What happens when we run out of oil?

Andrew Leach says there’s a simple answer

Photograph by Jeff McIntosh/CP

Photograph by Jeff McIntosh/CP

What happens when we run out of oil?

This question, which comes up almost daily in the op-ed pages of this country’s newspapers, was recently raised by Gary Mason of the Globe and Mail. “If you believe the economy is structured in such a way that it needs to grow continually in order to survive, then it will take an endless supply of energy to feed it,” he begins. “How, then, does an economy grow exponentially forever if the one element it needs more than anything to flourish is contracting with time?” Statements like this represent a fundamental misunderstanding of resource economics, economic growth and the energy intensity of the economy.

Will we run out of oil? No. Surely it’s not that simple, you’ll say, but it is.

People will only be able to pay for a barrel of oil as long as that barrel performs valuable work, and so long as that same work could not be performed more cost-effectively using another source of energy. The price is capped not only by the product’s usefulness, but by the relative costs of substitutes. There will always be barrels of oil too deep to extract, or that we never discover because it’s not worth exploring areas that would be too costly to develop given the market for oil.

What about the next part: can we maintain our standard of living, or even enhance it, indefinitely while extracting finite resources?  As Queen’s economist John Hartwick taught us years ago, the answer depends on three things: the amount of resource you have, the capacity for technological improvements and the cost of investing in those improvements.  

Think of our economy as a computer running calculations. Think of economic output as the number of calculations it completes. Now, imagine the computer runs on a finite resource and that, at current rates of consumption, you’ll run out of the resource to run your computer in 30 years. It sounds dire, but it might not be.

If technology does not improve, your choice will be simple: reduce the amount you run your computer to smooth resources over time, or use them up and then starve.  That’s how the Mason article portrays our oil situation. Now, imagine the computer technology improves such that its calculating efficiency increases each year. As long as that improvement is fast enough, you could have exponential economic growth while using fewer resources. As time goes on, your annual resource use would get closer and closer to zero, so while your resource is still finite, you can use it for a time period that limits to infinity as long as your rate of productivity improvement was sufficiently rapid. Our global economy is not just an energy economy, although we use energy in much of what we do. Capital and labour are much more important inputs to production than energy, and so small increases in labour or capital productivity lead to large increases in production per unit energy (or decreases in energy per unit produced).

What Hartwick proposed — now known as the Hartwick rule — was the degree of investment in capital required to maintain economic growth with dwindling resources. You can think of this, if you like, as investment in human capital and technology including the development of alternative energy sources. It’s not correct to say you can’t have infinite growth with a finite resource — you just need resource productivity to grow quickly to accomplish it. Hartwick didn’t say you could maintain any level of growth with a finite resource, or that any level of investment would be sufficient for consumption growth to go on forever, he just defined the conditions you’d have to meet to make it work.

But don’t we only have a few years worth of oil left? According to BP’s Statistical Review of World Energy, global oil reserves at the end of 2012 were 1.7 trillion barrels. Given that the world consumes about 86 million barrels of crude oil per day, it would be easy to conclude we’ll run out of oil in 55 years, or sooner if we increase production consumption.  This is where understanding what an oil reserve is important. The U.S. Geological Survey definition of an oil reserve is quantities of crude oil in discovered accumulations which can be legallytechnically and economically extractedoil reserves depend on discovery of new pools, but also on technology, prices and legal access to oil fields. This explains why oil reserves have been increasing, not decreasing, during the past 30 years, despite increasing oil extraction rates. Not only have reserves increased, but we’ve seldom had a lower rate of production out of global reserves than we have today.

World oil reserves. Source: BP Statistical Review of World Energy

So, what’s the bottom line? Are we going to run out of oil? No.

Are oil prices going to increase dramatically? They might, or they might not.

If we knew for sure what was going to happen, people would adjust production behavior accordingly. Can we have infinite, exponential growth with finite resources? Yes. Does that mean we don’t need to worry? No. Do we only have 55 years worth of oil left? No. Does that mean oil won’t get a lot more expensive soon? No, but it might also get a lot cheaper.




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What happens when we run out of oil?

  1. We have plenty of oil….what we don’t have is plenty of cheap oil.

    But we didn’t leave the stone age because we ran out of stones.

    • Broken watch is right twice a day. You hit the nail on the head with “cheap oil”. Proven reserves is partially defined on todays price for oil, the higher the prices, the more economic many reserves become. Many reserves are not included as the prices will not support its development.

      So actual reserves with cost of getting it not an issue, real existence reserves are much much higher than quoted in the article. 20 years ago, tar sands were not economical, today they are.

      • There is no such thing as a “real existence reserve” measured by any credible body so far as I know. Do you mean original oil in place, or do you mean discovered and undiscovered resources?

  2. While I agree we will not run out of oil, and that there will always be the ability to extract more oil if the price is right, the article discounts the energy balance associated with oil extraction. Expensive oil generally requires more energy to extract. If you add in any sort of carbon capture the energy balance quickly becomes the limiting issue of which oil sources are sustainable.

    • The article doesn’t discount any of that. Read the part about energy efficiency of resource extraction.

      • Private business does account for energy used to get the oil. While government never accounts for benefits/costs, business does.

  3. Great article – it’s a good antidote to extremist takes on the subject. But if I read correctly – and there’s every chance I haven’t – your analysis is based on the assumption that all oil extracted contributes to productivity. How does our non-productive use of oil energy factor into this? (Heating a hot tub, flying to Paris for a vacation, lighting up a Christmas tree, commuting long distances to work for lifestyle choices, etc…).

    • That’s all production.

      • Ah, now I see. Thank you.

  4. Humans will invent something else before we run out of oil or look at fracking and how much new oil can be extracted then five years previous. I know day to day, humans can seem really stupid but we muddle through when somebody somewhere does something brilliant and then we progress a little further.

    I work in auto industry and fuel cell engine is close to being able to replace internal combustion engine and then gas use would be drastically cut I imagine. People forget that our circumstances continually change, today is not going to be same as tomorrow, some boffin will invent alternatives to what we have now and things will improve.

    • Agreed. My next car will be electric or fuel cell. Toyota has one coming out next year.

