2008: Considering the U.S. always waits until the last second, how will the end of oil play out?
AUDIENCE MEMBER: Hi, Warren. I’m Doug Hicks (PH) from Akron, Ohio. And you hear on the news lately a lot of people say that oil will run out during this century.
Considering the U.S. policy is to do nothing until the very last second, how do you think the end of oil will play out?
For example, do you think that this would, unfortunately, result in World War III? Or do you think alternative energy will be available, the day that oil runs out, to take its place?
And maybe, do you think these oil companies’ value will go to zero when oil runs out?
WARREN BUFFETT: Yeah. Oil won’t run out. It doesn’t work that way.
What oil will do at some point — who knows when — people predict a lot of different things — oil at some point, daily productive capacity throughout the world will first level off and then start declining very gradually.
The nature of oil extraction is such that wells don’t — with rare exceptions — they don’t go to a given point producing a hundred barrels a day and then all of a sudden quit or anything like that. So you run into this depletion aspect and get into decline curves and that sort of thing.
So we won’t — we’re producing in the world, 86 or 87 million barrels a day of oil, which is more than we’ve ever produced before.
We are closer — by at least my calculations — we are very much closer to producing almost as much as our productive ability is in the world, with fields in their current stage of development, than we’ve ever been.
I mean, our surplus capacity, I think, is less than, well, any time I can remember. And it’s quite a bit less than most periods.
So we don’t have the ability to crank up, in any short period of time, the 86 or 7 to a hundred million barrels a day.
But whatever that peak will be, and whether we hit it five years from now or 50 years from now, and then it will just gradually taper down, and the world will adjust to it, and hopefully we’ll be thinking about it, you know, well before it happens, and various adjustments will be made in the world that will cause the demand to somewhat taper down as the available supply.
But we will be producing oil far beyond this century. It’s just — the question is whether we’re producing 50 million barrels a day, or 75 million, or 25 million barrels a day. I don’t know the answer to that.
There’s a lot of oil in place in the world. We’ve messed up the recovery of a lot of the oil. I mean, we never recovered the, you know, the total potential of fields. And some fields we’ve mis-engineered in ways so that we will recover a very small percentage. Now, maybe there will be better engineering, tertiary recovery, and that sort of thing in the future.
It’s nothing like an on and off switch, though, in terms of the world producing oil or adjusting to reduced capacity or anything like that.
You may still have enormous political considerations to — access to the available oil — because it’s going to be so darn important to our society for so long.
There’s nothing we can do, in any short period of time, that will wean the world off of oil. You know, that is a fact of life.
CHARLIE MUNGER: Well, if we get another 200 years of economic growth pretty well disbursed over the world, while the population of the world also goes up, all of the oil, coal, natural gas, and uranium reserves of the world are like nothing.
So eventually, of course, you have to use the sun. There is no other alternative. And I think we can confidently predict that there will be some pain in this process of adjusting to a different world.
Personally, I think it’s extremely stupid to use up the hydrocarbon reserves of the world as fast as we are.
I don’t think we’ve got any good substitutes for those things as chemical feed stocks, and I think it’s perfectly crazy to use up something so precious for which you have no alternative that’s sure to be available.
And if you look at it backwards, what should we have done? Hell, we should have bought all the oil in the ’30s in the Middle East and take it over here by tankers and put it in our own ground.
I mean, it’s obvious to see what should have been done in the past.
Even though that’s obvious, are we doing the equivalent of that now? And the answer is, basically, no.
So I think the governmental policy tends to be way behind in terms of rationality. And I think we’ll just have to soldier through. But eventually the — if we’re going to have a prosperous civilization — we have no other alternative than the sun.
WARREN BUFFETT: What’s your over-under figure for 25 years from now, world production oil per day?
CHARLIE MUNGER: Down.
WARREN BUFFETT: Yeah. (Laughter)
That’s not an insignificant prediction. I mean, it — believe me. If oil production is down 25 years from now, it will be a different world.
I mean, you — China’s going to sell over 10 million cars this year. I mean, the demand is going to keep — even at these prices — it’s hard for me to imagine demand falling off a lot. So if production falls off, you’ll have some interesting consequences.