Why the Data are Unreliable and How the Peak Oil Movement Started

How much of the Earth's endowment of oil remains? A simple, but important question, with a complex answer. For 57 years, British Petroleum (BP) has published the Annual Statistical Review of World Energy.[1] It seems like BP has the answer. Whenever an oil reserve statistic is quoted, the probability is high that BP is the source. This is because the "review" is very well done and authoritative looking. In reality, the "review" is republished data from The Oil & Gas Journal, a trade magazine.[2] The The Oil & Gas Journal gets its data simply by asking the governments of the country in question. The numbers provided by the United States, Norway or Great Britain are probably accurate. But most Middle Eastern countries regard oil reserve figures as state secrets and so the government provided figures for these countries are suspect.

It's a good guess that better data are available. There is, but not to the general public and it is expensive.

In 1998 Petroconsultants was in the business of providing data and analysis for petroleum exploration and production. Petroconsultants had headquarters in Geneva and offices in London, Houston, Sydney and Singapore. They were supported by over 250 multilingual and multinational employees and a worldwide network of correspondents and associates. Petroconsultants was the biggest and it was extensively used by all big oil companies including, presumably, BP.

In 1998 a magazine, Scientific American, published an article called The End of Cheap Oil coauthored by Colin J. Campbell and Jean H. LaHeréere. Both authors were employees of Petroconsultants at the time. The article was probably a free peek at Petroconsultant's database. This article awakened many to the problem of oil depletion and peak oil. It is a classic and well worth reading. It may be old but it is good and you can read it here.

IHS Energy (Information Handling Services) bought Petroconsultants in 1999.[3] IHS has a web site you can look at here. Both Campbell and LaHeréere were either cashiered or they retired in 1999. Campbell continues to this day to be eloquent and tireless in warning the world about oil depletion.[4] He founded ASPO (Association for the Study of Peak Oil) in 2000.[5] Jean H. LaHeréere is also still active. He has many publications and he is active in ASPO. Jean H. LaHeréere critiques his own Scientific American article here.

Oil Reserve Definitions

Oil in the ground can not all be pooled together and called Oil Reserves. There are three generally recognized categories. The first is called Proven Reserves and BP defines it thus; "the estimated quantities of oil which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under current economic and operating conditions." That means that economic conditions determines the category of some oil to some extent.

The second is called EUR (Estimated Ultimately Recoverable) oil. This is oil that is infeasible to recover for reasons that are either economic or technical. This category also includes yet-to-be-found oil.

The last category is called Non Conventional. This includes oil from coal, oil shale, oil sands, tar sands, bitumen, heavy and extra heavy oil, deep water oil, polar oil and natural gas condensates.

Oil Reserve Numbers

There are no reliable estimates of world oil reserves available to the public. The numbers some countries report are honest and accurate, but other countries clearly manipulate the numbers for various reasons. The table below shows the numbers reported by certain OPEC countries to the Oil & Gas Journal in this egregious example. The highlighted numbers are suspicious because because of the large, synchronized jumps.


1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
UAE 28 29 31 31 30 30 30 31 92 92 92 92 92 92 92 92 92 92 92
Iran 58 57 57 55 51 48 48 49 93 93 93 93 93 90 88 93 93 90
Iraq 31 30 30 41 43 44 44 47 100 100 100 100 100 100 100 100 112 112 112
Kuwait 65 66 64 64 64 90 90 92 92 92 92 94 94 94 94 94 94 94 94
Saudi Arabia 163 165 165 162 166 169 169 167 167 170 257 257 258 259 259 259 259 259 259
Venezuela 18 18 20 21 25 26 26 25 56 58 59 59 63 63 64 65 65 72 73

OPEC countries have agreed among themselves to quotas that are proportional to their Proven Reserves. That gave Venezuela motivation to restate its proven reserves by including heavy oil as a Proven Reserve in 1988. The United Arab Emirates (UAE), Iran, and Iraq responded immediately and Saudi Arabia followed suit two years later. Are we supposed to believe that very large oil fields were simultaneously discovered in 1988 in four countries? You would expect reserves to climb irregularly as new oil discoveries are made and reserves to sink steadily as oil is produced. Instead, the numbers stay the same for years at a time or there are big jumps. What does that tell us? The numbers are probably cooked!

World OPEC
2003 1213 819
2002 1031 819
2001 1028 814
2000 1016 802
1999 1034 800
1998 1019 797
1997 1019 789
1996 1007 777
1995 1000 770
1994   999 772

Here is a table that shows world Proven Reserves (billions of barrels) during the past decade. It was published by the Oil & Gas Journal in December, 2002. It would appear that there is no cause for immediate concern as the world's Proven Reserves are increasing. How can Proven Reserves increase when 30 billion barrels are produced every year? New oil reserves are being discovered but only at the rate of 6 billion barrels per year which offsets only 20 per cent of consumption. The truth is that Unconventional Oil is being relabeled as Proven Reserves. The big jump in 2003, highlighted in yellow, is due to the inclusion of Canadian tar sand. The inclusion of Canadian tar sand in a table of world oil reserves seems to imply that the tar sand is a recent discovery of a Proven Reserve. Tar sand is not oil; it does not go in pipes, it is not feedstock for refineries and it is not a recent discovery.

