Obama said: “With only 2% of the world’s reserves, we can’t just drill our way to lower gas prices. Not when we consume 20% of the world’s oil.” Addressing the 2% part of his statement, if he meant we have only 2% of the “proven reserves” he is correct. But he uses this figure hoping that you will come to an incorrect conclusion. The US is, by every analysis one of the most energy rich nations in the world. Others, including the Congressional Research Service, say that the US is the most energy rich nation in the world
The second part –consuming 20% of the world’s oil– is a non sequitur, meaning it does not follow logically from the previous part of his statement. We will talk about that later.
The basis for the President’s statement came from the DOE’s Energy Information Administration. The US’s “proven” reserves of 20.6 billion barrels of oil are equivalent to 2% of the worlds proven reserves.
DOE’s Energy Information Admin (EIA) Table of US Reserves (Billions of BBL’s) 10/19/2011
Interpreting the table, Proven reserves are where oil production is underway and the extent of the fields is well known. Inferred is the volume by which the estimate of total recovery from a known crude reservoir or aggregation of such reservoirs is expected to increase during the time between discovery and permanent abandonment. Undiscovered is oil that very likely exists, and can be recovered depending in part on technology and/or the price of oil.
This table understates the reserves. EAI says of the above table: “Resources in areas where drilling is officially prohibited are not included. Estimates of the resources in the Northern Atlantic, Northern and Central Pacific and within a 50-mile buffer off the Mid and Southern Atlantic OCS are excluded from the technically recoverable volumes. “ A case in point is that the reserves in ANWR which according to the USGS may contain 12 billion barrels is not included because the Feds have taken it off the table. Most of our costal waters are off-limits as well.
This table also excludes the shale oil in the Green River Formation in Colorado, Utah and Wyoming. The Feds control roughly ¾ of the public lands on which fossil fuel resources exist. Wiki says that: “The Green River Formation contains the largest oil shale deposits in the world. The 213 billion tons of oil shale contain an estimated 2.38 × 10¹¹ m³ (1.5 trillion US barrels) of shale oil.
When the proven reserves are stated, how should you interpret the number? Here is an example from The Institute for Energy Research:
Proved Oil Reserves Are Not Static
Let’s take a look at history. In 1944, U.S. proven oil reserves were 20 billion barrels — about the same as they are today. Yet, between 1945 and 2010, the United States produced 167 billion barrels of oil. In other words, the United States produced over 8 times more oil than the amount of proven oil reserves it had in 1944. How can that be? The answer is that proven oil reserves are not stagnant because people keep looking for oil. Proven oil reserves keep changing, are officially recorded every year, tallied country by country, and published in the Oil and Gas Journal, among other publications. And due to U.S. entrepreneurship and ingenuity, more reserves are found and proven each year.
What Does More Recent Data Look Like?
So, is this an historic anomaly? No. Let’s look at more recent data. In 1980, according to the Energy Information Administration, the United States had 31.3 billion barrels of proven oil reserves. However, between 1980 and 2010, the United States produced 77.8 billion barrels of oil and still had 20.7 billion barrels of oil reserves left. In other words, between 1980 and 2010, the United States produced 2.5 times the amount of oil as it has proven oil reserves in 1980.
The preceding illustrates that comparing the proven reserves to oil consumption is at least faulty and perhaps intended to misinform.
The President said that we can’t drill our way to lower prices when we are the largest consumer. Now I know that OPEC is the major force in setting the price of crude. Even so, they are not immune to the laws of supply and demand. They know that a substantial excess of supply over demand will cause them to either curtail production within the Cartel to rebalance supply and demand or the price will drop. They also know that if they see widespread drilling being undertaken, lowering the price of crude can cause some marginal production capacity to shutdown.
Every country that has shale oil, will be out there trying to achieve some piece of national security brought about by having their own oil. So the over supply is likely to happen. Ask the natural gas suppliers how well their prices have held up in recent years now that the shale natural gas is becoming oversupplied. It will happen to OPEC too. And the sooner the better.