The Energy Base

The term "resource base," as used by Bruce Netschert of RFF, derives from a concept he has developed in seeking to measure the availability of oil and gas in the United States through 1975.

Hitherto, estimates of petroleum supplies have been based on what is commonly called "proved reserves." That is industry's shorthand for "proved recoverable reserves"—which is to say supplies that are definitely known and that feasibly can be extracted at current costs with current technological processes. At the end of 1958 proved reserves of oil in the United States were 30 billion barrels, against an annual production of 2.4 billion barrels. This has given rise to dire predictions as to future domestic scarcities and consequent increasing demands upon imports.

The Netschert concept makes it possible to place a quantitative estimate on the whole of a particular resource provided by the environment of a given area. Of oil, for instance, it is generally believed that only one-third of the oil in the earth's crust is recoverable by current methods in this country. Accordingly, industry's estimate of total future supply (which ranges between 86 and 240 billion barrels, depending upon the estimator's methods and cast of mind) may be multiplied by 3 to give an assumed resource base.

Netschert comes up with 500 billion barrels as his resource base for oil in the United States, of which 30 billion are "proved reserves" and 208 billion are known but as yet uneconomic to produce. Between the limits of "reserves" (30 billion) and the "resource base" (500 billion) there is a middle ground for which he uses the term "resources." The resources consist of that portion of the resource base (including reserves) which seems likely to become available given certain technological and economic conditions. For example, one may wish to estimate the oil resources that would obtain at twice present costs. Such a quantity would include a portion of the 208 billion barrels noted above (i.e., whatever it is estimated could be recovered at such costs) plus the quantity of yet undiscovered oil which it is estimated would be discovered and produced under such cost conditions.

Applying this formula to the domestic availability of crude oil in the United States in 1975, Netschert reaches the reassuring conclusion that, with no appreciable increase in constant dollar costs, around 6 billion barrels of oil could be available. Of this, 4 billion barrels could be produced through primary recovery (a 57 percent increase over the 1958 level of production); the remaining 2 billion could be produced through secondary recovery.

I believe that an effective economic development program can be evolved only if its architects can come to look at the economic structure of a state or region in economically meaningful terms. When one refers to "agriculture," "manufacturing," and "services," he is using a convenient shorthand description of a highly complex and diverse set of economic activities, which in some cases hides more than it reveals...

It is surprising how often the long-term decline in the number of persons needed to produce farm products gives rise to the illogical conclusion that agriculture is an undesirable economic activity for a state or region, and that the manufacturing industry alone should be considered. Some agricultural activities make out very well indeed in some parts of the country. It is much more meaningful to characterize economic activities as high-, medium- and low-income-producing, or again in terms of high-, medium- and low-potentiality of growth... Most important of all is the classification of economic activities according to advantage or disadvantages. Thus, the question is not only "which industries are good for us," but "which industries can do well within our state"

—Harvey S. Perloff, of RFF, at the Governor's Conference on Economic and Social Trends in Iowa.