“As a country that has 2 percent of the world's oil
reserves, but uses 20 percent of the world's oil — I'm
going to repeat that — we've got 2 percent of the world
oil reserves; we use 20 percent. What that means is, as
much as we're doing to increase oil production, we're not
going to be able to just drill our way out of the problem
of high gas prices. Anybody who tells you otherwise
either doesn’t know what they’re talking about or they
aren’t telling you the truth.”
— President Obama, speech in North Carolina, March 7,
2012
“The United States consumes more than 20 percent of
the world’s oil, but we only have 2 percent of the world’s
oil reserves — 20 percent we use; we only produce 2
percent. And no matter what we do, it's not going to get
much above 3 percent. So we're still going to have this
huge shortfall. That's why if we really want energy
security and energy independence, we've got to start
looking at how we use less oil, and use other energy
sources that we can renew and that we can control, so we
are not subject to the whims of what's happening in other
countries.”
— Obama, speech on American energy, March
1, 2012
“After all, oil is a finite resource. We consume more
than 20 percent of the world’s oil, but have less than 2
percent of the world’s oil reserves.”
— Obama, remarks on the BP oil spill, June
15, 2010
This appears to be one of President Obama’s favorite facts
— he says it almost every time he speaks about energy issues
— but readers are getting confused. We have received
repeated queries from readers asking for an explanation of
this startling bit of information.
This is actually an interesting area of inquiry. On the
surface, the president’s numbers are correct, based on
official government data. But this is a good example of what
we call “non sequitur facts” — two bits of information that
actually bear little relationship to each other.
The president is trying to make the case that the world
has finite oil resources, and the United States — the
world’s biggest oil consumer — needs to use less oil in the
future. But using “oil reserves” as a key metric gives an
incomplete picture of U.S. oil resources. (Note: the
analysis that follows draws in part on a comprehensive
Congressional Research Service report on oil resource
definitions. We have embedded a copy at the end for readers
seeking more information.)
The Facts
“Proven reserves,” whether for oil, natural gas or coal,
has a very strict definition, in part because reserves are
considered actual assets owned by companies. The oil must
have been discovered, confirmed and economically
recoverable, with at least 90 percent certainty. The level
of reserves, in fact, may vary depending on the price of
oil, since a higher price may suddenly make some finds
economically viable.
The data on proven reserves is collected by the Energy Information Administration,
derived from a survey of private companies. EIA data shows that proven U.S.
reserves hit a peak of nearly 40 billion barrels in 1970 —
after the Prudhoe Bay oil field was found in Alaska — and
now stand at about 22 billion barrels. But here’s the
strange thing: the United States also had proven oil
reserves of 22 billion barrels through much of the 1940s.
How is that possible? New sources of oil kept getting
found, more-difficult-to-obtain oil suddenly became more
economically viable, new oil-extraction techniques gained
favor, and so forth.
This brings us to our next category of oil: undiscovered
technically recoverable resources. Oil companies cannot
consider this oil an asset. Whether that oil will be
recovered depends in part on technology and/or the price of
oil.
This oil resource figure is based on technical estimates
made by two arms of the Interior Department — the U.S. Geological Survey (for onshore
estimates) and the Bureau of
Ocean Energy Management, Regulation and Enforcement
(for offshore estimates). These estimates add at least 140
billion barrels to what is known as the U.S. endowment of
oil, for a total of more than 160 billion barrels.
In other words, eight times larger than just proven
reserves.
These estimates change over time. The Bakken Formation in
North Dakota, South Dakota, Montana, and southern Canada was
discovered in the 1980s and 1990s, but because as much as
500 billion barrels of oil was scattered through layers of
shale and sandstone, little could be recovered at the time.
But with new production techniques, new estimates suggest
that 3.65 billion barrels could be extracted from the Bakken
Formation.
“Using horizontal drilling and hydraulic fracturing,
operators increased Bakken production from about 3,000
barrels per day in 2005 to 137,000 barrels per day in 2009
and 225,000 barrels per day in 2010,” noted Richard Newell,
the EIA administrator in testimony to Congress last
year.
“The domestic crude-oil and natural-gas industry has
undergone a technological revolution that has revitalized
the resource base in the onshore lower 48 states,” Newell
added. “The use of horizontal drilling in conjunction with
hydraulic fracturing has greatly expanded the ability of
producers to profitably produce crude oil and natural gas
from low-permeability geologic formations, particularly
shale formations.”
And then there is oil that holds tantalizing potential,
such as oil shale, that is not yet economically viable, but
may be in the future. The Rand Corporation says that between
500 billion barrels and 1.1 trillion barrels may exist in
the Green Rover Formation in Colorado, Utah and Wyoming.
“The midpoint in our estimate range, 800 billion barrels, is
more than triple the proven oil reserves of Saudi Arabia,”
Rand said in a report.
But this still is mostly a simmering mirage, in contrast to
the other categories of U.S. oil resources.
There are three other useful metrics regarding oil. The
first is “production,” which is how quickly the oil comes
out of the ground. Even with 2 percent of the world’s oil
reserves, the United States has nearly 9 percent of the
world’s production, according to BP’s annual survey.
The president, in fact, misspoke on March 1 when he said “we
only produce 2 percent” shortly after saying “we only have 2
percent of the world’s oil reserves.”
Then there is the “R/P ratio,” which is the length of time
the proven reserves will last at the current production
rate. BP says the current U.S. ratio is 11.3 years. Does
that mean the United States has only 11 years of oil left?
No. In fact, the U.S. R/P ratio in 1970 was also about 11
years. The reason the ratio has not changed much is because
more oil was found that could be economically recovered.
Lastly, there is consumption. As the president noted, the
United States consumes about 20 percent of the world’s oil.
(The BP annual review puts it at 21 percent in 2010.) Europe
and “Eurasia” (Russia and the former Soviet Republics)
consume about 23 percent. China consumes nearly 11 percent,
Japan 5 percent and India 4 percent.
But measuring the U.S. consumption against its proven oil
reserves makes little sense. Europe, with the exception of
Russia, Kazakhstan and Norway, has virtually no oil
reserves. Japan, a major consumer, has zero. China’s oil
reserves are about half the size of the United States. In
fact, in the relative scheme of things, the United States is
relatively blessed with proven oil reserves — and, given the
U.S. technological advantage, also with potentially large
resources of oil yet to be tapped.
That’s why we said the president is using “non sequitur
facts.” It would make much more sense to note that the
United States has just 4.5 percent of the world’s population
and yet we consume 20 percent of the oil, which is a finite
resource, in order to urge Americans that we need to have
greater energy efficiency.
But in the context of higher gas prices — which is how the
president often uses these figures now — it just is not
logical to compare consumption to “proven oil reserves.”
This is a lowball figure that does not begin to describe the
oil known to be within the U.S. borders.
The Pinocchio Test
This is a strange case because the facts are technically
correct but are used in service of fuzzy thinking. The
president should drop this fact, or alter it as we
suggested, or he runs the risk of misleading Americans about
the extent of the U.S. oil resources.
He is especially on shaky ground when he says “no matter
what we do, it's not going to get much above 3 percent.” The
estimate of proven oil reserves may change at any moment
depending on technological innovations and the price of oil.
As we demonstrated, it is largely irrelevant to the supply
of U.S. oil that is likely to be recovered — or how much oil
the United States has left to consume. The president could
also be embarrassed if the EIA suddenly boosts the figure
for proven oil reserves.
For the moment, we will label the president’s statement
with our rarely used category:
TRUE BUT FALSE
