a lesson from base metals

A decade of intensive exploration for base metals during the 1970s, on what proved to be the mistaken idea that their consumption must rise in lockstep with global GDP, resulted in a substantial glut of copper, zinc, lead…by the end of that decade.

Miners responded by redirecting their exploration and development efforts in two ways:

— they started looking for gold, for its high value in a small package, and

–they concentrated on areas near existing infrastructure.

This cut costs and almost immediately began to generate much-needed cash flow. In some cases, miners even went back to the tailings (dump heaps) of nineteenth-century mines to extract now-economical gold.  Yes, this effort created a glut of gold within a decade, but that’s another story.

the oil industry today

Something similar seems to be going on now in the oil industry in the US.  A few months ago, Apache announced a major discovery (3 billion barrels of oil, 75 trillion cubic feet of gas) in an overlooked area near the Permian Basin in Texas.  Two days ago, Caelus Energy, a privately-held firm, announced a potentially large find (2.4 billion barrels of light crude) in shallow water in Smith Bay in northern Alaska–close, at least in Alaska terms, to delivery systems from earlier finds by oil majors.

That exploration effort should have shifted in this direction isn’t surprising.  The large amounts of oil and gas being uncovered are.  Although no one would want to generalize from this small sample, the discoveries do seem to me to call for demands for greater evidence for any claim that oil and gas prices will rise a lot from current levels.