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50.

are examples of provident technology which created great new reserves,

and these reserves subsequently have been further extended by economic

improvements in mining and processing methods.

Concurrent decreases in

energy costs played no small part in keeping production and processing

costs down as the grade of ore decreased.

In recent years, however, the real costs (in constant monetary units)

of producing metallic aluminum and copper have started to rise, partly because of increases in energy costs, but largely because limits on the

efficiency of extraction and processing are being reached and no new technologic breakthrough has occurred. Consequently, further decreases

in the work expended per unit of metal produced have not been possible

and net work profit, after decades of increase, is starting to decline.

For most mineral commodities, technology appears no longer able to keep

ahead of increasingly adverse geologic parameters. On the other hand,

because the known deposits of aluminum, iron, and copper ore are large,

and many have gradational boundaries, real costs of these metals can be

expected to advance slowly rather than swiftly as would be the case with

materials with less abundant reserves (in relation to demand) and whose

deposits have sharp boundaries.

An example of the latter is natural gas, where demand already has

outrun the supplies available at costs near those of recent record.

In

fact, it is the natural gas situation that seems to offer the most

persuasive argument against the utility of the economic approach to

estimation of the availability of a nonrenewable resource.

It is highly

improbable that complete abandonment of price controls on natural gas in

the United States, or even the creation of price supports for domestic

production at a level five times the recent controlled wellhead price,

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would result in domestic production sufficient to close the "unsatisfied

demand" gap shown on the U.S. gas supply-demand projections (Fig. 15) published recently by the Federal Power Commission.

There may well be sufficient gas "in place" to satisfy the projected demand, but the exponential imperative that skyrockets production costs

with increasing depth and with increasing "tightness" of reservoir rocks

puts a very real limit on the amount producible at prices which could be justified by most uses of the fuel. Natural-gas reserves in the United

States are running out, and estimates of demand based on untenable

assumptions of availability, as well as optimistic estimates of gas-in

place, are of relatively little use in planning for the conversion to

other fuels that must now take place. Stimulation of domestic production

and imports of liquefied natural gas can only buy, at substantial expanse,

the time required for such conversions.

The geologic-analogy method of calculating potential resources,

although it implicitly recognizes physical limits as the overriding

control on ultimate recovery, is based on three assumptions that are

debatable if not downright untenable.

The first is that oil exists in

unexplored basins and other areas in the same ratio to the volume

the

host rocks as it has been found to exist in the basins and areas of

production. Very few sedimentary basins are unexplored simply because no

one has thought to go there or because it was impossible to get there and carry out exploration; only basins covered by deep water, thick alluvium or an ice cap fit this criterion. All other basins are unexplored at

least in part because of lack of evidence of oil being there. Only if

Figure 15

UNITED STATES GAS SUPPLY - DEMAND BALANCE

(Contiguous 48 States)

[blocks in formation]

*US natural gos reserve additions (1971-1990) total 325 trillion cubic feet.

Token from Figure 1, page 3, "National Gos Supply and Demond , 1971 - 1990, Federal Power Comission, 1972

53.

exploration and development over the past hundred years had progressed outward as a wave front from one or more points chosen at random within each continent would this first assumption of the geologic-analogy method

appear valid.

The second debatable or untenable assumption is implicit in the

method, and it is that the price of oil will increase to meet the greater

costs of producing oil from deeper horizons, from more hostile environ

ments, and from reservoirs more distant from the centers of use.

A third questionable assumption implicit in the geologic-analogy

method is that the sum of all technological and political impacts on

reserves during the period of use of the potential reserves will not be

negative.

As a matter of logic, a technologic breakthrough in substitution

technology (in the production of synthetic crude oil, for example) would

have a strongly negative effect on petroleum reserves; indeed, the moment

it costs more to find and produce a barrel of "new" petroleum than it

does to produce a barrel of synthetic crude from coal, oil shale, or tar

sands, there will be no more "notential" petroleum reserves and the question

of how much petroleum remains to be found will be of no further importance.

Political decisions to extend the geographic areas in which petroleum

exploration and production are prohibited would also have a negative impact

on potential reserves.

The geologic-analogy method has led to two practices which deserve

mention.

One is misleading and unjustifiable; the other is simnly mis

leading.

The first is the practice of adding together subjective estimates

of differina magnitudes and ranges of uncertainty to produce a single estimate of "notential reserves". As noted previously in this paper,

54.

such practice is logically unsupportable; more importantly, as Hubbert

has nointed out (1971, p.10), "it is possible that governmental and

industrial policies based on such estimates could within a matter of

decades prove to have been seriously misguided."

The second practice that can mislead the unwary involves the use

of oil-in-place estimates, modified or unmodified by ultimate-recovery

ratios.

The National Petroleum Council's 1971 estimate for total oil

in-place discoverable (in the U.S.) of 727.4 billion barrels appeared

very reassuring if one made the mistake of comparing it with the "oil

produced" total of about 90 billion, or with the 1971 domestic production

of 3.5 billion. Only when one noted in the NPC estimates that there was

less oil-in-place remaining to be discovered (332.0 billion barrels) than

had already been discovered (395.5 billion barrels) and when one calculated a 30.4 percent cumulative recovery efficiency from the NPC estimate of

the oil that will ultimately be recovered from the found portion, did one

begin to realize that the NPC estimate was much more conservative than it

appeared at first glance. In fact, application of the NPC estimate of 37 percent cumulative recovery efficiency (to be attained in 1985) to the

total estimate of oil-in-place discoverable and addition of the result to

the NPC estimate of total oil to be recovered from already-found oil,

results in a figure of 242.5 billion barrels for ultimately recoverable

U.S. petroleum, far below the estimate of the same year by the American

Association of Petroleum Geologists of 432 billion barrels (based on the

wildly optimistic assumption of 60 percent ultimate recovery of discovered oil-in-place) and only 27.6 percent above Dr. Hubbert's estimate of 190 million barrels, which had been called unrealistically pessimistic by

many in the oil industry.

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