Walter E. Williams

"Proven" oil reserves, oil that's economically and technologically recoverable, are estimated to be more than 1.1 trillion barrels. That's enough oil, at current usage rates, to fuel the world's economy for 38 years, according to Leonardo Maugeri, vice president for the Italian energy company ENI. Mr. Maugeri provides a wealth of information about energy in "Two Cheers for Expensive Oil," published by Foreign Affairs (March/April 2006) and reprinted on the same date in Current.

There are an additional 2 trillion barrels of "recoverable" reserves. Mr. Maugeri says these oil reserves will probably meet the "proven" standard in a few years as technological improvement and increased sub-soil knowledge come online. Estimates of recoverable oil don't include the huge deposits of "unconventional" oil such as Canadian tar sands and U.S. shale oil, plus there are vast areas of our planet yet to be fully explored. For decades, alarmists have claimed we're running out of oil. In 1919, the U.S. Geological Survey predicted that world oil production would peak in nine years. During the 1970s, the Club of Rome report, "The Limits to Growth," said that, assuming no rise in consumption, all known oil reserves would be entirely consumed in just 31 years.

There are several factors that explain today's high prices. There has been a huge surge in demand for oil as a result of rapid economic growth in China and India, as well as in the United States. Another factor is the under-exploration. Mr. Maugeri says Saudi Arabia has 260 billion barrels of proven reserves, accounting for 25 percent of the world's total, but only one-third of the oil known to lie below its surface. Russia's reserves are three times its proven reserves of 50 billion barrels. While high prices are beginning to stimulate investments in oil exploration, they've lagged for several decades out of fear of oil gluts and low prices. It's going to be 2010 before today's investments yield fruit.

A substantial increase in oil production alone cannot ease today's high prices because of weak refining capacity. Not a single refinery has been built in the United States for 30 years. Improvements to existing refineries failed to keep up with growing demand and tougher environmental regulations. We're the world's only industrialized country with a net deficit in refining capacity that comes to 20 percent of domestic demand. That makes us highly vulnerable to disasters like last year's hurricanes. Exacerbating weak refining capacity are regulations whereby gasoline produced for one state may not be sold in another. There are 18 mandated different types of gasoline sold in the United States.

Walter E. Williams

Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of 'Race and Economics: How Much Can Be Blamed on Discrimination?' and 'Up from the Projects: An Autobiography.'
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