      • The fuel cell is more efficient than the internal combustion engine and makes for a refill time about equivalent to a gas / diesel vehicle, but is not as efficient as an EV. And it takes more energy to separate the hydrogen atoms from bound state than is given back when consumed as fuel. Given the infrastructure development costs (and it will be interesting to see what fuel costs will be), I don’t expect it will be much more than a niche player in the marketplace for quite some time.

      • But until they come up with better battery technology, they are not economical nor durable like gas.

        We will not see a semi hauling lettuce from California to Canada on electric any time soon. Nor will an electric/chemical car heat you in -35C or cool you in 30C, unless of course you are only traveling a few miles.

        • Google is your friend Dave….keep up.

        • You should call Tesla and tell them that their car is impossible.

          • It’s not that the Tesla is impossible, it’s grossly impractical. A major car magazine drove a Tesla Model S from Ann Arbor, Michigan to Long Island, New York. Google maps calls this an 11 hour drive. The Tesla managed to the trip in roughly three times that, which was just an hour quicker than the 1915 Model T in the same article.
            I can leave Red Deer at breakfast time (8 AM), and be in downtown Vancouver 12 hours later. A Tesla would make that same trip an overnighter. Any money saved on fuel would be eaten up by hotels and meals.
            If I were needing to drive from Calgary to Edmonton and back, I would by necessity require a place to recharge my car before attempting the return trip, yet many cars in the Tesla’s price range can do the round trip without needing a refill. What if my meeting only ran 20 minutes? I’d need to hang out for 3 more hours just to ensure I have enough charge to get back to Calgary, providing the wind isn’t blowing.
            Calgary to Regina or Kelowna is a 7 hour drive in a regular car. Double it with a Tesla.
            I don’t dispute the fact that the Tesla is a technological tour de force. But, in spite of a century of dramatic advances battery technology and charging ability, the modern electric car is a very poor substitute for a modern gas or diesel powered car being used by real customers in the real world.

          • Bill, you are mistaken about some of your facts. Using Tesla’s supercharger stations, you can recharge 150 miles/240 km of range in 30 minutes. Most people want a break to stretch their legs/use a restroom every 2-3 hours, so this does not signficantly impair their use of the car. Also, Tesla will be installing hundreds of battery swap facilities at all their charging locations which can swap in a fully charged battery in 90s, which is faster than refueling a gasoline car.

            Tesla’s charging network is not as filled out as it could be, but I think the basic technology is already there. I think a bigger problem is the cost of the vehicles. Charging/swapping has been sorted out.

          • Well, let’s look at that in real world terms. First off, even with the charging stations in place, my Calgary-Regina trip still takes me at least one hour longer in my Tesla than my Audi. My return trip takes probably more than an hour longer, due to the fact that prevailing winds will knock 10% off my range. Seriously. Suddenly range anxiety comes into play. Generally speaking, guys who drive $85,000 cars don’t tolerate range anxiety.
            Now, the Audi (or 300C or Impala) contributes roughly $4 per hour in road use taxes, while the Tesla utilizes that same road for free. Should a guy who can afford an $85,000 car get a free pass on road use taxes? Interestingly, I find the same people who are okay with road use tax moratoriums on $85,000 electric cars are the same people who claim we should “tax the wealthy” more. So, I don’t know how you square that circle.
            Then we have the issue of the charging stations being owned by the car manufacturer. Again, the exact same people who think this is a good idea, are also the same people who would have kittens at the thought of Ford Motor Company owning a chain of gas stations. In fact, I’m pretty sure it’s specifically enjoined against in both Canadian and American anti-trust and combine law.
            Look, I’m pretty much Joe Average when it comes to my vehicles. I use a pick-up for work and to occasionally tow a race car. We just moved from a compact (PT Cruiser) to a small SUV. We routinely take trips that put 1000-1300 km in our rear-view mirror in a day. We’re still decades away from an electric that will pull that trick off, and hybrids are out of my league in the price/utilization equation.
            All I’m really pointing out is that electrics and hybrids are still a long ways from mainstream autos, simply because the target for utility/safety/economy is constantly moving.
            Think about this. I can get into my daughter’s 2013 Dodge Dart in Red Deer AB, and in 18 hours be in Las Vegas, Nevada. Once across the border into Montana, I can average 80 mph plus, except for urban areas and fuel stops, and do all that on less than $170 in fuel.
            The best hybrids, and the best electrics can’t match that, and the gas/diesel engine cars are raising that bar faster than the electrics are improving their ability to leap.

          • You have a lot here, so let’s unpack one at a time:
            -You only wait if you plan on recharging rather than swapping. Charging is free, so is 1 hour worth saving the fuel cost of your trip? If not, you can swap the battery for the equivalent of 15 gallons or so. Battery swapping kind of makes range anxiety moot, provided sufficient swapping locations. (rural Saskatchewan being the exception)
            -Most people don’t regularly make long drives cross-country. People who regularly make such long drives are probably not the ideal user. It does not necessarily take forever to drive crosscountry, though. Tesla just completed a 78 hour drive from LA to NYC using their charging network. -Road taxes will have to change to a miles-driven model sooner or later. I don’t think electric car drivers are seriously opposed.
            -Tesla doesn’t have a monopoly on charging cars. They will operate their own network of charging stations because the private sector wasn’t getting the job done. Their charging technology may be superior, but anyone with an electric outlet can charge a car. They also are giving away charging services to people who buy their cars. I really struggle to see antitrust case. If Ford gave free fuel to people who bought their cars, I don’t see who would argue. No more than Apple providing services in their retail stores.
            -Your usage case is not ideal for electric vehicles. That’s just fine. You’re probably right about the timeline for battery electric vehicles for hauling loads. I’m going to go ahead and state that normal (ie, average) people don’t drive 1500 km in one day on a regular basis. That’s just the facts. It’s not impossible to do this in a Model S if you wanted. It would require 5 or 6 30 minute charging breaks, or 3 or so battery swaps. Given how rarely people drive that kind of distance, that is not really a problem. -Electric cars will always be cheaper to operate than conventionally fueled cars. The only problem is capital cost. Batteries are improving exponentially, so it’s really just a matter of time before they gain wide acceptance.

