OIL? OH SURE, WE'VE GOT QUITE A BIT OF THAT

I've got to say that I'm one of those people who, when I learn something once, I like to move on to the next topic. Maybe not ever come back to that first thing. But, I'm finding you can't do that anymore. Stuff keeps changing.

One thing I learned, about 20 or 30 years ago, was that we were about out of oil. This was good solid learning with vivid images-Club of Rome, Jimmy Carter sitting there in the White House in his sweater, buying Toyotas, all that. It was also good learning because it made perfect sense. Only so much oil could be down those holes and when we burned it up, it was gone.

Admittedly, over the years, I occasionally wondered about my precious knowledge. I noticed bothersome things. For example, in my neighborhood, people quit driving those Toyotas so much. About 94% of them switched over to huge devices called SUVs and many of these had 500-pound grilles welded on the front that they called Toyota catchers. Another thing was when I would drive up to Austin or Houston, the freeways were about three times as crowded as they were back when. I had envisioned that, by now, these structures would be mainly used by bicyclists and skate boarders. Then I looked at the world economy roaring along at a high rate of speed-hardly comparable to the relatively puny activity of the '70s-and all still fueled by, of course … you guessed it. Finally, I would notice that gas prices kept staying the same, or even declining, in terms of constant dollars.

What bothered me about all this was economics. I had had the misfortune of taking some economics courses in school. I've been to therapy but am still trying to recover. What I had learned about oil and what I had observed just wasn't fitting with Supply and Demand, the Price of Scarce Resources, and all that. But I had begun to suspect that economics wasn't playing with a full deck when they taught me that World War II had saved the United States economy. And, in the 1980s, when the Los Angeles earthquake was hailed as the solution to that city's recession, I put all the economics texts in my personal library up on the shelf next to those on alchemy and astrology. Surely this business about oil was just another example of the basic wrongness of economics.

I reconciled it all in this manner. Yes, we were still running out of oil and, yes, in terms of economics, these other things I observed did not make sense. But, because economics did not make sense, these events did make sense. So, my knowledge stayed intact. I could move on to the next topic.

If you followed the material above and are happy with the conclusions reached, you may want to stop here. My problem is that I picked up the January 2001 issue of Atlantic Monthly and read The New Old Economy: Oil, Computers, and the Reinvention of the Earth, by Jonathan Rauch. Big mistake, I thought first. This messes up everything. Had to remind myself that all knowledge is liberating in one way or another.

Rauch reports that since Jed Clampett (I think that's who it was) shot the bullet into the ground and discovered oil in 1859, 820 billion barrels have been burned. And, of that, nearly three-fourths (600 billion barrels) have been burned since 1973. Certainly this was consistent with my observations. So, why aren't we just about out? Rauch says that we are not only not about out but that proven reserves today are half again as large as they were in the '70s and ten times as large as they were in the '50s. He cites a recent Department of Energy report: "Despite the fact that the United States is the most mature hydrocarbon region in the world, 11% of all the petroleum reserves ever added in the United States (since 1859) have been added in just the last eight years." Somehow, while I've been sleeping or working on the next topic, we've burned up three fourths of all the oil that's ever been burned and ended up, in a sense, with more than we started with.

There must be a trick here and indeed there is. This is what Rauch's article is actually about. The trick is computers. Computers have enabled geologists to find deposits they couldn't find in the past and to find them with a degree of precision that makes exploitation feasible. Obviously, the trick isn't so good that it creates new oil and, ultimately there's a finite amount to be burned. But the trick is good enough for Rauch to announce that "the most common view, and the one that I find most plausible, is that demand for oil will peter out well before any serious crimp is felt in the supply. Something cheaper and cleaner, perhaps the hydrogen-based fuel cell, will come along, and the oil age will end with large amounts of oil left unwanted in the ground."

One of the reasons I don't like to go back to stuff I've already learned is that it forces you to go back to a lot of other stuff as well. Back at St. Ed's, in Logic 101, Father Bailey taught if A, then B and, if B, then C. He didn't say it just this way, but what I got out of it was that if you monkey with A, then B and C are gone. If we're not running out of oil in the next week or ten days, as I had believed, then what other erroneous conclusions had I reached?

As socially responsible investors we've worked with oil companies on several issues. In particular, we've asked them to develop alternative forms of energy to reduce global warming and we've asked them not to drill and not to build pipelines in areas that are particularly sensitive ecologically. If anything, this new (to me) knowledge would seem to strengthen our hand. Oil companies justify much of their behavior with "the need to do almost anything in their desperate struggle to find and produce oil against all odds to sustain the economy." Well, now we know that the struggle isn't really all that desperate. The need to drill and transport in sensitive areas seems far less urgent. And, the fact of global warming and the ultimate need to develop alternative sources have not changed.

Say, this is New Year's Resolution time! Maybe I should reconsider at least one of my cherished ideas every month! Naaah … too painful.