Oil Panic and the Global Crisis Oil Panic and the Global Crisis by Steven M. Gorelick
Publisher: Wiley-Blackwell
Year: 2009
Pages: 256

Everybody knows something about the oil industry, or at least they think they do. Every summer, when the cost of gasoline rises in America, watercooler conversations are pregnant with from-the-hip remarks about the cause of high prices. It’s Bush, or it’s the war in Iraq, or it’s the CEO of Exxon—whatsisname, Scrooge McDuck. I’ve also received email forwards about such things as the Bakken formation, which is believed by people who don’t know any better to be a panacea for our oil needs.

In other words, the price of oil is on everybody’s mind, but no one actually seems to know much about it, and misinformation rushes to fill this vacuum, either of the “oil will run out next year” variety or the “nothing to see here; move along” variety. Oil Panic and the Global Crisis is the attempt of Steven Gorelick (a professor at Standford who devotes himself to the study of oil more or less full time) to summarize the state of knowledge about oil into as reader-friendly a format as possible.

I’ve heard it said that while Oil Panic attempts to popularize the topic by virtue of its accessibility, it retains a “rather academic style.” Unfortunately for some readers, Gorelick is no Malcolm Gladwell: Oil Panic doesn’t approach what I would consider the realm of “popular science”, but it’s clear that he’s trying to walk a fine line between the abstrusity of economic jargon and the insult of overly-simplistic writing.

And don’t fool yourself: when I use the word “economics”, I mean it; after all, the science of oil refinement is only peripheral to our discussion of the price and use of oil. What we’re concerned with primarily is how much oil costs, which is a direct result of (a) how much we need/use, and (b) how much there is and how much it costs to produce it. The study of oil is more or less the same as the study of any other market, after all.

But economics can be made readable, right? After all, Tim Harford managed it with The Undercover Economist, didn’t he? To his credit, Gorelick’s book is by far the most clear, coherent, and readable summary of the oil economy that I’ve read thus far, and that’s no mean feat: Gorelick doesn’t get to choose the most interesting examples in the way that Harford does, and still manages an interesting book.

Gorelick starts with the premise that the world is running out of oil, and soon. Some of the common methods of calculating peak oil production (i.e. when production of oil is at a maximum, after which point it declines) would appear to indicate that we could reach that point anywhere between 10 and 40 years. The entire first portion of the book, in fact, fields the notion that we have already reached or will soon reach peak oil production, and the world’s growing use of oil represents a crash waiting to happen. The next section, which fields the opposite assertion—”we have plenty of oil”—is much larger, and, it must be admitted, the more resolute of the two. Not to spoil anything, but Gorelick’s conclusion appears to be that the world likely has plenty of oil resources to fulfill our needs for the foreseeable future, but this should not preclude us from seeking alternative sources of energy.

What is most interesting to me is that the world’s oil reserves are represented by an ever-shifting number. After all, oil that is not currently profitable to drill for today may be profitable in ten years, and that changes how it is reflected in inventories. The Bakken formation, for instance, is one of many instances of oil sands or oil shale which represent a large volume of technically-recoverable oil that no one will bother with until the costs of production decrease or the price of oil increases enough to justify trying. This is a recurring theme in the book, and its one that I don’t hear very often amidst the political or environmental concerns of oil dependence: oil, like everything else, is governed by what we’re willing to pay for the product. However much we may care about the environment, we are unlikely to see much “green” energy until the economic cost of using windmills is lower than drilling for and refining crude oil. Economics makes the world go ’round.

Oil Panic was clearly not meant to be a New York Times bestseller: as much as I believe everyone should read the book, it does not represent the same insipid ease of Dan Brown or the catchy topicality of Malcolm Gladwell. And yes, it does, at times, more closely resemble a college textbook than something you’d pick up at Barnes & Noble. Consider this passage:

The US production of other metals, like iron and lead, has also more or less resembled a bell-shaped curve (Figures 4.14 and 4.15), yet we are not running out of these commodities. In fact, in 2007, US mines produced 52 and 0.12 million metric tons of iron and lead (refined), respectively. Te US reserve base of each of these metals is 15 billion and 19 million metric tons, respectively. Total resource estimates (not just reserves) are much higher. For example, the 2007 iron ore resource estimate for the US was 110 billion metric tons and globally it was 800 billion metric tons. Using the highest historical levels of production, the US resources would last over 900 years and the global resources over 400 years. Worldwide there are an estimated 1.5 billion metric tons of lead, or enough to last more than 400 years at the current global production rate.

As you can see, it’s not quite Economics for Dummies, but neither does it even approach the level of abstrusity you would see in a survey of papers submitted to peer-reviewed economics journals1. I’ve come to the conclusion, in fact, that Gorelick includes so many facts and figures not because you necessarily need see them, but because he thinks it would be an insult to your intelligence to dumb the concepts down any further. As committed as Gorelick may be to popular science of the Richard Feynman variety, he is also a serious academician, and has little truck with condescension. Though this may exclude from his likely readers some of those ill-informed people who need it the most, I think this speaks highly of his integrity as a writer and as an intellectual. I think it is perfect, in fact, as an economics textbook focused on one particular market, or even for the sort of petrochemical-specific economics courses that Gorelick teaches at Stanford.

My own grasp of economics being limited to what I’ve gleaned from my graduate work, I can’t pretend as though I completely understand everything Gorelick says; nor am I enough of an authority to comment definitively on the relative validity of his conclusions. I can say it appears even-handed, extraordinarily well-researched and well-cited, and an overall excellent piece of scholarship.

Full Disclosure: I received a review copy of Oil Panic and the Global Crisis from the publisher, gratis. I am not receiving any compensation, monetary or otherwise, for my review of the book; neither was the provision of the review copy contingent upon the content of my review. The opinions expressed here are entirely my own, and do not reflect the opinions or expectations of the publisher.

  1. I’ve had to read some of these lately. A representative sentence: “Concern with tracing the intertemporal path of quasi-fixed factor adjustments in the industry has recently led to the application of dynamic duality models” (Quiroga & Bravo-Ureta, 1992). []
§5047 · March 25, 2010 · Tags: , , , , ·

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