Energy resources - cornucopia or empty barrel?

Abstract

Over the last 25 yr, considerable debate has continued about the future supply of fossil fuel. On one side are those who believe we are rapidly depleting resources and that the resulting shortages will have a profound impact on society. On the other side are those who see no impending crisis because long-term trends are for cheaper prices despite rising production. The concepts of resources and reserves have historically created considerable misunderstanding in the minds of many nongeologists. Hubbert-type predictions of energy production assume that there is a finite supply of energy that is measurable; however, estimates of resources and reserves are inventories of the amounts of a fossil fuel perceived to be available over some future period of time. As those resources/reserves are depleted over time, additional amounts of fossil fuels are inventoried. Throughout most of this century, for example, crude oil reserves in the United States have represented a 10-14-yr supply. For the last 50 yr, resource crude oil estimates have represented about a 60-70-yr supply for the United States. Division of reserve or resource estimates by current or projected annual consumption therefore is circular in reasoning and can lead to highly erroneous conclusions. Production histories of fossil fuels are driven more by demand than by the geologic abundance of the resource. Examination of some energy resources with well-documented histories leads to two conceptual models that relate production to price. The closed-market model assumes that there is only one source of energy available. Although the price initially may fall because of economies of scale long term, prices rise as the energy source is depleted and it becomes progressively more expensive to extract. By contrast, the open-market model assumes that there is a variety of available energy sources and that competition among them leads to long-term stable or falling prices. At the moment, the United States and the world approximate the open-market model, but in the long run the supply of fossil fuel is finite, and prices inevitably will rise unless alternate energy sources substitute for fossil energy supplies; however, there appears little reason to suspect that long-term price trends will rise significantly over the next few decades.Over the last 25 years, considerable debate has continued about the future supply of fossil fuel. On one side are those who believe that resources are rapidly depleting and that the resulting shortages will have a profound impact on society. On the other side are those who see no impending crisis because longterm trends are for cheaper prices despite rising production. This paper examines historic trends and clarify the foundations on which one may build one's predictions.