When will we run out of crude oil?

Answer:

If you ask an economist this question the answer would be “never.” As demand competes for a reduced supply, the price will rise, consumption will switch to alternative fuels and oil will continue to be used forever for functions that support its price. This answer is both technically correct and a cautionary tale about asking economists these types of questions.

The practical answer is, well complicated. To start let’s look at the United States. Here is a crude oil resource pyramid, as put together by the Congressional Research Service:

Many times you will hear reporters, policy makers and even the President talk about the U.S. “reserves” in a way that implies that those are the only resources available to us. This is a mistake, as the Energy Information Administration (EIA) explains: “proved reserves are an accounting concept that is based on known projects and is not an appropriate measure for judging total resource availability in the long-term.”

So let’s start with adding together proven reserves and undiscovered technically recoverable resources, which are those resources that we can economically access with today’s technology. That puts us at 175 billion barrels. In 2011, according to EIA, the U.S. consumed 14.8 million barrels of crude oil a day, or 5.4 billion barrels for the year. Based on this, we see that the United States could supply all of the crude oil we need for 32.4 years.

This may not seem like a long time, but you also have to consider other factors: our demand will fall as efficiencies improve; technology will improve so previously un-economic oil will become economic. In fact, if we include currently sub-economic resources, we gain 148 more years. Perhaps most importantly, we don’t actually know how much oil we have. As this charts shows, estimates of undiscovered technically recoverable resources grow dramatically when the industry is allowed to, you know, discover them:

Estimates for Alaska, the Atlantic and the Pacific have stayed flat, while estimates for the Gulf of Mexico have increased. Why? Because we are drilling there, or as one reporter put it: “The more oil we find, the more oil we find.”

Regarding world oil resources, the EIA took a long-term look at this in 2008 and determined that – under their base case scenario – supply will meet demand through 2090. Even with reduced innovation and estimates, supply will meet demand through 2050 — but as we have seen, innovation in the industry is strong and estimates have been proven low. EIA did find supply problems arising when“Unfavorable Above Ground Factors” are looked at — read “politics.” The industry can do its job of supplying the energy the world needs to grow and prosper, if allowed to do so by policy makers.