          • In a roundabout fashion, the point I’m making is that in order for a car to be a true mass-market product, it has to meet the disparate needs of a very, very high percentage of the market place.
            For example, a 150 mile range means two hours of highway range. That alone will take a big percentage of your potential market out of your showroom.
            Mini-vans were so successful because they met the needs of a very high percentage of the car buying market. Range in spades, decent fuel economy (our 1994 V6 Voyager routinely got 30+ mpg), passenger space and comfort, and cargo capacity.
            In order to be truly mainstream, any electric or hybrid will have to provide 5 passenger comfort, 450 km range, 5 min refueling for $40, and go out the door for $30K.
            At the same time, the manufacturer will have to be able to sell that vehicle at a profit. Tesla does not make a profit on the cars. The only profit is in the various tax incentives that are rapidly drying up, which means they won’t be giving away free electrons.
            Once we’ve reached that point, we still have to address the road use taxes. Going to a per-mile system has a serious drawback, namely replacing a collection system that is already in place and working very well with a completely new system of collecting road use taxes.
            Right now, PetroCan, Shell, Esso, and others are operating the system at no cost to the government. Their employees are not members of government unions, nor are there monumental pension legacy costs attached. The collection system is pretty much secure, and not prone to government interference and mismanagement. There are no underlying privacy and other “Big Brother” issues.
            Changing to a per-mile system will result in greater taxes collected, with even less benefits back to the taxpayer.

          • The Model S already offers 300 miles of range. The problem is, it requires an over-built battery which adds substantially to the vehicle cost. What makes more sense is to have a smaller battery for your week-to-week driving and swap in high capacity batteries for your long-distance trips.

            Modern cars can’t provide $40 fillups anymore, at least around here. And if an electric car costs $2k less per year in fuel, many consumers will have no problem spending $40k vs an ICE at $30k.

            Collecting per-mile road taxes is easy and has a built-in infrastructure: vehicle registration. Unless you want to ban fuel efficient vehicles, there’s no other solution (other than letting fuel-efficient vehicles off the hook).

            It’s fine that you’re a doubter. Tesla will succeed or fail regardless of what you think. I think it’s fair to be skeptical, but I think you’re focusing on the wrong problems. The key challenge for Tesla is getting the cost of batteries down. They already have demonstrated that they can make a great car, period, and at a competitive price point. The technical challenges are already addressed. They just need to work on reducing cost, scaling up, and deploying a ubiquitous charging network.

          • Well, 7l/100km at $1.10/L plugs in at around $35 bucks to roll 450 km. Now, where this really goes off the rails is the sudden desire to tax people for doing the right thing. We been there, done that, kids. We surrendered civil liberties to the tobacco Nazis, because tobacco supposedly cost society a fortune. Then everybody quit smoking and we’re told taxes have to go up to replace all the lost tobacco tax revenue. Are you friggin’ kiddin’ me here? Well, this is the same thing. People have shifted to ever more fuel efficient vehicles (my Hemi Ram gets mileage that was unheard of for a 350 hp pick-up 25 years back, and our Nitro gets better mileage than any smaller mid-90′s 4.0L Jeep Cherokee) only to be told they will have to pay additional taxes merely to satisfy the ravenous maw of government. Sorry, but that dog don’t hunt for me.
            Leave the present system of collecting road taxes be, and just tax electrics based on what 20,000 km/yr at 6L/100km works out to.
            My beef with Tesla stems more from the ill-informed non-automotive press oohing and aahing over cars that, aside from speed and luxury, struggle compete in the real world with a

          • Fine, let’s leave the current system in place. No road tax for electrics and declining revenue to be dedicated to roads. I really don’t care. Ear-marked taxes are really just constructs for the simple minded.

          • (Stupid I-pad)struggle to compete on one major metric of utility with a 99 year old car.
            Just consider me more impressed by turbo 4′s that pull 220 hp and 300 hp V6′s in mid-size sedans that deliver 40 mpg in 80mph comfort.

          • Tesla has impressed enough people to fill up their order book. I don’t think they’ll lose too much sleep about not getting your custom just yet.

          • Further to the “Tesla don’t really impress me much” file: Using a team of rotating drivers and support vehicles, a new Tesla managed to do a New York-LA transcontinental crossing in a mere 78 hours, only 24.5 hours longer than the great Erwin E. “Cannonball” Baker took driving a Graham-Paige Blue Streak 8.
            In 1933.

          • All true, makes the ‘green’ cars useless for the most part. Urban short trips are ok but transporting anything any distance is not possible.

      • You will be waiting many moons for a fuel cell car.

          • I’ll believe it when it’s on sale in Canada.

          • You’re like the misguided people who saw the first cars and laughed while yelling ‘get a horse’.

          • No, I just know that you should not count on vaporware to save your bacon. Fuel cell cars have been just a few years away for the past two decades. Toyota doing a pilot project in California is not the same thing as the product being available. Tesla is not vaporware, as they can make a really good car, that you can actually buy and they make money on every one. Until that’s true of fuel cell vehicles, you should not hold your breath. I’m guessing your current vehicle won’t bridge you until a FCV is available.

          • No, you’re simply being a Luddite.

          • No, Emily. I am not a Luddite. I actually follow these developments. I don’t just say “Oh, once unicorn farts have been bottled I will change my behaviour. Until then I wait with bated breath.”

          • Yes, you’re a Luddite.

          • Alright, I’m not going to get pulled into your childish trolling attempt.

          • You have no idea what ‘trolling’ is, so don’t use it as an escape for your illogic.

            You have claimed to be pro electric car, but anti fuel cell car….and yet both work. The last remaining hurdle for both is infrastructure.

            Either you have money in electric cars…..or you’re very confused.

          • It’s not infrastructure, it’s utility and cost. The “out the door” cost has to be in line with “regular” cars of similar size, and it has to meet the needs of the vast majority of those who might purchase one.
            Look at the Smart For2. Well built, outstanding fuel economy, etc. But, very, very few people can utilize a two-seat car with very. very little luggage space. Hence, they sold in very limited numbers. There are simply far too many cars out there that will seat 4, and have considerable cargo space for almost the same money. The minor fuel cost penalty will be offset at resale time by higher resale (niche cars depreciate faster than mainstream cars). If you’re simply in the market for a sub-20K two seater that gets great fuel economy, you can buy a pretty nice used Corvette that’ll get you 30+ mpg, and you can put two sets of golf clubs and a pair of overnight bags in it.
            That’s what makes a $30-, or $40-, or $50-thousand dollar electric a hard sell. It can’t compete on overall uitlity, cost, or resale. Thus, for almost everyone, they’re a non-starter.

