Interesting piece of news today: new oil discovery in the Gulf of Mexico, estimated at a billion recoverable barrels. Deep, will be expensive to recover: $200 million per well, not all the wells will produce, and there's the transport infrastructure to consider. But still, with a billion recoverable barrels at, say, $70-100 each, you can afford to put $10-20 billion into production.

A billion barrels is significant, but the real significance of the find is the location, which is an impressive demonstration of what modern exploration and recovery techniques can do. The Gulf of Mexico is probably the single most explored oil-producing region on the planet. 20 years ago they were calling it "The Dead Sea"; it was considered all dried up. Clearly not so.

What we're seeing now (the 28 billion barrels off Brazil, discovered in 2007, is another example) is the beginning of the next wave of discoveries. They will be complex and expensive, but they are there.

I mentioned this in an earlier post, but it's worth repeating: most of the world's oil-producing regions have not seen systematic exploration in 20 years, often more. From the late 80s through 2002-2003 there was anb oil glut, offering little incentive to explore. From 2003-2006 the price spike was seen as just another transient spike due to instability in the Middle East. It's only in the last few years that we've seen real exploration beginning. It takes a good deal of time to produce results, both because of technical and political constraints.

Many traditional oil producing regions still aren't getting attention: Mexico, Venezuela, Indonesia, Libya and many others are still pumping from deposits discovered 30 years ago and more. In these cases National oil companies don't have the technology and government policies make investment by oil majors unattractive. Iran and Iraq have not seen significant exploration in 30 years. Even the GCC states have let exploration languish for years: given their known reserves they simply had no reason to go looking.

How much more is out there? We don't know. Probably a fair amount, and as long as oil remains expensive the next 20 years are likely to see an interesting range of technologies developing for getting more out of existing fields. Today we assume that only 20-30% of a given reserve is recoverable; that is likely to change. Today's technology is likely to look as primitive in 20 years as the technology of 20 years ago (which seemed really impressive back then) looks today.

Again, we do face major problems, but the geological problem (is there oil there) is less immediate and less vexing in many ways than the political and investment-related problem (can the oil that's there be brought to market). From the reactive perspective, the conclusion is the same either way: we need to prepare for potential shortage. From the proactive perspective, the actions needed to maintain supply are very different. This is the danger of the obsessive focus on absolute reserves: it distracts from the essential focus on confronting the political and investment-related concerns.