Dot Connections

On June 11, 2006, the Dallas Morning News published an essay by Ronald Bailey, the science correspondent for Reason magazine, in which he attempts to debunk “peak oil” pessimism while simultaneously lamenting that much of the world’s remaining oil reserves are controlled by governments who may not have the best interests of the United States at heart.

Bailey admits the world consumes about 87 million barrels of oil per day, and that proven oil reserves – i.e., oil that is recoverable under current economic and operating conditions – are estimated by various authorities at between 1.1 and 1.3 trillion barrels. Although Bailey does not say so, at current demand levels, this would mean proven oil reserves will be depleted in about forty (40) years.

Bailey fails to acknowledge the fact that world oil demand is projected to increase by 37%, to 115 million barrels per day, by 2030. (In the Dallas Morning News essay, Bailey incorrectly cites the November 2005 International Energy Agency (IEA) Report as stating that world oil production is predicted to grow to 115 million barrels a day. In fact, the 115 million barrels a day is the projected world oil demand. As the Wall Street Journal reported on June 14, 2006, the IEA has projected that oil production will fall short of the projected 115 million barrel per day demand.)

Nevertheless, Bailey finds cause for optimism in certain analysts’ claims that reserve growth – i.e., largely technology-driven increases in production in already discovered and developed oil fields – and new discoveries have been outpacing oil production. Thus, according to Bailey, the good news is that “Most analysts believe that world petroleum supplies will meet projected demand at reasonable prices for at least thirty (30) more years.” What Bailey overlooks is that, according to the IEA, this rosy scenario can occur only if there is cumulative energy-sector investment of about $17 trillion (in 2004 dollars) between 2004 and 2030. That this investment will occur is far from certain.

The bad news, according to Bailey, is that “the vast majority of the world’s remaining oil reserves are not possessed by private enterprises. Seventy-seven percent of known reserves belong to [non-U.S.] government-owned companies. That means oil will be produced with all the effeciency associated with central planning.”

Bailey asserts: “If ChevronTexaco, ExxonMobil or other private companies owned the reserves, the world would be in a much more secure position with regard to oil production. Instead, we are subject to the whims of figures like [Venezuelan president] Mr. Chavez, Russia’s Vladimir Putin and Iran’s Mahmoud Ahmadinejad, and must worry about the doubtful stability of their personalities and regimes.”

Bailey’s essay stops short of exploring the policy implications of this assertion, other than a vague reference to “trusting markets” to “assure future energy abundance." However, roughly 60% of the world's proven oil reserves are located in a "golden" triangle running from Mosul in northern Iraq, to the Straits of Hormuz, to an oil field in Saudi Arabia 75 miles in from the coast, just west of Qatar, then back up to Mosul. The U.S. military already occupies part of this area and surrounds the remainder. These facts arguably lead to the conclusion that the U.S. government has already long known, acted upon, and continues to base much of its foreign policy on Bailey's assertion about the desirabilty of being in a more "secure" position with regard to the world's remaining oil reserves.