SCDigest editorial staff

The News: Oil giant Chevron and several partners announced this week they have found a new oil field beneath the Gulf of Mexico that could boost U.S. reserves by an astounding 50%.

The Impact: While the find will have little short term or even long term impact on oil prices or U.S. dependency on foreign sources, it does offer hope to some that the pessimistic predictions of “peak oil” are overblown. (See Supply Chain Management and the End of Oil)

The Story:  Chevron, Devron Energy and other partners this week announced a new oil find in the Gulf of Mexico that could hold as much as 15 billion barrels of oil – the largest U.S.-based discovery since Alaska’s Prudhoe Bay field a generation ago.

With country’s current reserves at 29 billion barrels, the discovery could lead to an increase of proven U.S. reserves of 50%. However, to put things in perspective, the reserves of Saudi Arabia are cited as being more than 250 billion barrels.

It will also take many years and huge sums of money to extract the oil, which is miles beneath an area of ocean that is about 300 square miles. The test well is about 270 miles southwest of New Orleans.

The impact at the pump from this new find alone will be small and not felt for several years, if at all. However, the find does lead some to be optimistic that there may be more such giant new oil field discoveries to come, improving the overall supply-demand equation and reducing fears that world reserves and output of oil have peaked, and that we are entering a period of permanent shortages and rapidly rising oil prices.

This find was in a layer of the earth in the so-called lower tertiary, a rock formation that is 24 million to 65 million years old. A number of other oil companies have projects at that depth, and the latest find is likely to spur still more exploration projects.

Chevron “may be the first ones to hit the jackpot, but if the current thinking is correct, this is only a beginning," said Fadel Gheit of oil industry analysts Oppenheimer & Co, according to the AP.

Will new finds such as these deep underground, and the increasing economic viability of shale oil, once again bring a better equilibrium to oil markets and auger more stable prices than we’ve seen recently or that the pessimists predict?

There are strong arguments on both sides, with the biggest wildcard in the short to medium term being political developments in the Middle East.

Does this latest discovery give you hope that we will avoid a dramatic oil shortage for some time? Or is this just a minor exception to the long term trend? Let us know your thoughts.