sumption quite dramatically. In addition, that guess is based on an estimate
of known oil reserves, which is still suspect because oil producers—both
companies such as Royal Dutch Shell Group and countries such as Saudi
Arabia—have an incentive to overstate their reserves. On the other hand,
the estimate does not take into account undiscovered or unproven reserves
because it’s simply unrealistic to assume that everything will be fine at a
time when we have real problems. Exploration and advances in production
technology will obviously bring to light additional reserves, but those new
reserves may also just replace what is being depleted, and in some cases,
the high cost of drilling in the offshore deep waters or Arctic areas may be
prohibitive. In fact, even some economists admit that OPEC reserve estimates
would have to be significantly inflated and new reserve discoveries
surprisingly low for my estimate to be an overstatement.
While oil is the most known form of fossil fuel, coal and natural gas
are part of the same group, and all can be measured in terms of barrels of
oil equivalent (boe). One boe equals six thousand cubic feet of natural
gas, or 0.2 tons of hard coal, or 0.4 tons of light coal. There are an estimated
two trillion barrels of oil equivalent (boe) in proven reserves
around the world today, including 885 billion boe of natural gas.
For natural gas, by some estimates, the supply at present rates of consumption
would be exhausted in about 60 years, while the current known
supply of coal would last 180 years.
Energy Economics
I have talked to many economists on this oil issue, and despite their
claims to the contrary, there’s a wide belief that energy is an elastic commodity,
meaning consumption and production behaviors change in response
to price changes. There is normally a lag in consumption change
as a result of price changes. For instance, it takes time for car owners to
shift to more energy-efficient vehicles in response to higher fuel prices. A
similar lag can occur in other conservation efforts because manufacturing
plants require time to change production methods or shift to alternative
sources of energy. And despite the spike in the price of oil and the claims
by some analysts that it has reached an all-time high, viewed on an historic
basis, oil is not exceptionally expensive.
Since 1972, the inflation-adjusted price for a barrel of oil has averaged
$34, and while higher oil prices will depress demand, even in classical
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