Publications: The Petroleum Economics Monthly

The Death of Resource Constraints (December 2012)


For more than forty years, US policymakers, economists, academics, business people, and almost all individuals have planned and acted believing oil and gas resources were scarce. Americans were not alone. The elites and ordinary citizens of nearly every country in Asia, Europe, Africa, Oceania, and the Americas have thought, deliberated, and acted in similar fashion. Officials in many advanced economies have pushed aggressively to reduce oil and gas use. Initially, they did this to preserve hard currency and limit financial transfers to oil and gas-exporting countries. More recently, such efforts have intensified as concern over global warming rises.


The situation will be very different by 2020. Although an idea repugnant to conventional thinking, technology developments will likely banish the resource constraint. These advances will drive the cost of tapping unconventional oil and gas reserves down to where it will be uneconomic to produce from many high-cost areas. The explosive production of these resources will probably take average oil and gas prices down over time, creating serious political dislocations in nations that operate expecting ever-rising prices. Companies planning long-term growth around high prices will also suffer the consequences of their bad decisions.


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