Oil, Dwindling Reserves

Oil is definitely an issue today. The total global excess capacity for oil production is now only 2%. This 2% won't last very long since China's energy consumption is growing daily. The market for cars in China is huge and every one of those new cars will burn gasoline. The United States was the World's largest oil producer in the 1960's but is nowhere near that today. The United States also has no hope of regaining that title or even reaching third on the list. There simply are not enough oil reserves within the territory of the US to allow that high of production. Worse still, the number one oil producer, Saudi Arabia, has shut down several of its smaller fields and is relying more and more on its largest oil field, the Ghawar field. That oil field is now at maximum capacity and cannot be increased any further and is expected to begin dropping off after 2010. Most oil producing countries that have not yet peaked will peak between 2008 and 2015. The best estimated show a slight increase up to 2030 with a drop off after that. However, with increased demand from China this is not likely to be enough. So, if something is not done, the US will face serious economic hardship within the next 15-25 years.

The total estimated reserves in all of OPEC was 385 Billion barrels back in 1985. This would be down to about 242 today. The figure for OPEC may increase slightly with confirmation of additional reserves but not to any large degree. Likewise, off shore drilling has also located additional reserves but again not as much as would be needed. For example, if off shore drilling tripled the amount of reserves that would be very good but increases on the order of 20-50% don't have as much effect. For example, with oil production in the Gulf of Mexico the US has oil production of 1.8 Billion barrels per year down from the 1970 high of 4 Billion. Today, Saudi Arabia is producing 4 Billion barrels per year. However, since oil drilling has modernized significantly in the last 37 years it would be naive to assume that Saudi Arabia could likewise be producing at the rate of 1.8 Billion barrels in 37 years. It is much more likely that Saudi Arabia will be producing only 1 Billion barrels per year in 37 years. Saudi Arabia by itself today would only have reserves of 107 Billion barrels. In fact, with a production of 4 Billion barrels per year, Saudi Arabia's reserves would be depleted in 27 years. However, the production volume will drop before that happens.

Such a significant shift in just two generations is shocking. However, necessary though they may be, the alternatives are very limited. The only other source of oil within the US are the deposits of tar shale. The amount of tar contained in these shales is vast and is easily comparable to Saudi Arabia's reserves. All crude oil is a mixture of various weights of oil with components as heavy as wax and as light as gasoline. Tar is very similar to other crude oils but has more of the heavier varieties of petroleum. This material however can still be used just like other crude oils by cracking the heavier components into lighter ones. This process is used today to increase the amount of gasoline yield per barrel of oil. At the very least it would seem to be necessary to develop this as a strategic resource.

A pilot project was tested back during the Carter administration but it was not found to be economically viable. It is likely that this situation has changed today. Most notably, Canada today is profitably using its deposits of tar sand for petroleum production. It is very likely that we could re-examine our tar shales and use both our initial testing and Canada's tar sand experience to profitably produce oil. however it is much more likely that the tar shales will become increasingly profitable in the next decade or so. Canada has an estimated 180 Billion barrels in the form of tar sand. Canada currently only produces 0.4 Billion barrels of oil a year from its tar sands however this is expected to be at 1.7 Billion barrels a year by 2020. Not only would this put Canada's output nearly equal to the US's current production but this is one of the very few places worldwide where production can increase to this degree. Further, the estimated oil reserves in the form of tar shale within the US is 880 Billion barrels. If the price of oil does rise this would tend to make the Canadian tar sands more profitable and could make the US tar shales economically viable to produce. Venezuela also has large deposits of tar sand. The US should definitely work with the Canadians and possibly the Venezuelans on tar sand production technology. The US should also do additional pilot testing of its tar shale deposits. This would allow the US to be better adjusted to potential large increases in crude oil prices. This would be of both strategic and economic benefit to the US and Canada. It is even possible that with such technology in place that the Western Hemisphere could become the leading oil producer after 2030.