Production technique and the supply of oil and oil products



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It is the purpose of this study to analyze some of the intimate details of production technique in the oil Industry, a natural resource industry, as it affects the supply of oil and oil products. Economists have been prone to assume that all natural resource industries may be considered as a group, that they have like characteristics, and that general theories applicable to the natural resources as a group will apply alike to individual natural resource products. Thus, it is commonly assumed that the supply of natural resource products tends to become depleted and that the cost of producing them tends to increase. In the long run certain interpretations of these assumptions are undoubtedly correct. In the short run, however,--and it is possible that this period may be cumulative for years, decades, generations, or even centuries--there may be forces at work that definitely offset, or even reverse, any assumed effect of the supposed tendencies toward depletion and increasing cost. If it be true that supplies of oil are available for generations and even centuries by applying to the oil supplies at hand the technique already in use both in the United States and in foreign countries as highly industrialized as our own, there is little point to some of the theorizing so prevalent today regarding the dangers of an oil-less future. If, on the other hand, the supplies of oil available are very limited and threaten to become depleted within a very few years, the application of the technique available that makes it possible to conserve available supplies, is a matter of public concern. It Is assumed throughout this study that governmental, or social interest in the conservation of the natural resource, oil, is justifiable to the extent that it eliminates or curbs unnecessary waste and makes the operation of the industry more economical and efficient. Using this much used and abused term, conservation, to mean simply the opposite of the word waste, there is little opening for argument against conservation. The word has come to mean so much by definition and implication, however, that it is difficult to determine what it means to the one using it unless the writer or speaker defines it clearly. Even with the greatest oil resources imaginable it might still be somewhat difficult to justify waste of oil. The word "waste" connotes undesirable characteristics. Conservation connotes something to be approved of. When governmental efforts to conserve a natural resource, like oil, make it possible to utilize more efficient technique, reduce costs of production, and greatly increase the supply of oil available, there are great potential advantages to the public as well as to oil operators. (Some individuals, however, may suffer from any change from the status quo.) As oil costs are reduced, advantages under beneficial control may be passed on, in part at least, to the consuming public in the form of lower prices. It is with these points in mind that this study is made of (1) the supply of crude oil available even with the present competitive conditions under which the industry has grown and developed to its present size and importance; (2) the effect of the application of more efficient methods and equipment upon the present and ultimate supply of oil; and (3) the effect the utilization of the latest technique and most economical equipment would have upon the production of oil products