Oil Resources: Facts and Conjectures

Abstract

On the threshold of the coming millennium what prospects exist for oil resources, their physical availability, and their economic and political accessibility? For a number of reasons this question has recently become of renewed interest. First: the fact that oil substitution processes, generated by relative price changes in the Seventies, have gradually died out, especially after the price counter-shock. As we will see, oil demand has recovered to the point that it is growing in parallel with the overall growth in energy demand. Hence, there is renewed pressure on the efficiency of mineral resource oil stocks. Secondly: oil retains and in the long-term will continue to retain its leadership amongst commercial energy sources being used world-wide. This is for two reasons: firstly, because it is the most popular (about 40% of the total), and secondly, because it is the cheapest source. The low relative costs of oil (both in investment and in production) and its greater supply elasticity confer on it a formidable competitive advantage compared to other sources of energy (Figg. 8.1. and 8.2.).¹ Obviously the cost advantage (or differentiated revenue) depends — in the competitive game — on price policies that are actually set up by various competitors’ and by tax policies. In this game, however, oil does retain its role of main playmaker: on one hand being in a position to condition the entire energy price structure and on the other, the supply curve (accepting to produce at any price) of the other sources. Finally, there is a third reason, connected with the previous two, based on the renewed interest in oil resource matters. This is the renewed debate about the actual amount of resources, their adequacy for satisfying a demand once more on the rise, and the foreseeable duration in the long-term. “The end of cheap oil” was the alarmed cry of two geologists in “Scientific American” in May 1998 (Campbell and Laherrère, 1998). Pessimists and optimists are once more in conflict, even if only within the restricted professional circle.