Running out of oil?

by Russ Roberts on April 3, 2006

in Energy

Venezuela has a lot of oil according to this report (ht: Drudge via reader David Williamson):

According to US sources, Venezuela holds 90% of the world’s extra heavy
crude oil – deposits which have to be turned into synthetic light crude
before they can be refined and which only become economic to operate
with the oil price at about $40 a barrel. Newsnight cites a report from
the US Energy Information Administrator, Guy Caruso, suggesting
Venezuela could have more than a trillion barrels of reserves.

Chavez’s claim is 200 years of oil. He’s happy to supply it as long as the price is right:

Venezuelan president Hugo Chávez is poised to launch a bid to transform
the global politics of oil by seeking a deal with consumer countries
which would lock in a price of $50 a barrel.

A long-term agreement at
that price could allow Venezuela to count its huge deposits of heavy
crude as part of its official reserves, which Caracas says would give
it more oil than Saudi Arabia.

"We have the largest oil reserves
in the world, we have oil for 200 years." Mr Chávez told the BBC’s
Newsnight programme in an interview to be broadcast tonight. "$50 a
barrel – that’s a fair price, not a high price."

I guess the peak may be a little further off than some are claiming.

Why oil is like pistachios.

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JasperPants April 3, 2006 at 12:42 pm

The US should look at taking the deal.

I just finished "Twilight in the Desert" by Mattew Simmons where he tells a story about Iraq once offered the US a locked-in price of oil at $1.00 a barrel. (I think this was in the 30's or 40's, I can't be sure.)

At the time, everyone laughed because oil was trading at less than that amount.

Perhaps its worth looking at to cool off relations a bit?


johngaltline April 3, 2006 at 12:48 pm

Thanks. I loved the pistachio link.

John Dewey April 3, 2006 at 1:28 pm


Are Latin American governments stable enough for us to count on?

The problem such long term deals is that they are not guaranteed. I cannot imagine Saddam Hussein honoring a $1 a barrel deal after the market price rose to $20 and then $30 and $40.

Native Americans were offerred many deals by the U.S. government over the years. Did those deals from even a stable government hold up?

Robert Cote April 3, 2006 at 2:17 pm

Ask Cuba or Panama or the Phillpines about long term deals. Guantanamo, Canal, the AFB buried under Pinatubo. We could certainly live up and expect the same from them. $50 oil sounds expensive to me and that's why there's hesitation. Oil companies use internal $25/bbl pricing when evaluating investment in new capital goods or research, exploration, etc.

Of course we could do a real dirty deal and agree to $50 and then inflate our money.

John Dewey April 3, 2006 at 2:49 pm

That's a good point, Robert. If we trusted Castro and Marcos and didn't get burned, perhaps we should be more trusting of Chavez.

One point about those military bases, though. I think we always had U.S. military presence there to guarantee the contracts. Also, it was probably in the economic interest of the Philipines and Panama to honor their respective agreements. That's a little different scenario than a nation selling its most important asset for less than market value, isn't it?

In any case, you are probably correct that the high offer price is what kills any deal right now.

happyjuggler0 April 3, 2006 at 3:11 pm

Oil companies explored for oil in all kinds of countries, found som, and then later had all their findings stolen via nationalization. Why anyone thinks they will not simply steal again when the prices paid seem too small at a later date?

Half Sigma April 3, 2006 at 3:24 pm

Peak oil only refers to conventional oil. Extracting uncoventional oil like oil sands is more like mining than it is like conventional oil drilling.

Swimmy April 3, 2006 at 8:20 pm

I would say that the peak is a little closer than some imagine, if we're gonna go through price fixing nonsense again.

William April 3, 2006 at 10:05 pm

I think the best part of this is it shows a little competition may emerge to combat OPEC's collusive behavior. I'm not sure $50 per barrel is a wise deal to make, though, since I think the price could fall below that once again.

Aaron Krowne April 4, 2006 at 9:36 am

I dont think Venezeula is really itching to give us a good deal on oil…

Roy Stogner April 4, 2006 at 11:49 am

Google's top links tell me that the world uses around 75 million barrels of oil a day and growing, and that Venezuela has 200 to 1200 billion barrels of heavy crude oil potentially available to be turned into 2/3 that volume of crude oil. Assuming we get 3/4 efficiency instead to be optimistic and make the math easier, that gives us between 1000 and 6000 days of Venezuelan oil. I don't want to sound ungrateful, and pushing peak oil back a decade would be fantastic, but this isn't some new unlimited source (or even 200 years worth) of energy, it's another PR opportunity for Hugo "I can use Bush's faults to distract from my own!" Chavez.

bbartlog April 4, 2006 at 2:46 pm

Roy -
your math is off; based on your numbers we would get 2000 to 12000 days, not 1000 to 6000. But in any case you are attacking something of a straw man; we can assume that Chavez' claim was based more or less on Venezuela's current rate of oil production, not on Venezuela trying to satisfy all global oil consumption. If we accept the figure of 312 billion barrels for Venezuela's reserves, and divide by their current production of 3.3 million barrels per day, we arrive at a figure of 259 years. This figure we can in turn adjust downward to account for continuing increases in production and the reduced efficiency of heavy crude oil; but in any case we can see that the 200 year figure is not mere hyperbole.

Patrick R. Sullivan April 4, 2006 at 3:26 pm

Unfortunately for Venezuela, they drove almost all their petroleum experts out of the country:

True_Liberal April 4, 2006 at 10:36 pm

It's time to revisit the Paul Erlich – Julian Simon wager:

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