Where's the oil? How trade, deficits, strategic petroleum reserves affect U.S. national security.

• Author: Manoyan, John M.
• Position: Energy

There is much confusion and debate over just how much crude oil there is in the United States, both onshore and offshore, as well as over how best to manage it.

Perhaps the most perplexing part about oil reserves is the concept of "economically recoverable oil," which explains why, for example, last July the world had more crude oil reserves than today.

Back then, oil reached $147 a barrel, so oil in hard-to-reach places became economically feasible again, because the cost of recovery could be passed along to the buyer and still allow for some profit. Mature wells across the United States that had been retired were reactivated. As a result, oil in those mature oil fields was put back into the calculation of total reserves. Today, with oil down closer to $50 a barrel, many of those wells have been capped again and the mature fields are now retired from the calculation of reserves.

This may confound the casual observer who believes that oil is either down there or it isn't. But it is not just a matter of geology, it's also a matter of accounting.

The simple geological fact is that the United States sits on several hundreds of billions, if not trillions, of barrels of oil, in one form or another. Oil was formed by trapped decaying organic material in the deep underground. The "Bakken formation"--located in North Dakota, Montana and Saskatchewan--alone contains between 200 and 400 billion barrels of oil, albeit mostly embedded in shale rock. Nevertheless, that amount is on a scale, at least in total barrels, comparable to some of the biggest oil fields in Saudi Arabia.

The similarity ends there, though. The Saudi oil production is largely made up of different light sweet crudes, which are the finest grades of oil, prized for their purity and usefulness in liquefying heavier crudes for cracking. The Saudi oil is also close to the surface and practically comes out of the ground by itself. Not so long ago, it cost only about $3 a barrel to extract Saudi crude oil, although this cost has been rising in recent years. The oil in the Bakken formation is not so sweet and no way as easy to extract.

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Its presence has been known by geologists for decades. The oil is trapped deep between layers of stone with a chemical composition that makes it hard to drill vertically using current technology. The oil needs to be drilled horizontally at much higher cost. Right now, only about 1 percent of the total estimated reserves of the Bakken...