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Technology and Petroleum Exhaustion: Evidence from Two Mega-Oilfields

  • John M. Gowdy

    ()

    (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)

  • Roxana Julia

    (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)

. In this paper we use results from the Hotelling model of non-renewable resources to examine the hypothesis that technology may increase petroleum reserves. We present empirical evidence from two well-documented mega-oilfields: the Forties in the North Sea and the Yates in West Texas. Patterns of depletion in these two fields suggest that when a resource is finite, technological improvements do increase supply temporarily. But in these two fields, the effect of new technology was to increase the rate of depletion without altering the fields' ultimate recovery - in line with Hotelling's predictions. Our results imply that temporary low prices may be misleading indicators of future resource scarcity and call into question the future ability of current mega-oilfields to meet a sharp increase in oil demand.

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Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0512.

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Date of creation: Dec 2005
Date of revision: Apr 2006
Handle: RePEc:rpi:rpiwpe:0512
Contact details of provider: Web page: http://www.economics.rpi.edu/
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  1. Hanley, Nick & Shogren, Jason F. & White, Ben, 2001. "Introduction to Environmental Economics," OUP Catalogue, Oxford University Press, number 9780198775959, March.
  2. John M. Gowdy, 2004. "The Revolution in Welfare Economics and Its Implications for Environmental Valuation and Policy," Land Economics, University of Wisconsin Press, vol. 80(2), pages 239-257.
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  5. Alcott, Blake, 2005. "Jevons' paradox," Ecological Economics, Elsevier, vol. 54(1), pages 9-21, July.
  6. Hallock, John L. & Tharakan, Pradeep J. & Hall, Charles A.S. & Jefferson, Michael & Wu, Wei, 2004. "Forecasting the limits to the availability and diversity of global conventional oil supply," Energy, Elsevier, vol. 29(11), pages 1673-1696.
  7. Norgaard, Richard B., 1990. "Economic indicators of resource scarcity: A critical essay," Journal of Environmental Economics and Management, Elsevier, vol. 19(1), pages 19-25, July.
  8. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
  9. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
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