I borrowed the title from an NFL prediction column by ESPN.com's Sports Guy Bill Simmons who borrowed the line from the 1993 movie 'And the band played on...'---a very good made for TV movie on teh CDC's initial attempts to identify and track the AIDS in the U.S. Anyway, I thought it was an appropriate title given Saudi Arabia's recent announcement that they are doubling their previous estimates of current oil reserves.
I'll let the article speak for itself:
Saudi Arabia, the biggest oil producer, and Exxon Mobil, the largest oil company, yesterday declared that the world had decades' worth of oil to come, in an attempt to calm fears about the record prices experienced in recent weeks.
Forming a powerful alliance, the Saudi oil minister Ali al-Naimi said, at an industry conference in Johannesburg, that the country would soon almost double its "proven" reserve base, while Exxon's president, Rex Tillerson, spoke of 3 trillion or more barrels of oil that are yet to be recovered.
Some reactions to the announcement:
Muhammed-Ali Zainy, of London's Centre for Global Energy Studies, said: "Since these Opec countries [like Saudi Arabia] are closed, the only information available is available to themselves alone. So they can come up with a new reserves figure and the rest of the world will just have to take it."
Mr Naimi also said that there were "no takers" for more oil right now, as a result of constrained refining capacity. "Give us the customers and we will pump more oil," the Saudi oil minister told reporters...
Mr Naimi said talk of oil scarcity reminded him of the 1970s, when people also thought the end of the age of oil was at hand. "But in the intervening years, when we were supposedly facing a precipitous decline, world oil reserves more than doubled," he said.
[...]
However, sceptics, led by the US banker Matthew Simmons, have argued that production in Saudi Arabia's known oil fields is already declining and that no major new fields have been discovered. By extension, these critics suggest the world has reached, or is about to reach, the high point of production.
Separately, Exxon's Mr Tillerson told the convention in South Africa that his company estimated that global energy demand would increase by 50 per cent over the next 25 years. Mr Tillerson said that by some estimates there was as much as 7 trillion barrels of oil yet to be discovered. On a more conservative basis, the world still had more than 3 trillion barrels from conventional fields, oil sands deposits and other sources. "That is more than twice all the oil recovered up to now in all of human history," Mr Tillerson said.
Craig Pennington, an energy analyst at Schroders in London, said: "The message from these two [Naimi and Tillerson] is that, 'Don't worry. We do have enough oil. Just give us time to bring it in'."
So how much oil is left out there? Are the oil companies (and countries) engaging in an end game to grab the profits and leave the world high and dry? Are the peak oil types oilers (ed. by John) overreacting and there is really nothing to worry about? In any case, it's clear that uncertainty needs to be considered when making economic predictions. As we've said repeatedly, the standard economic models of oil depletion with known reserves predict that oil scarcity will cause prices to rise and smooth the transition to other fuels.
What does uncertainty about the oil reserves do to this prediction? Well, according to a recent article in the Journal of Environmental Economics and Management[1], not much (I think...I haven't worked through all the math yet). Under a reasonable set of conditions, introducing uncertainty about the size of the stock of oil reserves, has little effect on the economics predictions. Those conditions? The possible range of reserves has an upper bound (that is, oil is finite we just don't know what the bound is) and the last unit of oil is not infinitely valuable. If those two conditions hold, then we expect prices to continuously rise, and consumption to contiunuously decline until we transition smoothly to more attractive, cost effective alternatives. Whew...I'm relieved.
[1] R. Kumar, "How to eat cake of unknown size: A reconsideration." Journal of Environmental Economics and Management, 50(2): 408-421.
