On one level, the front page story in today’s NYT is encouraging — “Oil Industry Sets a Brisk Pace of New Discoveries” (http://www.nytimes.com/2009/09/24/business/energy-environment/24oil.html?_r=1&ref=todayspaper) — as it details more “than 200 discoveries . . . so far this year in dozens of countries, including northern Iraq’s Kurdish region, Australia, Israel, Iran, Brazil, Norway, Ghana and Russia.”  That’s a decent mix of traditional US allies and major competitors, as well as a few — let’s call them “problematic” — traditional sources.

The Times goes on to explain that while it’s “normal for companies to discover billions of barrels of new oil” a year, the 2009 pace is “is unusually brisk.”

“New oil discoveries have totaled about 10 billion barrels in the first half of the year, according to IHS Cambridge Energy Research Associates. If discoveries continue at that pace through year-end, they are likely to reach the highest level since 2000.

“While recent years have featured speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder. They say that prices and the pace of technological improvement remain the principal factors governing oil production capacity.” 

We’d quibble a bit with that “recent years have featured speculation about a coming peak” line.  Unless the NYT defines recent as the last twenty or so.  That’s about how long the debate about peak oil has been going on. 

The point remains, though, that these discoveries do demonstrate that markets work.  As Anadarko Chairman and CEO James Hackett notes:  “That’s the wonderful thing about price signals in a free market — it puts people in a better position to take more exploration risk.”

From a near-term energy security perspective, of course, this is all good.  The danger comes when politicians see these new discoveries as lessening the urgency of reducing our dependence on oil.  How far off (or not) “peak oil” may be is a bit beside the point when it comes to our dependency.  We’ve already seen a financial crisis partially caused — if not triggered — by oil price volatility.  Robust conventional oil production leading to stable prices in the near term really serves only to cloak our dependency in a veil of false security.  A heroin addict with a steady supply is still an addict.  And in this case, our economy is addicted to a commodity subject to political maniuplation and excessive price volatility.

What growing production can do best is to provide a smooth bridge to a new energy economy — if government policies are eancted to ensure a robust market for alternatives like transportation electrification.

It’s as old as the biblical story of Joseph advising the Egyptians – invest for the future when times are good so that you can better weather the future downturns.  In our case, the imperative ought to be even clearer.  The Egyptians were growing their own key commodity (grain) at the time.  We’re buying ours from competitors and adversaries.

Previous Post  

Next Post

Iran’s Desperation Increases
May 18, 2012

Diplomatic Council Launch and Release of Oil and the Trade Deficit
May 17, 2012

Increased domestic production = increased energy security
May 16, 2012