Reserves and Resources

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Chapter 6

• Reserves and Resources

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This chapter is a brief discussion the theory of
the mine.

• Though different sources of energy are good
  substitutes, different energy industries may be
  not.
• It is necessary to consider specifically the
  industries based on exhaustible minerals like
  oil, those on renewable resources like sunlight,
  and those converting energy from one form to
  another like electricity.

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Definitions

• Reserves, also called proved reserves, include
  the minerals that can be extracted and sold at a
  profit under current market conditions and that
  have already been identified.

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Definitions

• The reserves only include the top left corner.

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Definitions

• The horizontal dimension is marked off according
  to uncertainty.
• The vertical axis is the market price where it is
  just worth mining a particular deposit.
• The vertical dimension can be also marked off
  according to cost.

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Definitions

• The cost dimension can be subdivided into
  recoverable, paramarginal and submarginal cost.
• The quality of a mineral can be summarized as
  cost of extraction, transportation and use too.

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Definitions

• The industry may be the best one to estimate the
  cost of producing deposits.
• Disadvantages of the data from the industry
• Negative bias because of taxation and price
  regulation
• Positive bias because of commercial purpose of
  appearing strong and reliable

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Definitions

• Reserves are expensive to buy, prove and hold,
  but they permit firms to make long-range plans
  for processing and marketing.
• Reserves can be viewed as a kind of inventory.
  Firms do not try to max or min it but to find the
  appropriate amount of it to max profit (or other
  goals).

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Definitions

• Firms continue to add new reserves as them
  exhaust the old.
• The inherent assumption is reserves can always be
  augmented if a firm is willing to pay the price.

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How do we know what is there?

• A firm can increase reserves by buying them from
  other firms but the economy cannot.
• We are curious about the boundaries (total
  availability) of the energy because of the fear
  that economic calculations are too shortsighted.

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How do we know what is there?

• It is not necessary to estimate the exact number.
  
• It is enough to know beyond the boundaries of
  reserves there are deposits exploitable at higher
  cost.

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How do we know what is there?

• Three techniques of measurement
• 1. Volumetric (The simplest approach)
• 2. amount of mineral per unit of geological
  structure amount of the structure.
• It can be refined by adding the richness and
  accessibility.

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How do we know what is there?

• Crustal abundance (abundance in the earths
  crust) not applicable to oil or coal

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How do we know what is there?

• Behavioristic approach look at the history of
  human exploitation rather than the geology.
• Advantages forecast the decline in production
  and make use of accurate available data.

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How do we know what is there?

• Disadvantage the data used is irrelevant.
• Use the past data to forecast the future.
• Use the production data to estimate the
  geological amount.

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How do we know what is there?

• There are no real substitutes for detailed
  geological exploration to estimate what is
  underground. Therefore, the data on reserves is
  the most meaningful for us.

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Reserves and Resources of Major Fuels

• Reserves grew steadily with production until
  1967.
• After the discovery of Middle Eastern reserves,
  the reserves in US tended to decline. The
  decrease continued to the 1990s. It is partly
  because the relative cheap reserve aboard induce
  companies to invest aboard rather than in the US.

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Reserves and Resources of Major Fuels
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Reserves and Resources of Major Fuels

• The reserves appear quite bleak
• Reserves are less than 4 years consumption.
• Importing accounts for a half of consumption.
• The resources are identified more recisely.

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