by Archie M. Richards, Jr., CFP^®
October 17, 2005

We're awash in supplies of energy. The price of oil has already fallen from $70.85 to $62.63. It will go down considerably more.

The world uses 30 billion barrels of oil a year. A lot, right? But it's not much compared to the supply. Including oil that soaks the sands of Canada and Venezuela, proven oil reserves amount to 4.8 trillion barrels. That'll do for a while.

Those are just proven reserves. Oil reserves keep refilling from deep in the earth's crust. Between 1980 and 2002, despite gobs of the stuff being extracted, the amount of known global oil reserves increased by 300 billion barrels.

In 1970, Saudi Arabia had 88 billion barrels of known oil. Thirty-five years later, nearly 100 billion barrels have been removed, yet the Saudis believe they have 264 billion barrels left. Magic, huh?

The technology of extracting oil keeps getting better. The imaging technology that allows geologists to see through miles of water and rock improves faster than the pace at which the oil is removed.

In 1965, the first deep-sea oil rig went on line, drilling 500 feet down. Now, oil companies commonly go down 10,000 feet.

The cost of extracting oil worldwide is well under $15 a barrel. Indeed, the cost of retrieving oil from the most expensive offshore platforms in the North Sea, including capital investments and operating costs, is only $15. In Saudi Arabia and Iraq, we're talking less than $5.

The cost of recovery from the oil sands of Canada and Venezuela is only about $25 a barrel - way lower than the current price.

The cost of extracting oil from 10,000 feet deep in the sea bed today is about the same as the cost of drilling only 100 feet down 40 years ago in the richest fields of Texas and Saudi Arabia.

Today's oil men are jumping on the high-price bandwagon. In the last 18 months, the number of drilling rigs in operation has soared 36 percent. The result? More supply.

The world has become far more efficient in the use of oil. When the 1973 oil embargo was causing economic havoc, the world's purchases of oil accounted for 8 percent of the world's Gross Domestic Product (GDP). Now, it accounts for only 2 percent.

Although automobiles will continue using internal combustion engines, the brakes, shocks, carburetors, cooling, and pollution control systems, most of which are now controlled mechanically, will be controlled by computers. Cars will be safer and require less gasoline.

The U.S. doesn't need to build more refineries. Refineries cost less and go up faster in other nations. Even if a producing nation wants to cut us off, which is highly unlikely, the ban would have no effect. Oil is a world-wide market. If we can't get it from one place, we'd get it from another.

Given oil's rapid rise in price, you'd have thought that inventories of crude oil owned by corporations and ready to be refined were going down. Nope, commercial inventories are 12 percent higher than they were a year ago.

In addition to oil, the world has enormous quantities of natural gas. The U.S. has a 500-year supply of coal. And companies are finally applying to build more nuclear power plants. Nuclear is by far the safest and cheapest source of power. France obtains 80 percent of its power from nuclear sources, with no problems. Only 20 percent of U.S. energy comes from nuclear. This portion should be beefed up.

In 1939, the U.S. government pronounced that the nation had only 13 years of supply left.

In 1951, it predicted that U.S. oil wells would run dry by the mid-1960s.

In the 1970s, President Jimmy Carter intoned, "We could use up all of the proven reserves of oil in the entire world by the end of the next decade."

Sure, Jimmy. We're already 15 years past that deadline, and the world has more recoverable oil than ever, at low cost.

Like Humpty-Dumpty, the price of oil will come tumbling down.