity to run a transport network. There’s a big rush on by utilities to build new pulverized coal electric generation plants – which would have an horrific effect on the environment, not to say people’s health, but this is an example of privatizing profit while socializing costs. Another possible outcome is the use of alternative fuels. Remember back in the late 1970s when people were using methane generators to run farm equipment and trucks? Wind power is also coming back in a big way; solar/PV lags because of the great up front capital outlay.

Whatever happens, I wouldn’t bet on building and expanding new interstate highways as a good solution to our transportation problems. Yes, we’ll always (for our lifetimes) be able to get a gallon of gasoline, but even if we drive a car which gets 75 miles to the gallon, will it be worth it to pay $1.33 per mile traveled? And can the economy sustain this? My bet is that it won’t. It’s a good thing we’ve preserved most of our railbeds, we may have use for them in the future.

RogerM October 25, 2006 at 8:19 am

People are confusing the recent spike in oil prices with scarcity, but scarcity hasn’t been the cause. An excess of oil plus inflation (as well as speculation) caused the recent spikes. Throughout the 1990′s, the price of oil even in real dollars fell dramatically because new technologies, such as horizontal and deep well drilling, brought online huge new supplies and made each well more productive.

But the Fed kept inflating the dollar, so every year oil companies and oil producing nations (and states such as mine, Oklahoma) earned less in real dollars for their oil. As a result, they simply quit exploring for new oil. It took a few years for the growing world economy to absorb the excess oil, but when it did, prices rose just enough to compensate for the huge amount of inflation in the dollar (reduction in the dollar’s purchasing power) of the past decade. The deflated price of oil at its peak this year was only about $30/barrel in 1973 dollars.

The reduction in exploration during the latter part of the 1990′s was so bad that when oil companies decided to start exploring again after 2000, they couldn’t find experienced rig operators. That has made ramping up production in response to nominally higher prices very difficult and slow.

Speculators caused the spike this past summer. Fooled by the global warming false prophets, they assumed that this year’s hurricane season would be as bad as last year’s and destroy a lot of oil platforms in the Gulf. So they bought oil and oil futures expecting to make huge profits when the price of oil climbed. Those speculators have since lost billions of dollars as the price of oil has fallen.

Björn Lundahl October 25, 2006 at 5:23 pm


” As an aside, the Austrians who hunger for the gold standard might want to contemplate a plan b when sub atomic manipulation makes gold as replicatable as, say, paper money”.

Plan b = the Market

Björn Lundahl

Happy Kiwi May 31, 2007 at 10:51 am

The whole discussion of energy price gives off such an odor of doom and gloom. Deja vu, y’all. This is a replay of 1970s panics. The problem is that oil is a Poisoned Chalice. Oil is easy riches for those nations sitting on oil reserves. The control of oil is something worth fighting over, and so we do fight. The easy riches of oil means that the nation controlling the oil doesn’t build up its privately owned capital, doesn’t acquire the human capital needed to play smart in our technological world. The typical outcome of oil wealth is subsidized consumption and a population explosion. The only nation I know that has used its oil wealth to build infrastructure and diversify internationally is Norway.

Two things are in huge supply: sunshine and sea water. The challenge is capturing the resulting solar energy directly via photovoltaics, or indirectly in the form of wind, tide, waves, and thermal differentials in the ocean. Once you have cheap solar power, employ it to desalinate and electrolyze water. Electrolyzed water gives you hydrogen that can be burned or used to power fuel cells. The energy cycle would then piggy backs on the hydrological cycle: no more greenhouse gases. The main problem is finding a safe way to store and transport molecular hydrogen.

One day wind farms in North Dakota, and photovoltaic farms in Arizona and New Mexico, will supply most or all of the USA’s energy needs. Shortfalls can be covered by Canadian hydro. Hydro has the advantage that it can be ramped up and down without affecting average cost. We will drive electric cars powered by fuel cells, whose exhaust will be water vapor.

Finally, nuclear power has been unjustly maligned, especially for uranium producing regions. Canadian uranium can keep electricity running in North America for many centuries.

North America need not desalinate. There is plenty of fresh water in the boreal wilderness of Canada and Alaska. Tapping it is a matter of building pipelines from Alaska and the Canadian arctic, and keeping the water moving through those pipelines with cheap energy. Once again, everything hinges on transforming the extremely plentiful energy around us into usable form.

I am a professional economist, educated during the pessimistic 1970s, who has lived to see all that as badly mistaken.

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