Thursday, November 10, 2005

MORE GOOD NEWS FROM ADAM SMITH'S DEAD HAND

FROM AP VIA BREITBART:

"Appalachian mountains buzz with oil drilling"

http://www.breitbart.com/news/2005/11/10/051110150119.4418n1qz.html

As I noted on this page 10/18/05, among the positive effects of rising petroleum prices are the innovative economic activities the opportunity stimulates. According to Brandon Nutall, a geologist with the Kentucky Geological Survey:

"Nestled among Kentucky's famed coal mines are about five billion barrels of oil reserves. Most of the oil is in small fields that sit relatively close to the surface which makes for cheap drilling and long production cycles. The fields are too small to interest big oil companies, but that hasn't stopped nearly 2,000 small ones from registering to operate in the state.

Five billion barrels. Half as much as the hotly debated ANWR reserve.

The pattern is being repeated all over the world. Oil formerly not worth extracting being extracted.

There is a lot of confusion as to exactly what is meant by the term "proven reserves." Many note that there are more proven reserves today than 30 years ago, 30 years of consumption notwithstanding. This fuels the claim the whole thing is a smokescreen.

It is not.

Like any publically traded commodity, the terms used to discuss petroleum are legally defined. The current [I think] definition of "proven reserves" can be found here.

http://www.sec.gov/divisions/corpfin/forms/regsx.htm#gas

It's quite involved, but is summarized in subsection 2:

"Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions"

Existing economic and operating conditions. Raise the price, and suddenly there are 5 billion "extra" barrels in Kentucky.

W will never run out of oil. Long before we do, the rising price will prompt the development of alternative after alternative.

Long live the dead hand.

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