Crude Oil in America: How Much Do We Really Have and How Long Will It Last?

Despite a sharp increase in U.S. crude oil reserves, we may not have as much oil as some believe.

Aug 30, 2014 at 12:00PM

The surge in U.S. crude oil production over the past few years and overwhelmingly positive outlooks for continued output growth have inspired an almost unprecedented sense of complacency that our nation's energy woes are over for good.

Domestic crude production reached its highest annual level since the late 1980s last year and could hit its highest all-time level by 2016, according to some projections. But before you rush off and buy the biggest SUV you can find, you may want to take a closer look at the cold, hard facts about how much crude oil the U.S. really has and how long it will last.

Linn Energy Permian

Photo credit: LINN Energy 

U.S. oil reserves highest since 1970s
According to the US Energy Information Administration (EIA), U.S. proved reserves of crude oil and lease condensate (a type of ultralight crude) rose by about 4.5 billion barrels, or 15.4%, last year to 33.4 billion barrels. That's the highest level since 1976. 

The main reason behind this rapid growth in reserves is the explosion of activity in Texas' Eagle Ford shale and Permian Basin and North Dakota's Bakken shale. Basically, improvements in drilling technologies made it economical to exploit previously inaccessible resources within these fields.

The fact that domestic reserves are the highest they've been since the late 1970s is certainly reason for optimism. These reserve additions aren't due to luck, but rather due to heavy investments in technology made by U.S. energy companies over the past several years. Without those technological improvements, it wouldn't have been possible to economically harvest these reserves.

How long will these reserves last?
Now for the less cheery news. At the current pace of drilling, these reserves aren't going to last for more than a decade or two. Let's do the math. Last year, annual crude production averaged just under 7.5 million barrels per day, which comes out to a little over 2.7 billion barrels for the year. Assuming we deplete reserves by 2.7 billion barrels each year, current reserves would run dry in less than 13 years.

Of course, that calculation is very simplistic because it assumes production will remain constant and we won't add any new reserves. Still, the point I'm trying to drive home is that even though U.S. oil production now exceeds every other country except Saudi Arabia and Russia, the size of our reserves is much smaller.

Currently, we rank 12th among the top 20 countries by proven crude oil reserves. That places us just ahead of China and Qatar, but below Libya and Nigeria. By contrast, Russian oil reserves are estimated to be 80 billion barrels, while the Saudis claim they have some 270 billion barrels remaining.

Technology holds the key
Now here's what could completely change things: technology. Just as technological progress has helped boost our recoverable oil estimates in recent years, it should continue to do so in coming years. Consider the Bakken, for instance. Currently, the play is estimated to contain total reserves of 150 to 900 billion barrels, according to Continental Resources, a leading Bakken driller.

While only 3.5% of these total reserves are currently recoverable using existing technology, technological progress could improve that recovery rate significantly and, with it, the volume of recoverable reserves. According to Pete Stark, senior director and advisor for upstream research at research and consulting firm IHS, further technological advances could boost Bakken recovery rates to as much as 12%-16% within a decade. That would provide a big boost to proved reserves.

The bottom line
There's no denying that the shale boom has been a remarkable game-changer for U.S. hydrocarbon production, as well as for our nation's trade balance and geopolitical leverage. But shale oil won't last forever; in fact, shale oil production could peak in as little as five years given the higher decline rates associated with shale wells.

That's why it's important to keep things in perspective and realize the shale boom isn't a panacea to the nation's -- or the world's -- most gripping challenge: our addiction to fossil fuels. It's merely a bridge that extends the amount of time we have to develop sustainable forms of energy that can power our planet without emitting massive quantities of carbon dioxide, raising the global temperature, and harming our environment.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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