          • It’s starting up….of course it’s going to cost more…until economies of scale kick in.

            This is not about buying another car…this is about switching the kind of cars we buy.

          • whistler has ended their fuel cell buses experiment.

          • Too bad for Whistler.

          • not really, the program was plagued with repairs, and poor performance.

          • duh. the article states

            Information obtained under a Freedom of Information Act request by the Canadian Autoworkers’ Union 333 suggests Whistler’s 20 hydrogen fuel cell buses cost three times more for maintenance and fuel costs than the conventional Nova diesel buses they replaced in 2009.

          • Shipping hydrogen from Quebec to BC will do that.

            Look….we know the technology works….the last hurdle is the infrastructure.

          • you should read the article.–”“It is expensive to maintain and expensive to fuel,” BC Transit spokeswoman Meribeth Burton said.”
            I also know one of the mechanics for these fcbs. and he is glad they are going.

          • I read the article before I posted it….I assumed you had reading comprehension skills

            And recognized other luddites who worry about their jobs

          • IGNORANUS

          • And you can’t spell either.

          • No, it’s a hybrid word, and bang-on.

          • It amazes me how quickly people revert to the schoolyard when they lose arguments.

            Certainly won’t get them anywhere.

          • You are usually the first to call names.

          • Whoever YOU are…..’ma, he did it first’ isn’t a defence either.

          • Going by your advanced decrepitude, it’s a safe bet you did it first, maybe with Trotsky’s older sister.

          • Trotsky who?

          • You really should learn to use Google, or maybe even Wikipedia.

          • May as well give up. Emily often cites articles that counter the very point she is attempting to make. Not sure if she thinks we are too dumb or lazy to read it, or if her reading comprehension is really that atrocious. But in any case, you can pull all the quotes out that you want in order to prove her wrong and she’ll still say you are the one who can’t read.

            Been down this road with her many, many times. Just do it now to spite her, because I already know she will never admit to being wrong ;-)

          • So they just killed a productive program? In one of the ‘greenest’ places in Canada.

          • If you’re talking about BC….yes.

    • Humans have invented many different ways of using renewable energy. The issue is cost. Even the high cost of unconventional oil is cheaper than renewable energy. Therefore centrist government involvement in the economy is the only way to ensure renewable energy is taken advantage of.

      • You are right about cost. But I suspect our society can’t afford the renewable energy costs and have any reasonable standard of living.

        Take farm crops to alcohol, then what do the people eat knowing all corn, wheat, barley et al. can only produce 7% of our energy needs?

        • Turning corn into ethanol was always a stupid idea. It was all about funneling money into connected farming/agribusiness interests.

          The cost of alternative energy is falling exponentially. This places a cap above which fossil fuel prices cannot rise with triggering substitution. In some sunny locations, solar can already compete with coal. In 5 or 10 years, solar will be widely adopted without need for government subsidies.

    • That’s not science, it’s faith. The fish to the last Salmon model is utterly moronic. Keep on driving your 20 gallon to the mile clunker until some boffin pulls a fuel cell out of his arse. Why do that when the technology already exists to drive vehicles that burn 60/70 mpg or cleaner fuels? Answer, because vested interests in this market want you to do so, while not marketing responsible realistic alternatives. All the while claiming this is what the consumer demands. Conveniently enough that consumer continues to cough up at what the oil industry deem is a price they can bare, not necessarily what the market demands.
      Change will come but not because of anything big oil will do, but because even they see the writing on the wall eventually and know they can’t hold the markets in a parasitic deathgrip forever.

      • Read the post again if you think it advocates anything like what you are talking about.

        • This was directed at Tony’s claim that we will just muddle through[ which i except we always have] in the face of a far more pervasive threat than any we have faced before – the possibility of runaway CC.[ fanciful as that may seem right now]
          I certainly hope you aren’t promoting the same blase attitude.
          The principle difficulty i have with your piece stems from your reply, my response to which took off somewhere.
          “The surest cure for high prices is high prices.”
          I dispute this is always the case. Energy companies continue to search for and demand the right to develop ever riskier finds[ be under the Arctic or under the Amazon]Demand is their sole driver so they say.

          This despite the fact that high prices and costs should be triggering serious attempts to find alternatives where they make sense. They can do this as you point about because of increased efficiencies, productivity gains and technological advances. I posit the last salmon theory[ no idea if there is one. Just my label] because this confluence of capability, market conditions and plain old inertia are at least as powerful a lever as your conventional economic market theory
          IOWs i am saying that high prices when married to the conditions i have outlined[ let's call them vested interests] particularly rapid technological advancement [and cheap money] set up incentives to fish to the very last salmon. I believe this is what we are currently witnessing right now. There will be no measurable or timely market correction unless we [our govts] enter strongly in favour of sensible change. Those energy companies already have all the major finds on earth[ conventional and unconventional] on their books according to Bill Mckibben. So yes i take your point that the damage we fear might not be as bad, it probably will be mitigated by demographic change and technological innovation that isn’t altogether clear to us right now. But i don’t think this is gong to happen without some clear direction and useful consensus from the world’s politicians. Right about now it isn’t looking too good Houston.
          http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719

  5. As a Chemist I would ask a question about your argument. As scarcity
    becomes an issue and petroleum prices rise we will realize that using
    petroleum products for their energy content is not an optimum use. The
    last drop of petroleum refined will not be used to power the future’s
    version of a Honda,it will be cracked and/or combined into critical
    petrochemicals with a portion being used to produce a then
    ultra-expensive drug/chemical and the remainder turned into inputs for a
    future 3D printer to create some ultra-valuable widget/valve (since it
    will be the last one created using the technology).

    In the current resource scenario (with ample relatively cheap oil)
    the limited volume, high-value uses of oil do not really make a dent in
    the market, but as supply dwindles it will become a much more
    significant part of the equation (and input cost into the final
    products).

