In an excellent new paper, Jim Hamilton asks whether the “phenomenal increase in global crude oil production over the last century and a half” reflects technological progress or good fortune in finding new reserves. The two aren’t completely distinct, of course. Better technology helps find more resources. But the heart of the question remains: have we been lucky or good?
Based on a careful reading of production patterns in the United States and around the world, Jim concludes that we’ve been both and worries that the luck part may be coming to an end:
My reading of the historical evidence is as follows. (1) For much of the history of the industry, oil has been priced essentially as if it were an inexhaustible resource. (2) Although technological progress and enhanced recovery techniques can temporarily boost production flows from mature fields, it is not reasonable to view these factors as the primary determinants of annual production rates from a given field. (3) The historical source of increasing global oil production is exploitation of new geographical areas, a process whose promise at the global level is obviously limited.
Most economists view the economic growth of the last century and a half as being fueled by ongoing technological progress. Without question, that progress has been most impressive. But there may also have been an important component of luck in terms of finding and exploiting a resource that was extremely valuable and useful but ultimately finite and exhaustible. It is not clear how easy it will be to adapt to the end of that era of good fortune.
These arguments should be familiar to anyone who’s followed the peak oil debate, but Jim brings a welcome rigor to the discussion.
He also includes some charts illustrating how various states and regions have passed their production peaks. Here, for example, are the United States, North Sea, and Mexico:
And he discusses how oil prices affect the economy. All in all, a great survey.
P.S. If you are interested in the details, Jim’s post over at Econbrowser sparked some thoughtful comments.
4 thoughts on “Is Our Luck Running Out on Oil Supplies?”
Even though it would be difficult to change the consumption trajectory of oil, we can do much to change the consumption trajectory of plastics through the long use potential they deserve. Especially in the south, plastic is not ‘termite food’ like wood is, and should be a replacement in housing through more efficient production models.
If you want to know more about oil depletion and alternatives, try the oil drum
Did Donald really state that oil is finite? How can endless economic growth be predicated on a finite resource? I’m confounded.
Oil is finite, but we can and will develop other energy sources when the time comes and oil becomes expensive relative to alternative sources. Currently, there is no reason to switch, alternative sources are much more expensive which is why people aren’t embracing solar or wind power and why electric cars have largely been a complete failure.
Re: Reality bites. Oil is very energy dense, nothing else comes close. Oil also provides chemicals used for plastics, medicines, pesticides and fertilizer, as well as materials for road paving. Alt energy won’t supply the energy density or the chemicals. We will develop alternatives some of which will be a reversion to animal and human power, none of which will provide the energy density or the chemistry of petroleum.
Solar and wind are intermittent power sources and must be load balanced with oil,gas, or coal sources. I fear you are indulging in magical thinking because the alternative is too grim, a disaster looms and no one plans for it. it reminds me of the housing bubble, obviously a huge problem looming and no one in charge. What a way to run a nation, or should that be ruin a nation?
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