Stupid in Advertising

Perhaps you have noticed an advertisement that Shell runs on gas reserves. It reads: “Yes, the world’s remaining gas reserves are getting harder to reach” (see here for the advertisement and here for the website). This statement always makes me smile, as it shows that many companies pay lip service to economics when it comes to communication about environmental issues. This statement is both true and false depending on what one means by “gas reserves.” The crucial word missing in the ad is “known” (in the way Austrian economists use the word).

On the one hand, the statement has been true from the first day gas reserves have been exploited by mankind. At any moment among known gas fields (including the known areas where gas is likely to be located), companies will exploit easy to reach gas reserves first and harder ones later. Thus, the fact that the world’s remaining known gas reserves are getting harder to reach has always been true, it is not a consequence of gas running out.

On the other, the statement is false if one considers that some gas reserves may be truly unknown in their location (people truly don’t suspect there could be gas in a given location or that it could be easy-to-reach), but if discovered it could be easy to exploit (at least easier than others currently exploited). If my knowledge is correct, it has been the case with the discovery in 1969 of the giant Maui gas field in New Zealand, which is located in the Tasman Sea off the Taranaki Coast (with its beautiful volcano).

Comments

[Jack]

I don't understand the other hand. It is possible that there is a large and easily accessible but unknown gas reserve but it is also possible that there isn't. I assume that is just obvious but I take the tacit implication of the opposition and the example of just such a find in 1969 as implying that the truth is somewhere in the middle. That might be rephrased as a hypothesis of stationarity in the unknowns but that is surely not the case with respect to gas. For example

Demand is higher than it has been before and is increasing so we need a bigger surprise than we have had before if we are to alleviate such problems.

Over time more ideas about where to find gas have been pursued and pursued more accurately and extensively so there are fewer places for the surprise to come from.

Finally we cannot even rely on the market price to aggregate understanding of expectation of surprises because of the Hotelling argument.

Thus Shell are first of all correct about known reserves. About unknown reserves the answers are unknown and to the extent that there are possible developments that are unknown they could turn out to be wrong. Even so it is surely unfair to demand that their statements be analytically true before they can make them. For the reasons above it is clear that the odds of an unexpected gas supply salvation are lengthening. That is not identical to Shell's statement but doesn't significantly alter the one sentence message.

Have I completely misunderstood?

Great picture of New Zealand in any case.

[frederic]

I agree that Shell is correct about known reserves and has been since day 1. However, if there is some gas that we truly don't suspect the existence of today (perhaps unlikely but we precisely don't have any probability for it), its existence is not incorporated in today's prices. In such a case the statement may be false for this truly unknown gas may turn out to be easy to get. This goes for extraction technology as well, which may make the exploitation of some reserve cheaper in the future - but it is not reflected in today's prices because we truly don't know about it.

Mt Taranaki is one of my favorite mountains in NZ, although I have never climbed it. Really, this post was a way to clebrate its beauty...