[Market Economy Guide] Why Oil Never Runs Out

The development of extraction technology has made it possible to tap and use shale oil

The “theory of oil depletion” is a nonsense claim that ignores technological progress

For a long time, humanity trembled in fear while imagining a future in which oil would run out. Many people will remember the sentence printed even in Korean textbooks: “Oil will be depleted in 30 years.” But the claim that “oil will run out in 30 years” has appeared almost every year since humanity first began extracting oil a century ago. In other words, that figure of “30 years” has been constantly updated for about 100 years. How could such a strange thing have been possible?

“Depleted in 30 years?”

The miracle of oil that never seems to run dry was made possible by the power of market prices—in other words, the power of the market. Oil output ultimately depends on how many oil fields are discovered. Since oil exploration requires enormous sums of money, it is difficult to explore for new oil fields when the market price of oil—that is, oil prices—is low. Put differently, the level of oil prices determines the scale of oil field exploration and thus future oil production. This is why, over the past 100 years, the estimated remaining lifespan of oil has mysteriously stayed at around 30 years. The market judged that the appropriate level of oil exploration was enough to cover the next 30 years of use. If oil exploration in the past century depended only on the size of oil fields, technological progress now also plays a role in increasing estimated reserves. Advances in extraction technology are leading to the discovery of oil fields that were unknown in the past. In addition, fields that had been left untouched because they were not economically viable are now being developed.

Extraction technology and shale energy

What is more, even resources like shale, which were not considered resources under existing technology, have begun to be included as development targets. Under conventional oil extraction technology, shale was, to put it bluntly, little more than a carbon-rich rock. Now it has become a bonanza. Shale oil has attracted particular attention among new technologies because it has immediately expanded estimated oil reserves to several hundred years or more. Textbooks can no longer print the line, “Oil will be depleted in 30 years.”

Naturally, advances in extraction technology were also driven by the power of the market. The market unleashed human desire and creativity in the pursuit of cheaper energy. Back when Middle Eastern oil-producing countries were enjoying high oil prices, U.S. energy companies invested huge sums in technologies that could obtain oil more cheaply. The power of the market moved companies and brought about today’s shale energy revolution.

Shale is a type of sedimentary rock formed by accumulated and hardened mud. The word comes from the German “schale,” meaning seashell. As a sedimentary rock made up of fine soil, it is also a rock in which many fossils are preserved. Oil-bearing strata are often distributed beneath shale bedrock layers. That means shale layers also contain some amount of oil. The problem was that the cost of extracting oil from rock was so high that the oil in shale remained nothing more than a pie in the sky. But the situation was reversed when a not-so-expensive technology was commercialized—one that sprays high-pressure water to break the rock and extract the oil inside.

Around the time oil companies were moving toward new shale technologies, governments and environmental groups around the world were wasting tax money under the illusion of environmentally friendly alternative energy. Many countries made all sorts of attempts to find clean alternative energy. Korea was no exception: tidal power plants using waves were built along the west coast, and wind power plants using the wind were built in the mountain villages of Gangwon Province. In sunny rural areas, it became common to see facilities equipped with solar energy systems.

But the current direction of the market suggests that these so-called alternative energies may instead be displaced by conventional fossil fuels. These alternative energies cost more to produce not only than existing coal and oil, but even than shale, which requires additional processing. Since their development began for the political slogan of environmental protection rather than economic viability, their failure was foreseeable from the start.

Economic viability determines energy

Should humanity’s future energy source be traditional energy such as coal and oil? Or should it be alternative energy such as wind, waves, and the sun? Of course, there is no single right answer here. It may be that at some point in the distant future humanity will need a new source of energy. But one thing is clear: the entity that decides that will not be governments or environmental groups, but businesses and the market.

● Please remember

The cost of extracting oil from rock was so high that the oil in shale remained nothing more than a pie in the sky. But the situation was reversed when a not-so-expensive technology was commercialized—one that sprays high-pressure water to break the rock and extract the oil inside.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 석유가 고갈나지 않는 이유

Author: Sung-no Choi

Date: 2019-10-28

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=12&idx=21997