Rising gasoline prices are hurting President Obama’s re-election campaign, and like most politicians grappling with a complicated, unpopular issue the president has opted to torture some numbers in his quest for a snappy talking point. Last week during a press conference in the Rose Garden at which he called for more policing of oil-trading markets, the president said “we use more than 20 percent of the world’s oil and we only have 2 percent of the world’s oil reserves.”
That’s almost identical to a statement he made last month, when he said that no matter how much drilling is done here, domestic reserves won’t “get much above 3 percent. So we're still going to have this huge shortfall.”
Obama has the numbers right. But he’s wrong about what those percentages mean, and his wrongness reflects a fundamental misunderstanding of the oil and gas industry.
While it’s true that America’s share of total global oil reserves is just 2.2 percent, the United States produces about 9 percent of the world’s oil, making us the world’s third-biggest oil producer, behind only Russia and Saudi Arabia. How can we have relatively little reserves on paper, yet continue to produce so much oil? The answer is both simple and somewhat confounding: The more oil we find, the more oil we find.
In 2010, America’s proved oil reserves stood at 31 billion barrels, just slightly below the 33.8 billion barrels of proved reserves the United States had in 1990. But over that two-decade period, the domestic oil sector produced about 52 billion barrels of oil. In other words, between 1990 and 2010, the United States produced nearly twice as much oil as we believed the whole country had in 1990, and yet at the end of that period, we still had about the same amount in proven reserves. What’s going on? In a word: innovation. And few industries on the planet have been as innovative as the American oil and gas sector.
It’s not the size of your reserves that counts, it’s what you do with them. And the U.S. oil and gas sector has been remarkably proficient at exploiting this country’s vast mineral wealth. Over the past century or so, oil and gas drilling has gone from a business dominated by wildcatters armed mainly with a hunch and a prayer to one where the latest seismic and “geosteering” technologies allow drillers to steer their bits so accurately that they can arrive within inches of their target zone two miles (or more) beneath the Earth’s surface.
Add in ongoing improvements in horizontal drilling—and yes, in hydraulic fracturing, the bugaboo of many environmental groups—and the changes are easily seen. For instance, over the last five years, Southwestern Energy, a Houston-based company drilling in the Fayetteville Shale in Arkansas, has halved the number of days it takes to drill an average well while nearly tripling the amount of gas it gets during the initial phase of production. Southwestern has done it by tweaking the fracturing process while more than doubling the length of the horizontal segments, so that more of the well is in contact with the source rock.