Days of world consumption: A warning label for oil and gas discoveries

A few years ago I was speaking before a group shortly after a local oil company discovered what was characterized as the biggest find of oil on land in the United States in 30 years. The president of the company refused to speculate about the size of the find other than to say that it was “significant.” The media suggested that it might amount to one billion barrels.

I mentioned this find to my audience and asked them how long they thought one billion barrels would last the world at the current rate of consumption. Guesses ranged from six months to three or four years. The correct answer was 12 days. Naturally, people were astonished and dismayed.

That is why I think it would prove useful for a warning label to come with each public announcement of a large oil or natural gas discovery. I understand that the companies that make these large finds are anxious to emphasize the size of the reservoir since this tends to goose the stock price. And, it is reserves that investors seem to react to, though, as it turns out, reserves are probably the least important factor in deciding whether a find is worth producing. (See my recent piece, “Reserves are bunk” for more on this.)

Now, I don’t expect any government agency to issue a regulation requiring a warning label on oil and natural gas discoveries. But the next best thing would be for journalists reporting such finds to put them into perspective using a days of world consumption figure, or if the find is natural gas that will only be marketed domestically, days of domestic consumption. Journalists would also do well to explain that depletion rates for existing oil wells run between 6 and 9 percent and that this depletion must be overcome before any growth in supplies takes place. Providing this context would serve to alert policymakers and the public to the true significance (or insignificance) of each find.

Energy Bulletin