    Does the presence of a competing, alternative, high-value use for the
    resource simply change the rate of the curve, move the curve to the
    left or do something altogether different at some critical price-point?

  6. Then we would be up s.h.i.t creek….At my age I care not a rat`s a.s.s.

    I would suspect at the rate we are poisoning our planet`s water, air ,and land…this would be the least of our concerns.

    • If you’re that much of a misanthrope, could you kindly take your leave of this world a little early?

      • Aaah…but I like to hang around to be entertained by such as you!
        I have an ironic sense of humor to it all.

  7. Think the author is being a tad optimistic with his use of the word “infinite”…

    • It’s economic jargon for we jolly well hope so. One day we might even be able to prove it. Fingers crossed everyone. We’re about to enter uncharted territory. Most of all remember we’re economists, scientists, not high priests preachin’ a faith.

  8. I’m confused. Michael Ruppert has confirmed that no new reserves have been discovered in the past 30 years, and Shell has significantly downgraded its reserves in the past month. The fact that this is a BP report should include the reasonable likelihood that BP has no interest in publishing anything which might suggest that the company’s far less valuable than perceived – think Enron.

    Also, this economic mumbo-jumbo ignores the other reality, which is that economics is not a branch of science, although some of the inquiry-based research does do some pretty decent social sciences. “Growth” depends on an political-economic system where growth as policy means deliberately using an accounting system where nothing is ever deducted from the books, but can only be added. States can’t even belong to the UN unless they sign on this scheme.

    There are 800 million cars out there, and China’s demand for liquid hydrocarbon energy is set to triple in the coming decades. Anyone who has been to Asia, as I have for the past 8 years, know that most people in the west really have no clue as to the scale of the thirst there. Oil in the ground is a finite resource, no matter what economists say.

    Looking at this chart, it appears that all of those lines are either flat or in decline, and the world is so desperate for this toxic garbage that Canadians will sell their souls to make the dirtiest oil around the world’s Plan B. There’s that, and fracking, which in N.B. recently they cracked a fresh water aquifer and there was red slime gurgling from the test drilling. It was so popular that locals burned the $350,000 drilling vehicles and the company scurried away like a wounded animal.

    We have burned through 50% of the world’s oil in about a hundred years, which leaves about 50%, which in today’s world won’t last anywhere near another hundred. The exact date at which demand exceeds supply isn’t going to be affected much by slippery, incomprehensible rhetoric based as much on ideology as anything, and ideology isn’t going to affect what happens outside the fantasy bubble of an untested hypothesis…

    • Did you read the article ? The definition of ‘reserves’ ?

      No new oil in the past 30 years ? Tell that to booming North Dakota where the invention of fracking shale rock created enough reserves to turn the United States into an energy exporter.

      Israel discovered massive off shore reserves in the past few years. So did Poland. There’s the entire Arctic. Not to mention ‘reserves’ is defined as LEGALLY accessible so a few changes in US law and ANWR and off-shore comes online it would be huge.

      Sorry the world is literally drowning in oil as well as natural gas. And if the price is right cars may switch to electric/natural gas hybrids like in South America and on many bus fleets.

      You can argue that burning oil is bad. You can’t argue it is running out any time soon. Probably any time in the next 200 years (by which time we’ll have mini-nuclear cells or black holes or who knows what ….)

      • There’s always geo engineering away the worst effects of climate change, don’t forget that.[sarc]

        And that legal definition you’ll note is there for a reason. Either the risk to the environment is too high or the degree of difficulty to extract and get to market unfeasible. Will technology solve that? Maybe? But you can’t escape the fact that none of this represents easy to reach and or cheap energy. So his point is valid. We’ve gotten the easy stuff, maybe we should take stock now and ponder whether what’s left should either stay beyond our reach for good reason, or be used wisely to ensure we transition to something more sustainable. Right now you get the feeling the world’s energy producers are like drunks on a binge, pretending the money, the booze and the luck will never run out.

        • “like drunks on a binge, pretending the money, the booze and the luck will never run out”

          You’re projecting

          • On a trolling holiday are we?

        • I didn’t comment on climate change.

          This is an argument about how much oil we’re going to have, not whether it is smart or advisable to continue to use it over the long or even medium term.

          I would hope that we could separate out those two points.

          Obviously ‘we’re going to run out soon anyways’ is an appealing argument to make but if its not true and easily disproven then I feel its disingenuous and hurtful to climate change activism anyways.

          As for legal definitions if something was unreachable or not economic then it would not need to be outlawed. America has tons of oil on-shore in Alaska and off-shore on the West and East coast. Extraction is no more harmful than any other kind of extraction so its a combination of NIMBYism and concern for climate that’s keeping it in the ground.

          Doesn’t mean those huge supplies couldn’t become ‘reserves’ by the stroke of a pen.

          • I find this point irrelevant…whether or not we will run out. As Einstein would have said, everything has changed except out mode of thinking. CC is the wild card in the pack. A lot of very smart people are saying we can’t afford the risk of getting all that oil out of the ground. So, what are our option? Just leave it up to the market and the march of productive technological development as Andrew seems to be saying? That might be all well and good if there actually was such a thing as a rational free market and self interest was always self correcting. We’re humans. There isn’t a rational FM and it human self interest isn’t automatically self correcting.

  9. Written from Edmonton AB, present temp -9c, elevation 2200 ft above sea level.

    Somehow, if carrot heads were adversely affected by global warming, iconic thumb ear plugs I doubt would satisfy.

    • Huge unexpected flood though.

      • Calgary, head of O&G companies – yes. Not sure about Edmonton. “City of Champions”.

        But Cowtown is blessed by clean water (Bow River) and some of the cleanest air – no appreciable industry upstream and Rocky Mountains.

        Out of sight, out of mind.

        • Well, I’ve often said that Alberta runs on myths….so anything that brings it home to them is welcome

          • A derailment seems inevitable.

          • Lot of those lately I’ve noticed

          • Those were unplanned.

          • Years of ignoring infrastructure will do that.

          • The western world has no monopoly on educating technically competent individuals, limited to profit oriented activities.

          • Yours is an excellent point. Vast amounts of our Canadian tax money stashed overseas by rich individuals and companies..with
            no “political will” here in Canada to collect.
            While our infrastructure slowly deteriorates like some third world country.

