There is enough liquid oil in the ground to last generations; and when oil sands and oil shale are included, there is enough oil to last centuries. If there were a truly free market in oil, with both the reserves and production owned and controlled by many competitive companies, the price of oil would be a fraction of today’s price.
The high price of oil is a direct consequence of artificial supply constraints imposed by the Organization of Petroleum Exporting Countries and other countries, including the United States, and the incompetence and mismanagement found in most state‐owned oil companies. OPEC is an international government cartel made up of Iraq, Iran, Kuwait, Libya, Angola, Algeria, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. These nations control about 77 percent of the world’s known liquid crude oil reserves.
Most of these countries and other major oil producers that rely on mainly state‐owned companies, such as Russia, have underinvested in exploration and development of new production facilities and mismanaged the ones they have. (If politicians understood the facts and were truthful, they would rant against “greedy” socialists rather than private oil companies.)
Venezuela, despite having perhaps the sixth‐largest oil reserves in the world, has falling production because of the mismanagement by the Chavez government. Mexico also is suffering from falling oil production because the government refuses to allow private oil exploration and production companies, and the state‐owned oil company, Pemex, is corrupt and incompetent. By contrast, the U.S. only has about 2 percent of the world’s oil reserves, but produces little more than 8 percent of global production, largely because they are privately owned and managed.
A decade or two from now, the socialist states will have severe regrets for their current misbehavior, and this is why. When prices rise, people seek alternative sources and substitutes for the high‐priced commodity. When oil prices are above $30 or $40 a barrel, suddenly the Canadian oil sands and Colorado oil‐bearing shale become economic, and those reserves are larger than known liquid oil reserves.
The short‐run problem is that development of oil sands and oil shale requires enormous up‐front investment and many years. Canadian oil sand production is now ramping up rapidly, but it will be a few years before it can replace most of North America’s needs for oil from outside the continent.
Recently, there has been additional good news. Shell Oil has announced its new in‐situ (i.e., in‐ground) extraction technology in Colorado could be competitive at prices of more than $30 per barrel. However, it will take quite a few years to get into major production.