The People of America's Oil and Natural Gas Indusry

A Paucity of Scarcity

Kyle Isakower

Kyle Isakower
Posted March 9, 2012

Steve Maley calls it The Big Energy Lie, the continued use of reserve estimates by those who want to end the use of hydrocarbons in the United States.  Maley explains:

"Reserves have been around 10 years of production ever since I can remember. That’s because energy companies measure their success by their ability to 'replace production' – that is, if they produce a million barrels, they need to replace it with a million barrels of reserves. It’s like a current inventory.  Or like a checking account. Imagine if you had $3,000 in your checking account. If you spend $1,000 per month, does that mean you will run out of money in 3 months? Only if you stop working. And only if you have no other assets."

To illustrate Maley’s example let’s look at EIA’s estimates for natural gas reserves and consumption from now till 2035.

You will notice steady consumption, and yet reserves actually grow.  Why?  Because current consumption is drawing from current production, while “reserves” as an industry term of art are drawing from a much larger supply.  From the EIA:

Notice two things, the addition of a zero to y-axis, and the steady growth since 2000, with an adjustment for this year.  In short it doesn’t matter what our “reserves” are, in the long run, because they don’t measure all of the resources available for exploration.  When you take those into account:

"EIA estimates that there are 2,214 trillion cubic feet (Tcf) of natural gas that is technically recoverable in the United States.  Of the total, an estimated 273 Tcf are proved reserves, which includes 60 Tcf of shale gas.  At the rate of U.S. natural gas consumption in 2010 of about 24 Tcf per year, 2,214 Tcf of natural gas is enough to last about 92 years."

So 92 years worth of natural gas is technically recoverable using, and this is the important part, today’s technology.  That’s right, we are sitting on 92 years worth of natural gas even with no new discoveries and no new technologies.  So when you see folks say that we might only have a 10 year supply of natural gas or that we need to raise energy taxes to fund immediate adoption of alternative fuels they are … I almost said lying, but really, it is mostly just ignorance.  Though occasionally, it’s politics.  Though you see that most often with oil, not natural gas, as we saw, again, with President Obama this week:

"As a country that has 2 percent of the world's oil reserves, but uses 20 percent of the world's oil -- I'm going to repeat that -- we've got 2 percent of the world oil reserves; we use 20 percent."

Let’s look at those reserves for a bit, in red, with yearly U.S. production in blue:

Again, yearly production steady, reserves go up.  For more, let’s go to the Congressional Research Service with a handy pyramid form:

So, as of 2010, we had 155 billion barrels of oil that were technically recoverable using 2010 technology. Going back to the previous chart, this equals about 70 years of production in the United States.   Not to mention the fact that we don’t have a very good idea about the resources that  87% of our offshore areas contain, because they are off-limits.

So no, we don’t have to jack up energy taxes to pay for an immediate switch to alternative fuels. The Energy Information Administration projects that in 2035 the U.S. will continue to meet over 56% of its demand through oil and gas. While alternatives fuels are important, moving forward we will need a true all of the above strategy, and the industry is doing its part. In fact 1 of every 5 dollars spent on renewables in 2000-2010 came from the oil and gas industry.

As U.S. government numbers show, the U.S. is an energy rich nation.  The only scarcity we have when it comes to energy is in the honesty hydrocarbon opponents bring to the debate.

ABOUT THE AUTHOR

Kyle Isakower is vice president of regulatory and economic policy at the American Petroleum Institute. With 26 years experience, he is the go-to guy for issues regarding energy and environmental policy and oversees the development of API standards and economic analyses. In his past lives, Kyle has worked on issues related to waste management and remediation, NAAQS and air toxics—and led efforts promote the industry's energy efficiency efforts. Transplanted to Washington from north Jersey over 20 years ago, he remains faithful to the New York Giants, and works diligently to ensure his wife and two children do so as well.