  10. This article is absurd on many fronts. For one, the “peak oil” concept that we are heading towards a supply wall no longer applies since we’ve found ways to extract a near limitless supply of unconventional oil.

    Second, the environmental and political consequences of burning up all the world’s reserves of unconventional oil are simply ignored. I guess in the eyes of many economists the survival of civilization is an “externality.”

    Third, the idea that a free market place is the best manager of our resources is absurd. Take, for example, the East Coast cod fishery. Scientists warned over-fishing would cause it to collapse. But businesses were more interested in short-term profits than long-term sustainability.

    Fourth, this article ignores the role of government regulations. It is not only possible, but necessary, that we develop an economy based on 100% renewable energy and recyclable materials. That would allow economic growth to continue on indefinitely.

    Of course that requires society (democratic government) to take an active role in managing the economy (centrist macroeconomics.) If we leave everything in the hands of sociopathic businessmen and free-market fundamentalists we deserve what we have coming.

    • East coast fisheries was a tragedy of the commons. A common resource will always be over-exploited.

    • The flaw in your argument stems from the belief that capitalism is a “designed” system. It evolved. Ditto for our energy use. We don’t use tremendous amounts of oil because someone dictated that we do so with a stroke of a pen. We use oil for the millions of things we use it for because every time we turn around, we find new ways of finding and recovering a product that we continually find new ways of using. Look, if you had told John D. Rockefeller, back in 1894, that we would use oil for even a tenth of the tings we use it for today, he’d have called you a crazy man.
      But, because people tend towards the belief that we can simply command the economy and it’s energy supply away from hydrocarbons towards renewables, we find ourselves mired in these debates over how governments need to direct us towards that end. For one thing, that’s how the Soviets operated, and we can all see how well that worked out. (For one thing the collective IQ of all the people who comprise the federal government is a figure considerably less than zero. Ya really want them running the show?) Do you really think that a federal government, that couldn’t organize an orgy in brothel, could possibly successfully dictate just the energy component of a command economy? It’s a simple but profound fallacy, this rampant belief that governments can somehow dictate the successful future evolution of a market economy that itself has evolved via millions upon millions of daily inputs.

      • “For one thing, that’s how the Soviets operated, and we can all see how well that worked out.”

        Considering you are completely ignorant of the left-right economic spectrum, you obviously have nothing intelligent to add to this conversation.

        • You’re implying that I’m mistaken in my understanding of the mechanics of the Fascist/Communist/Stalinist economics? It was a “socialist collective” experimental command economy based upon the rambling theories of a lazy, thieving, half crazy hypocrite: Karl Marx. Gee. Where might it have gone wrong?

          • The left-right economic spectrum is defined as follows: full left is communism which is 100% government control over the economy; full right is free-market libertarianism or no government involvement in the economy. In the center is the mixed-market economy created by Keynes and used in the post-war era: it is half-way government involvement in the economy.

            Right-wing free-market economics caused two global economic meltdowns (1929 and 2008) and proceeding economic quagmire. Communism was also an obvious failure. The centrist system, however, created modern living standards in the post-war era which were unprecedented in human history.

            BTW, in the US, free-market banking deregulation (and a lack of regulation over the shadow banking sector) caused the collapse of its financial system in 2008. In Canada, however, the Liberal party stuck to centrist regulations which prevented a financial market meltdown that afflicted many other countries.

          • It wasn’t a lack of regulation that caused the banking collapse of 2008, it was a lack of ethics in the investment banking community. Unfortunately, that ethical failure was driven by a Clinton Administration law that forced the banking industry to invent the NINJA mortgage or face constant intrusion and unwarranted harassment from a racially motivated federal justice department. The original bank act (whose name I don’t quickly recall) was a race-based initiative that proposed to force banks to give more mortgages to black people, even though there was no evidence that blacks were being discriminated against in the household finance marketplace.

  11. . “Does that mean oil won’t get a lot more expensive soon? No, but it might also get a lot cheaper.”

    Are you seriously hanging all of that on the continual growth of human, technological and economic productivity forever without end amen?

    What evidence is there for a realistic hope that oil might get a lot cheaper, which logically must posit equally easier to find or extract? Even the current US glut isn’t slated to last that long at current rates of extraction.[ well i suppose it's Russia and china next, maybe??]
    And the cost of energy seems to be the variable not dealt with here. At least you must admit it is a very wild card.[ which you do sorta] Doesn’t the Rubin school[ if you can call it that] argue that a good part of the reason why the world isn’t returning to traditional global rates of growth, much less likely to ever return to post war growth, is that we have no more cheap energy? A problem human kind has run into many times before. But never with how many billion people on the planet all demanding more I phones and pick up trucks.
    It seems to me the western world is basically desperately clinging to the coat tails of China [ the last of the great powers to be playing industrial growth catch up] hoping and praying they don’t screw the whole thing up.
    I’d go further since i’m on a roll, and say this post is a cheerful heads up to the punters on board the Titanic..

    .’Heads up lads. It’s 50/50 you know. Yes there’s icebergs all around us, and we didn’t plan on needing this many lifeboats. But cheer up. Odds are that someone on board will invent a iceberg proof hull before long and a way to replenish our depleted supply of bubbly before there’s ever any real danger of sobering up or hitting anything’.

    • I think this article was mostly about debunking the notion of peak oil and not so much about saying prices are likely to go down.

      Although if a way to make cheap, synthetic oil was developed tomorrow then yes the prices would go down and everyone predicting we’re about to run out of oil would look awfully silly.

      I see nothing wrong with adding nuance and uncertainty to the debate. It should be pointed out that we’ve exceeded many times the date when known reserves were supposed to have run out based on predictions made decades ago.

      SO yeah we probably have much, much longer than 55 years of oil left.

      An interesting point here – changes made on the demand side are HUGE. Any increases in efficiency, multiplied over 6 billion consumers, would have a tremendous impact. Technology is always advancing, its not just about finding new oil but also finding ways to use energy more effectively.

