When will we run out of oil?

In the textbook "Managerial Economics" on page 149 the author refers to a book from the 1970's called "The Limits to Growth" that predicted the world supply of oil would be exhausted by the year 2003. As we know the oil did not run out in 2003. This is due to spikes in oil prices witch helped control the consumption of oil.
On the demand side higher prices encouraged consumers to conserve oil use, and find alternatives to energy and use other resources.
On the supply side, the higher oil prices encouraged producers to seek out new sources of supply, and encouraged businesses to develop new energy sources.Even today many are predicting when we will run out of oil.
And according to the article theinsider we will run out of oil and natural gas in the next decade. So is this prediction completely off just like before? Or has the market just flat out exhausted all of it's sources of oil no matter how high the prices get? I'm sure through price increases and alternative sources of energy the date of oil exhaustion can fluctuate dramatically.


Dr. Tufte said...

-1 on Jack for a spelling error.

Any idea what happened to the formatting for this post Jack? It almost looks like it was pasted into the blog, but it wasn't.

Ooh boy ... let me get up on my economist pedestal here.

This sort of statement — that we are running out of something (like oil) — is wrongheaded to the point of being criminal. That sounds harsh, but people base important decisions on information like this, and the bad consequences they suffer are little different than the victims of someone shouting "fire" in a crowded theater.

There simply aren't any resources for which there are well-defined property rights that anyone is running out of. The situations where there are shortages are either characterized by lack of property rights (like ocean fishing grounds) or government ownership and regulation (like oil).

There's a great paraphrase of Sheik Yamani (who headed OPEC through the 70's): the stone age did not end for lack of stones. What he implied is that the age of oil won't end because we run out of it. We'll move on to something better when the price is right, and we'll leave huge reservoirs of untapped oil behind us.

Aaron said...

We live in a world that has definitely moved into the intellectual era. We think. We innovate. And, we improve or replace the products we are currently using for better/more efficient ones. It's negative and pessimistic reports such as this - that we are going to run out of oil and natural gas - that get me burning. Dr. Tufte is exactly right. We will study, research and find other useful alternatives to oil and natural gas. Consider spending a few moments at www.instituteforenergyresearch.org for tons of great information about energy research and innovation. This is a great world with really bright people. Exciting times are ahead.

Gunny said...

Could reporting a shortage on supply actually benefit suppliers of oil? I know that suppliers sometimes limit supply in order to drive up prices. It doesn’t seem like the suppliers of oil are reporting to the media that they have a surplus of any kind. This media seems like it could benefit the producers of oil.

Dr. Tufte said...

Gunny: suppliers of oil are unlikely to be able to do this. Their product is fungible, and they'd need to collude to pull this off. OPEC didn't, but that's the exception rather than the rule.

Lando said...

To further expound on Dr. Tufte. I took a futures and options class in my undergrad, and remember vividly one of the slides prepared by Dr. Feuz, it stated: So when will we run out of oil? And the answer, with him stumping the whole class, was never. Global energy is produced by wind, solar, and hydroelectricity to name only a few partial substitutes of oil. If supply is to substantially decline we will have an increase in price of crude oil, if in five years gasoline goes to $15 at the pump what will a stronger alternate source of transportation be? An electric car manufactured by one of the big three. There is not a huge demand for these electric vehicles right now because fuel prices are very manageable as to the income we receive. This is what makes economics so interesting in my eyes, different market variables interacting to even bring about great innovations in technology.

Dr. Tufte said...

-1 on Lando for grammatical errors.

I'd modify Lando a bit. As the new competitor, electric cars are unlikely to ever beat gas cars for price per mile. Currently, they are more expensive, and technological improvements may make them cheaper, but once they reach the price per mile of a gas car, they should stay in equilibrium.