We're running out of oil!

Petroleum is a finite resource.

That's the most interesting statement in the oil and gas business. It is at once true and meaningless.

When people bother to note the finite nature of the petroleum resource, they usually mean to imply that depletion is in sight. From the frightening assertion that the world is running out of oil follows such urgent recommendations as that oil be:

Preserved for future generations.
Replaced by other sources of energy deemed to be superior by every standard except economics.
Taxed more heavily in pursuit of the preceding goals.
Outlawed for environmental reasons if fiscal manipulations fail to keep oil safely in the ground.

Running out

The assertion, of course, is true: The world is running out of oil. It began running out of oil, through seeps and other such natural systems of wastage, before people began producing it on purpose. And the faster people produce it, the faster the world runs out.

To have meaning, however, the fact of running out must have some reasonably clear starting point. With oil, the starting point, the amount of the substance originally in place, remains a mystery.

Evaluating the earth's petroleum endowment-the resource-is very tricky. Its accuracy is a function of what's known. It depends largely on probabilities. Even the realm of the known-the most important part of which industry calls reserves-relies on indirect measurement and estimation.

For both resources and reserves, the limiting factor is not so much physical as it is cognitive. More oil physically exists than anyone can now know about. This will remain the case until all imaginable places where oil might exist have been identified and reasonably assessed. By that standard, much exploration remains to be done.

Illustrating these perplexities is the latest estimate by the U.S. Minerals Management Service of the undiscovered oil and gas resource on the Outer Continental Shelf. In response to criticism by the National Academy of Sciences of a similar estimate in 1991, MMS now says the conventionally recoverable, undiscovered OCS resource is bigger than it thought before.

To note the adjustment is not to fault MMS. It is to show that even in the U.S., which has the most thoroughly studied geology in the world, resource estimates are difficult. They come nowhere close to the precision of reserve estimates, which in turn comes nowhere close to the precision of measurement of-to use a common but misleading analog-water in a bathtub. There's plenty of room for surprise, and the direction of surprise tends to be upward.

At about the time MMS was adjusting its OCS resource estimate, John S. Herold Inc., Greenwich, Conn., was reporting that companies it tracks in an annual study added more oil reserves in mature U.S. basins through drilling than they produced in 1995. Separately, John H. Lichtblau, chairman of Petroleum Industry Research Foundation Inc., New York, was telling an International Association for Energy Economics meeting in Budapest that U.S. production might rise for a few years at the end of this decade.

Not long ago, predictions for production and reserves gains in the mature U.S. would have been laughable. So what happened?

More oil

New technology has added to what engineers and scientists know about resources and reserves, about where to look for oil and gas, and about how to develop and produce what's found. In the process, operating costs have plummeted.

Suddenly-because of increased knowledge and know-how-the U.S. and the world have more oil than before.

And so it goes. Growth in resources and reserves should make no one complacent. Humankind does take ever-larger bites out of this gift of nature. But the gift is so lavish that no one yet knows what the bites mean, individually or cumulatively, in terms of the whole. Panicky responses to the fact of depletion are, at this point in history, very premature and nearly always wasteful.