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For oil, tap ingenuity

| Wednesday, Feb. 24, 2010

Are we running out of oil?

Seems like a stupid question. Of course we're running out! There's only a finite amount of oil in the Earth's crust. So being nonrenewable, every barrel of oil that is extracted and burned is a barrel less of oil that exists.

Eventually we'll run out -- or so says conventional wisdom.

Conventional wisdom, however, often is handicapped by a poor grasp of economics. And among the important lessons of economics is that the supply of resources is less a matter of physics than of, well, economics.

First, no mineral, no plant, no geographical location, no anything becomes a resource unless and until human creativity and ingenuity figure out how to put that thing to use in a manner that satisfies human wants.

Petroleum was no resource to our ancestors who had yet to grasp the fact that it can be refined and burned in ways that improve the quality of life. In fact, I suspect that whenever that gooey, noxious black stuff appeared in freshwater creeks in pre-Columbian Pennsylvania, natives of that region regarded it as a nuisance.

So economically, the Earth's supply of nonrenewable energy resources was, back then, much smaller than it is today. Human creativity and effort turned a nuisance into a resource.

Human creativity and effort also are at work finding not only substitutes for oil, but also new supplies of oil. Each success on this front increases the supply of oil. The reason is that oil deposits that remain unknown are economically nonexistent.

The same is true of oil deposits that are known to exist but are currently too costly to tap. Oil in the Earth's crust that is out of reach with existing technology is no more of a resource today than is oil on Pluto. But if and when human creativity discovers cost-effective techniques for extracting that oil, it then -- and only then -- becomes a resource. In effect, more of the resource "oil" is created.

Of course, as a matter of physics, there is indeed only a finite amount of oil in the Earth. But we have no idea how much. And our ignorance of this physical fact is economically relevant.

Consider a couple of scenarios.

Scenario One: You're a hungry mosquito on the surface of an enormous balloon. The balloon contains as much blood as an Olympic-size swimming pool contains water. You, hungry mosquito that you are, inject your snoot into the balloon and enjoy a tasty meal. Of course, by doing so, you negligibly reduce the volume of blood in the balloon. But whether you know it or not, you can in fact gorge yourself on blood from this balloon for the rest of your life and there will still be far more blood remaining in the balloon at your death than you've consumed during your lifetime.

Scenario Two: You're a hungry mosquito on a balloon the size of a child's marble. You take a meal. The size of your meal relative to the blood-contents of the tiny balloon is large; you significantly reduce its contents.

I don't know if humanity and its demand for oil is like the mosquito in Scenario One, but I'm sure that we're not like the mosquito in Scenario Two. We might be in some intermediate scenario -- say, like a mosquito feasting on blood from a balloon the size of a beach ball.

But we could be like the mosquito in Scenario One. That mosquito needn't know -- probably wouldn't know -- that she's atop a physical quantity of blood that is practically limitless. If she's told, accurately, that the amount of blood in her balloon is finite, she might worry that she'll run out of blood, or that she'll drink so much that what eventually remains in the balloon will be too costly for her to suck out; she might persuade herself to drink less blood. Would she be wise to do so?

A mosquito feeding from a gargantuan balloon full of blood would not be wise to worry that the finiteness of the supply of her source of nutrition means that she will eventually run out of blood from that balloon.

If Scenario One is closer to reality -- and the evidence so far supports that possibility -- then the relevant constraint on our getting oil out of the ground is not any scarcity of the physical amount of oil that exists as much as it is the scarcity of our ingenuity and resources for use in that endeavor. As this ingenuity and these resources become more abundant, the amount of oil available for our use will over time rise.

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