      • I’m not disputing Andrew’s principle point – we’re always finding new and more efficient ways of doing more with less…just poking a bit of fun at his post. But i’m not sure if i share his optimism anyway. Your last point says pretty much why. Those billions may be served more efficiently than ever before, but you can’t escape the fact that each one of them represents a new consumer, not just a peasant who’s no longer burning dirty fuels to heat his house or feed his family. But a consumer who wants everything you and i have. Even taking in reduced family size this represents an exponential increase in global demand. Or is Andrew trying to debunk the notion this planet itself has a limit on how many new mouths it can feed and how many new m/c consumers its increasingly fragile ecosystems can support.

        • One of the reasons that oil prices may fall is that Russia is in demographic free fall. China is, while not at the precipice of population free fall, most definitely pulling in to the parking lot at the top of the access road. When China does step off that cliff, it’s population drop will be far more dramatic than what Russia is undergoing.

          • I don’t discount there will be demographic changes in partcular whose ultimate effect we cannot yet predict. Look how often doomsayers have been wildly off track in the past.
            But, and a big but, the fact remains that bringing much of the third world up to the mass consumption levels of the western world[ we remain enormously wasteful despite advances] will put an enormous strain on this planets resources and remaining eco systems.

          • oil prices are kept artificially high thru many means. One, is to keep the ME in turmoil, which reduces their output. Peace in the ME means cheap oil.

      • the more efficient we become, the more energy we use,

    • Whale oil prices are very low these days.

      • Whales seem strangely reluctant to part with it too, oddly enough.

    • The surest cure for high prices is high prices.

      • Aren’t you contradicting yourself there Andrew? Basic logic tells us that those high energy prices ought at some point lead to the big switch to greener and less carbon intensive alternatives. But that isn’t happening at any where near the rate the best available scientific consensus warns is needed. That is presumably because [partly] of your principle point that resource extraction is itself advancing at a rapid pace technologically. More and more previously thought marginal oil is now potentially available, be it deep sea ,oil sands or fracking plays et al., Each time it would seem high prices or scarcity might spur needed change, along comes another good reason to look for more marginal and expensive energy.IOWs high prices coupled with productivity gains can retard needed change as well as spur it. A bit like how a drunk learns how to drink more efficiently and indeed may not need as much for lights out as when he started out. But as long as he can afford to drink he drinks for as long as the booze is available. Good luck getting that drunk to switch to OJ until he’s absolutely sure there’s no more booze to be had or you convince him he’s dying on his feet. Big oil is like an alcoholic with a limitless line of credit and a major denial problem. It does what it does because it can.
        Lets not even get into how big oil drags out, delays and even buys off change or distorts markets just because they can.

        Another reason i’ve observed is simple good old human reluctance to change, and already vested interest. You see this all the time… ‘We wont mine this mountain with new greener technology because this is the way we’ve always done it, and besides what am i to do with all these backhoes and dozers i’m still paying for?’
        Trouble is, as Einstein would no doubt have pointed out – climate change has changed everything, except our way of thinking. It is entirely possible we might no longer be able to afford the luxury of traditional, incremental market change. The fish to the last salmon model, then switch to groundfish, is no longer just a sad fact of life. It is a model we absolutely must short circuit.
        I’m continually struck how many economist can’t see this. Probably explains why folks like me on the environmental side of the table and you on the economic side, just keep on talking right past each other.
        What you are holding out here isn’t just rational hope Andrew. To me it looks an awful like keep your fingers crossed, and whistling past the grave yard faith.

      • That’s odd. Last i posted a fairly lengthy reply to you. Now it’s gone and i know it was posted here. Do you happen to have it on record? Why would it be removed? Just a weird glitch i guess.

        • Didn’t come though to me.

          • Ok thanks. I have no record of it either. It definitely registered on site though,odd. Lost in the gubbins then.

  12. So as long as we can continue improving efficiently infintely, we will never run out.

    Oh. Well. Is that all it takes.

    Kinda like saying, as long as gravity doesn’t affect me, I can flap my arms and fly.

    • Read post. Ensure you differentiate between efficiency and intensity and between energy and oil. If that fails, read post again.

      • Use brain. Ensure you differentiate between “as long as” and “it is possible to” if that fails.. oh wait.. it did.

    • Don’t worry, I am sure your whale oil light is providing an excellent source of light for you, but how is it that you connect it to the internet?

      • So you’re suggesting there’s no difference between any improvement and an infinite amount of improvement?

        Well.. now I guess we know why you’re an economist and not a mathematician.

      • The world, as of yet, hasn’t run out of Whale oil.

    • I think Andrew is telling you that one day you’ll just get into your car and even if it is already maxed out in terms of units of energy burned, you needn’t worry cuz by that time we’ll have licked friction anyway[ the tires will be made of a frictionless polymer that will run you around 500 bucks a pop] and your car will probably be made of an indestructible alloy that’s as light as candy floss and as expensive as your present house…and you thought you’d be able to retire didn’t you?
      The hole in this thesis Andrew is these efficiency gains rarely if ever come without a stiff price tag, dollar wise, societal and environmental. Now you’re going to tell me my I phone will be 10 bucks in under a decade. Pity the content wont have improved much.

      • Actually efficiency gains are usually without any dollar, societal or environmental costs. They derive from advancement and sharing of knowledge. Microchips have less dollar and environmental costs than tubes did. Artificial rubber reduced environmental and social impact (rubber came from exploited colonies and forest damage) and reduced dollar costs.

        What causes problems is population growth and growing governments which demand economic growth to fund growing programs and debt. Since both sides of the political spectrum in all developed countries are equally invested in this model, you will not see a change in that

