It was a tenet of the late, great economist Julian Simon that we’ll never run out of any commodity. That’s because before we do, the increasing scarcity of that resource will drive up the price and force us to adopt alternatives.
For example, as firewood grew scarce, people turned to coal, and as the whale oil supply dwindled, ’twas petroleum that saved the whales.
Oil Shortage Claims False
Now alarmists claim we’re running out of petroleum. The “proof” is the high prices at the pump. In fact, oil cost about 50 percent more per barrel in 1979-80 than now, when adjusted for inflation.
Yet it’s also true that industrializing nations such as China and India are making serious demands on the world’s ability to provide oil and are driving prices up. So is this the beginning of the end?
According to many experts, the answer is no: The Julian Simon effect is already occurring.
Oil Sands Are Abundant
The evidence is in what are called oil sands, tar-like substances that can be surface-mined as coal often is, and oil shale, which is mined underground or strip-mined. The oil is separated from the dirt using energy from oil or natural gas extracted from the site itself, to produce a tar-like goo called bitumen. It’s then chemically split to produce crude oil as light as that from a well head.
The oil sands in a single Venezuelan deposit contain an estimated 1.8 trillion barrels of petroleum, and there are 1.7 trillion barrels in a single Canadian deposit. In all, about 70 countries, including the United States, have oil sand deposits. Technology hasn’t yet made full exploitation of these deposits economically viable.
Of Canada’s reserves alone, however, more than 300 billion barrels are currently considered recoverable. That is more than the entire proven oil reserves of Saudi Arabia. And recovering it they are.
Production Is Expanding
The Canadians got in the game when Suncor Energy produced the first barrel of crude from oily sand back in 1967. The joint Canadian-U.S. venture Syncrude has been doing so since 1978 and now supplies more than 13 percent of Canada’s oil needs. Oil sands as a whole provide more than a third of Canada’s needs, with almost all the rest going to the United States.
Between pumped oil and oil from sands, Canada is our largest supplier of crude and refined petroleum.
Suncor’s success can be measured by stock prices that have increased an incredible 400 percent in the past five years, compared to a flat-lined Dow and a dropping Nasdaq and S&P 500. Business is continuing to increase. Suncor just finished expanding production capacity from 225,000 barrels per day to 260,000 and plans to reach 350,000 barrels daily by 2008.
On the whole, the industry expects production to triple by 2020.
Oil Prices Drive Demand
Driving such expansion is the obvious factor–sustained high prices of petroleum–plus continually improving technology that keeps making it cheaper to mine and convert oil sands. Syncrude spent only $15.27 (U.S.) last year in total production costs to produce each barrel of its low-sulphur “Syncrude Sweet Blend.” Suncor calculates that in 2004 it spent $9.81, although spokesmen for both companies confirmed they use different accounting methods to arrive at their figures.
In any case, current petroleum prices of about $60 a barrel hardly need to be sustained for Canadian companies to continue to squeeze liquid gold out of their lands, while generating plenty of money with which to expand operations.
We’ve only scratched the surface in terms of discovering and exploiting oil sand deposits, along with deposits of oil-containing rocks called oil shale. The amount, however huge, is nonetheless necessarily finite. By one estimate, we may have only about 500 more years of energy available from oils sands at current usage rates.
“Conventional oil reserves will meet our needs for many decades at the least,” observed Sterling Burnett, senior fellow at the National Center for Policy Analysis. “Even so, oil shale provides another source of energy that rebuts claims by alarmists that ‘we are running out of oil.'”