800 Billion Barrels of Oil

Money Management Knowledge Base:

As more information becomes available on oil shale, it has become clear that the question is not whether or not oil shale is feasible, but how much of it is available. Many organizations, both private and public, have released estimates on the recoverable quantity of oil in the shale and all the estimates seem to agree that the potential is enormous. The 800 billion barrels is just referring to on shale formation called the Green River Basin, and this does not even include all the other various formations such as the Bakken, Niobrara, Barnett, Eagle Ford, and Utica to name a few.

The Green River Basin Oil Shale Formation has been the subject of much discussion within the United States recently because of the enormous oil reserves it contains. Estimates of the oil resources contained within this formation range from 1.2-1.8 trillion barrels¹. Of that amount, it is estimated that 500 billion to 1.1 trillion barrels of oil are recoverable using today’s technologies and methods³. The RAND Corporation uses 800 billion barrels of recoverable oil as a mid-point estimate³. There is no question that this amount is staggering. So what does this amount mean for the United States and its citizens?

For a breakdown of how the introduction of 800 billion barrels of oil will change the global energy distribution outlook, reference the graphs below:

This is a graph of the current distribution of oil reserves among the top 20 countries globally. As you can see, the United States currently ranks 14^th overall².

The data contained in both of the above graphs as stated on NationMaster.com in their energy statistics page Oil Reserves (Most Recent) by Country.

http://www.nationmaster.com/graph/ene_oil_res-energy-oil-reserves

When we add the estimated 800 billion barrels of oil said to be contained in the Green River Basin Formation alone, an amount that is 3 times the reserves of Saudi Arabia, the results are mind blowing.

The development of a domestically based, financially and ecologically feasible, shale oil industry capable of producing this amount of oil will have an astronomical effect on the United States. As the largest consumer of oil globally (the United States consumes an average of 20 million barrels of crude oil per day) the U.S. would experience enormous savings on a national level. A conservative estimate from the RAND Corporation, assuming an oil shale industry with a production rate of 3 million barrels per day, places the economic profit for the United States at around $20 billion a year, half of which is estimated to go to federal, state, and local governments and therefore benefit the public³. In addition to revenue, an increase in the world supply of oil would translate, conservatively, into a 3-5% decrease in the global price of oil³. This decrease would translate to a savings of $15-20 billion per year for consumers and businesses in the United States³. A vibrant oil shale industry would also create additional employment opportunities that have been estimated at a few hundred thousand additional jobs in areas, like the Green River Basin Formation, where oil shale activities are conducted, or contain industries associated with producing the inputs for the oil shale industry³.

A domestic shale oil industry also has the potential to drastically affect the financial markets in the United States. An increase in the global supply of oil and natural gas on a level that shale formations like the Green River Basin are said to be capable of producing could cause a significant decrease in the price of those commodities. Because oil and natural gas are so widely used in almost every industry in the United States, a decrease in their prices would translate into greater profits for companies who use them. That increase in profits could lead to better stock performance on the U.S. exchanges.

Using only the estimated reserves available within the Green River Basin, these positive effects could be enjoyed for several centuries. The potential advantages of the 800 billion barrels estimated to be contained in the Green River Basin is staggering. The Green River Basin Formation alone could and should change the economic outlook for the United States, in a positive way, for centuries to come on a level not experienced in our lifetimes.

References:

1. About Oil Shale. Oil Shale & Tar Sands Programmatic EIS Information Center. Web. 4 March 2011.

2. Oil Reserves (Most Recent) By Country. NationMaster.com. Web. 8 March 2011.

3. Oil Shale Development in the United States, Prospects and Policy Issues. The RAND Corporation. 2005. Web. 8 March 2011.

Commodity trading may not be suitable for everyone, as an investor may lose some, all or more than their original investment. The risk of loss in trading futures can be substantial. Before trading, investors should read the “Risk Disclosure Statement” and should understand the risks. Each investor must carefully consider whether futures trading is suitable in light of his or her own financial condition. Before trading, investors should be aware that along with the potential profits there is also potential for losses which may be very large.

This material is for general information only and is not a solicitation. Information and opinions presented have been obtained or derived from sources believed to be reliable. Additional information is available upon request. Associates of Chlebina Capital are not registered to offer commodities futures.

Chlebina Capital Management is a money management firm that primarily serves, but is not limited to, Akron, Cleveland, Medina, Canton, and the surrounding Northeast Ohio. Larry Chlebina, President of Chlebina Capital, is the primary financial advisor who developed the Integrated Tiger Strategy. The Integrated Tiger Strategy is an investment approach that seeks to achieve aggressive capital appreciation while balancing risk.