Twenty-year oil reserves industry investment floor

Industry maintains twenty years of proven reserves because longer-horizon returns are uneconomic at typical IRRs. Used as parallel example to the materials-investment problem.

Because of that, there's lots of things we just don't invest in. Anybody know how long, for a hundred years, we've had the same amount of oil reserves in the world, in terms of number of years of oil reserves? We've had twenty years of oil reserves for the last hundred years. The reason is, once you have twenty years of proven reserves — you know you drilled the well, you found this big pot of oil — you quit investing in drilling for oil, or developing new technology for oil, because twenty years is all you can afford to invest in; you can't get a big enough return more than twenty years ahead. So we've always had twenty years' worth of oil. I remember when I was a student they were predicting we were going to run out of oil by 1990. Well, we didn't. We ran out of two-dollar-barrel oil. The Saudis and the Kuwaitis actually have about four-dollar-barrel oil now, partly because of inflation. But the rest of the world is up in the twenty-dollar-barrel range. You raise the price of something and people will start investing in it.

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