  13. Economic growth is a doubling process. Output/consumption/production will double every so-many years. Energy and material use is currently doubling every 30 years or so. That’s what constant 2.5% annual economic growth means—a doubling of the size of the economy every 30 years. Now, you can double and redouble output/GDP, but you are hard-pressed to double and redouble efficiency. In 1965, global GDP was about 12 trillion (constant int’l) dollars, in 1990 about 25 trillion, and today over 50 trillion (Inflation is taken into account). So, there has been two GDP doublings since 1965. To give the other side of the argument an advantage, let’s assume that in 1965 the major processes of our economy were about 30% efficient—coal fired powerplants, electric motors, automobiles, etc. managed to turn about 30% of their fuel or energy into usable work or heat etc. Now as the economy doubled in size between 1965 and 1990, in order to hold energy use constant (let alone have it decrease), energy efficiency would likewise have to double—from 30% efficient to 60%. Hard, but doable. Okay, in 1990, everything is 60% efficient. But to hold energy use constant, as the economy doubles in size between 1990 and 2010, efficiency would have to double, from 60% to ………. 120%? Can’t be done. In theory, you can double and redouble the size of the economy for ever. You cannot, however, even in theory, double and redouble the efficiency of your energy-conversion processes. There are thermodynamic limits to the amount of rotational work or the amount of light you can get out of a tonne of coal or a barrel of oil. What Leach argues is impossible. When you read arguments such as his, you should be hearing, in the background, Steve Martin singing “It’s impossible… to stick a Cadillac up you’re nose …It’s just impossible…” And not only does this Maclean’s article give the impression you can hold energy use constant, it goes further and asserts that you can reduce energy use–requiring you to double and redouble efficiency faster than you double and redouble output/GDP. Impossible. [Sources: BP give historic stats on energy use and its doubling. Vaclav Smil gives good numbers on the efficiencies of our energy conversion systems. Slightly harder to find is data on the doubling and redoubling of material use: see scientific papers by Christian Lutz and Stefan Giljum]

    • If only there were a difference between growth and rapid growth.

      • That isn’t really a response to the issues I raise. You state in your article that “As long as that [efficiency] improvement is fast enough, you could have exponential economic growth while using fewer resources.” I think I’ve shown that that is impossible. While it is conceivable that we could double and redouble the size of the economy, it is impossible to double and redouble the efficiency of electric motors or coal-fired power plants. There are thermodynamic limits.

        • Your comments aren’t really on point. Yes, there are limits to how efficiently you can burn coal, just as there were limits to how much light you could generate with a whale oil lamp. The latter has not restricted pretty significant growth in our GDP (or whatever over metric you choose) per unit whale oil burned.

  14. That question has been asked since 1970.
    Next question.

    • Actually, it’s been asked for a lot longer that that.

  15. We will be extinct before the oil runs out…

  16. This article misses a huge point. Reality is there isn’t any shortage of oil, we even know how to synthetically make it.

    The real question to ask is, can we afford the cost to get it. The reality is cheap easy 1000 ft deep oil is depleted in most regions. Deeper you go, the more oil there is, but also more expensive. And synthetic oil is big time expensive.

    Is not a shortage at all, just a shortage of cheap, trivially easy high profit oil. But investing in oil is better than investing in fiat debt money like CAD as oil appreciates relative to devaluing money. Oil, coffee, food, iron, steal, copper, silver, gold didn’t go up, the value of money declined.

  17. “Can we have infinite, exponential growth with finite resources? Yes.”

    No, you can’t. Eventually, you will hit maximum efficiency. If we take it to a ludicrous extreme, eventually an engine will be crated where not a single molecule converted to energy will be wasted. The energy potential of the resource will be used completely. Still, the resource will eventually run out. The above statement is clearly false, especially since you are speaking of exponential growth.

    This seems to be an article designed to counter those who would say we only have a “few” years of oil left (a fringe group to be sure) by offering an equally ludicrous argument. I see the truth that lies behind the argument, but I reject one extremist argument to counter another.

    • “Peak oil” has been predicted as occurring in 1950′s, then the 60′s, then the 70′s then the 80′s then the 90′s etc etc.

      It is looking like peak oil wont be for 50 years from now and peak carbon fuel won’t occur for 100 years

      Relative extraction costs are driven down by two factors: profit, which will continue to increase as new consumers come on line (eg china); and new technology which is a consistent down driver of costs.

      Being optimistic about the future of oil and gas has always put one on the right side of the predictions. Their are geologists who believe we may not have even discovered more than 5% of exploitable carbon fuels. And the additional good news is the great majority of that is in gas.

      • All of that may be true. Those are realistic scenarios. Stating flatly that “infinite, exponential growth” is possible simply is not, unless the writer invents the perpetual motion machine and redefines quantum mechanics.

        I get the feeling the original writer believes there’s enough oil to live happily until we are dead. The world and humanity will still exist after we’re gone though, resources will dwindle, and if growth is exponential I can assure anyone we’ll eventually pass the point where technological efficiency makes up for it.

  18. What is the difference we’ve sold it anyways the Americans have bought it like the 407 who Catherine wynne wants us to fix it what we think we own do we really look behind the answers is where the truth lies we also have plenty of land what does Brazil grow they have no export of gas or oil our government has to make changes it starts with the citizens of Canada I am waiting out here for another thing is win the activists is create their own party I know I would like that

  19. Andrew Leach says: “…..55 years, or sooner if we increase production…..” Shouldn’t he actually have said instead “…..or sooner if we increase CONSUMPTION….”?

    • Good point. Thanks.

    • Fixed.

  20. This comment was deleted.

    • “”Can we have infinite, exponential growth with finite resources? Yes.”
      - Andrew Leach, 2014″

      -Sherwin Arnott, 2014

  21. I’m surprised Andrew, an academic with a “climate change” blog, didn’t talk about the climate impact of burning all those oil reserves. But he is an Albertan (with a pipeline sponsorship) so, like the price of oil, his climate ethics might go, or they might go down, depending on the day. But we do know one thing: like oil, we won’t run out of his opinions.

    • Let us know when you want to sign your name and current source of income to your opinions.

  22. This article misses the point entirely. The issue isn’t how much MONEY it COSTS to produce energy. The issue is how much ENERGY does it take to produce energy. We all saw the ethanol fiasco in the US where crony capitalism (which we condemn so strongly in China) led to mandated ethanol content in gasoline. Food energy produced in one market was converted into automotive energy sold in another market. Anytime you arbitrage two interchangeable products, the prices will equalize. Rising corn prices put a halt to that particular pipe dream. The tar sands are another example of energy arbitrage. Every hundred units of energy output from the tar sands requires 30 units of natural gas input. It’s no coincidence that the tar sands boom a few years ago coincided with a collapse in natural gas prices. Bill Powers makes it pretty clear that natural gas prices are not going to stay low. Until people stop thinking in terms of dollars and start thinking in terms of science, we will be plagued with the types of pipe dreams detailed in this article.

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