Canadian tar sand is strip mined and hauled in big trucks to a facility that uses solvents, detergents, heat and centrifuges to extract bitumen, a tarry substance. (The local indigenous people used bitumen to waterproof their canoes.) The heat comes from local stranded natural gas. (Stranded natural gas is gas that can't be exported out of the local area because there is not enough of it to justify the expense of a pipeline.)

Bitumen is not suitable as feedstock for oil refineries because it is too low in hydrogen. Condensates from the same local stranded natural gas are available to add to the bitumen to increase the hydrogen content. The result is called syncrude and it is a suitable feedstock for oil refineries. The entire process is energy intensive. The energy costs of producing syncrude may exceed the energy in the syncrude. Large quantities of contaminated water, sulfur, asphalt, and bitumen contaminated sand are byproducts of syncrude production. The resulting environmental mess must be counted as an expense. There is also air pollution and carbon dioxide emission. The availability of low cost stranded gas may be necessary to make tar sand economic. Canada does not have large gas reserves, although Canada is a net gas exporter. It seems likely that Canada will be using most of its gas for domestic heating and little for syncrude production in a few years. Canadian tar sand may not be a useful fossil fuel without natural gas.

According to BP, Canada's Proven Reserves are second only to Saudi Arabia, but only if you count tar sand. Tar sand certainly does not fit BP's own definition of a Proven Reserve.

Petroconsultants puts Proven Reserves for the world at 850 billion barrels. The Oil & Gas Journal and BP say it is 1213, a large discrepancy.

Economics, ROI and EROEI

ROI(Return on Investment) is a formula economists use to determine the worthwhileness of an investment. ROI must exceed one or the investment losses money. 

ROI = Investment / Return -1

EROEI(Energy Return on Energy Invested) is a formula an engineer might use to determine the worthwhileness of an energy investment. EROEI must exceed one or the energy investment losses energy.

EROEI = Energy Invested / Energy Returned -1

ROI means the accounting is done in dollars. EROEI means the accounting is done in energy. Distinguishing between ROI and EROEI changes the way you look at fossil fuels. It takes energy to make the steel used to make an oil well or an oil pipe line. It takes energy to drill for oil and to transport it. If it takes too much energy the EROEI will be less than one.

An EROEI of 200 was achieved with some oil wells 50 years ago. Oil production in deep water currently achieves an EROEI of less than 5. 

The production of Canadian syncrude continues though the EROEI is less than one. Yet it continues because the energy cost of natural gas required to make syncrude is ignored. The natural gas is "stranded" meaning that it is too far from markets to be useful in any other way. You might say that syncrude production is a way to export natural gas.

Corn ethanol production continues though the EROEI is near one. That is because of tax breaks and other hidden subsidies.

Producing oil to get energy becomes pointless if the EROEI goes below one. A small oil field under a deep ocean in the Arctic would be an example. Oil shale is probably another example. Oil produced from these sources may continue to provide feedstock for plastics or fertilizer, but not for energy. 

Footnotes

[1] http://www.bp.com/ British Petroleum (BP) is a major oil company that publishes oil reserves data from the Oil and Gas Journal in its annual Statistical Review of World Energy.  

[2] http://ogj.pennnet.com/home.cfm  The Oil and Gas Journal is a trade journal that publishes data on reserves and production for each oil producing country every December. It can be found in major libraries and it is one of the most widely used sources of information. Internet accessible but only to paid subscribers. Published data comes from various governments and so data quality can vary. 

http://www.worldoil.com/  World Oil is also a trade journal that publishes similar data. Its numbers are often the same as those in the Oil and Gas Journal, although there are interesting differences.

[3] http://www.petroconsultants.com/ does not exist. However, IHS Energy is listed in the WHOIS database as the owner of the Petroconsultants URL.
http://www.ihsenergy.com IHS Energy is the place oil companies go to get oil reserve data. Some of it is free and some of it is very expensive.

[4] The Coming Oil Crisis is a book by C. J. Campell. Campell was associated with Petroconsultants and he had access to Petroconsultants data when he wrote this book. This highly regarded book is available at 
http://www.hubbertpeak.com/library/cccrisis.htm or
http://www.amazon.com  
Campell's presentation to the House of Commons entitled The Imminent Peak of World Oil Production is a most elegant statement of the problem. It may be seen at 
http://www.greatchange.org/othervoices.html

aspo (5K) [5] http://www.aspo-ireland.org/index.cfm/page/newsletter ASPO (Association for the Study of Peak Oil & Gas Ireland) publishes a monthly newsletter which is well worth reading. It always contains this graphic which is updated yearly. The colored parts have been added.