Hubbert revisited
I've been reading with interest the articles on "Hubbert revisited." I also read with interest the letter from Mr. Arlie Skov (OGJ, July 26, 2004, p. 10) noting that the term "proved reserves" appears to substantially under-predict future oil and gas production. I think there is a general misunderstanding as to what "proved reserves" are. To use a manufacturing analogy, they are akin to unfinished goods or raw material inventories. Holding inventories is expensive. A manufacturer doesn't want to invest money in inventory beyond what is required to maintain flow through its factories plus a safety stock. Likewise, an oil explorer doesn't want to invest money in finding and developing oil and gas reserves beyond its financial and managerial capability. Holding 20 or 30 years worth of proved reserves would be financially imprudent. The time value of money would drive the owner of such reserves to accelerate production to recover its investment and hence reduce the life of the reserves. If we look at the time period that Mr. Skov cited, 1983-2003, public companies typically would have had proved reserves in the 7 to 8 year range. This range is probably indicative of the cost of money, the cost to find and develop reserves, compounded with the uncertainties of finding oil and gas and the future value of oil and gas production. Except indirectly, proved reserves are not predictive of what future oil and gas production will be.
William H. Clifton
BP Transportation (Alaska) Inc.
Anchorage
The independence promise
I appreciated your excellent editorial, "The independence promise" (OGJ, July 26, 2004, p. 17). Politicians of all stripes have been on the "independence" bandwagon for the past 30 years, even though I suspect most of them know it is really a hoax. Unfortunately, it serves the agendas of both those who seem to think we can drill our way to independence and the greens who want "renewable" energy regardless of the cost.
You performed a great service by pointing out the effects of these high energy costs on the petrochemical industry. Not many people seem to be paying much attention to the effects high gas prices are having on ammonia producers. Soon, I am afraid, American farmers are going to find themselves dependent upon foreign suppliers for their nitrogen fertilizer.
Don Anthrop
Professor
Dept. of Environmental Sciences
San Jose State University
California
