Innovation and sustainability From the preceding arguments it is clear that there is no exhaustible resource tat is now scarce in any economic sense, that high prices have forced a switch to alternative inputs to production, and that extraction has collapsed. Slowdowns in exploration and production are if anything caused by historical low prices for most raw materials.

An entire school of economics has grown up concerning itself with the criteria necessary for sustainable growth. This has largely been in response to studies such as The Limits to Growth, and has also taken somewhat different approaches such as considering analogies to the second law of thermodynamics. This analogy would hold that sustainable development, like perpetual motion machines, is an inherently impossible thing.

Clearly, the only way out of this dilemma is innovation. Currently this is a hot topic in the economics of exhaustible resources. The US think tank Reources for the Future devotes an entire department to studying the effects of innovation on natural resources. As an example of these typoes of effects, consider the success rate of wells drilled for oil and gas exploration only in the last few decades.

In the early days of oil drilling, exploratory holes were an extremely chancy thing, and "striking oil" was (and still is) a synonym for the big and largely serendipitous payoff. Nowadays, exploration techniques have improved, and a significant fraction of oil wells drilled for exploration (as opposed to production) actually become production holes.

An exploration well is first drilled to the depth of the target formation, then is either classified as an oil well, a gas well or a dry hole. If the price is high, even a marginal hole may be put into production or completed if the expected production seems likely to at least cover the completion costs. This explains the rise in exploratory well completion througout the seventies, but not the much higher rise in well completion in the nineties.

Figure 14: US well completion rates and constant-dollar crude oil prices.

This increase can nearly entirely be ascribed to advances on high-speed computing hardware and software for the 3D imaging of source and traprocks in the subsurface. This is a remarkable advance, since it was clearly not driven by high oil prices, but rather by the sudden availability of a significant enabling technology that lowers costs.

Figure 15: Seismic 3D image, offsore Louisiana, USA. Source, university of Lausanne.

Seismic images such as the one shown in Figure 15 would have been unthinkable even a few years ago, and are now within reach of modest desktop workstation computers. Serving as inputs to the new imaging software are new methods of data acquisition and new methods of data reduction. Taken together these have resulted in a stupendous increase in the ability to find the subsurface structures that contain oil without actually drilling a hole.

Figure 16: Concept of directional drilling technology.

Another effect of innovation is on the demand side. New automotive and energy generation technologies are more fuel efficient than they were 20 years ago. Some of this is due to regulations imposed in the 1970's in response to oil supply shocks, and some is no doubt due to non-demand-driven innovation.