The Big Energy Lie

The Big Energy Lie goes something like this:

The United States has only 2-3% of the world’s oil reserves, but consumes 25% of global production.

Those words have been uttered by our Dear Leader as well as his Secretaries of Energy and Interior. The idea justifies “progressive” Administration policies ranging from “green jobs” to Cap and Trade to foreign affairs.

And they are deliberately designed to mislead.

Let’s study the fraction that results in that paltry 2-3% number.

The Numerator – U.S. Reserves

Geologists and engineers make estimates of petroleum resources, the total potential future recoverable quantity of oil and/or gas. Right now, the U.S. has considerable potential resources in places like the Outer Continental Shelf, ANWR and the Colorado Oil Shale. Reserves, on the other hand, is the term applied to that subset of resources that have been proven to exist by drilling and can be recovered with existing technology. Since we’ve made a policy decision to keep ANWR and 85% of the OCS pristine, those resources will never be “promoted” to reserve status. Until and unless someone figures out a way to exploit the oil shale profitably (and secures the blessings of the sate and the Feds), those resources will not be counted as reserves, either.

(I don’t know the numbers off the top of my head for oil, but for gas, the U.S. has reserves on the order of 200 trillion cubic feet, and annual production of roughly 20 trillion cubic feet. Natural gas resources are about 2,000 trillion cubic feet. Every year, if things go right, we should drill enough new wells to turn resources into reserves to replace production. And at the current rate of gas production, we’ll be able to do this for another 100 years or so.)

As an analogy, imagine a multi-millionaire who owns lots of illiquid assets — houses, cars and boats — but only has $250 in his checking account. Do we consider him poor? Reserves are analogous to ready cash; resources are akin to total assets. Our example millionaire is cash poor by his choice; the U.S is relatively reserve-poor because we, as a nation, have decided not to fully exploit our resources.

Another factor — U.S. public companies must report their estimates of reserves to shareholders and to the Securities Exchange Commission. Almost all companies undergo a thorough audit of their estimates by third party engineers at least once a year. These reserve estimates tend to be conservative in nature as the companies prefer to avoid the bad press associated with reserve writedowns.

So we have a fraction with a numerator that is skewed to the small side — for several reasons.

The Denominator – Global Reserves

Here, the concept is the same, but the effect is different.

Some 70% to 80% of Global Reserves are owned by NOCs — state owned National Oil Companies (see table below). The regimes that control these reserves have zero transparency in reporting. They have an incentive to lie aggressively represent the reserves they own. Most of them use the cash from oil to support their populations with generous welfare, subsidies and social programs. Bigger reserves mean that they’re more stable internally and more powerful geopolitically.

So we have a fraction with a denominator that is probably an artificially large number — for several reasons.

And, dividing a small numerator by a large denominator gives a tiny fraction. So tiny that it implies that the country’s domestic energy situation is hopeless; furthermore, we cannot reasonably expect it to be otherwise.

It’s a giant lie.

The World’s Largest Energy Firms, Ranked by Size

Trending on Redstate Video