World Oil Reserves

The problem of reliable data

How much of the Earth's endowment of oil remains? A simple question with a complex answer. British Petroleum (BP) seems to answer this question by publishing the Annual Statistical Review of World Energy.[1] 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 Norway or Great Britain are probably accurate. Most Middle Eastern countries regard oil reserve figures as state secrets and so the government provided figures for these countries are suspect.

The BP review is very well done and authoritative looking. Whenever numbers describing oil reserves appear in print, they almost always come from BP. However, it is important to understand where these numbers come from. It's a good guess that better data are available, but not to the general public.

Petroconsultants was the world's leading provider of data and analysis for petroleum exploration and production in 1998.[3] 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 extensively used by all big oil companies who also contributed their knowledge. Petroconsultants had good data, but you had to pay to see it.

In 1998 Scientific American published an article called The End of Cheap Oil coauthored by Colin J. Campbell and Jean H. LaHeréere.[5] Both authors were employees of Petroconsultants at the time. The article is probably a 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.

IHS Energy (Information Handling Services) bought Petroconsultants in 1999. Both Campbell and LaHeréere were either cashiered or they retired.[3] Campbell continues to this day to be eloquent and tireless in warning the world about oil depletion.[4]

Oil reserve definitions

Oil in the ground cannot 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 for the U.S., Norway and the UK are deemed reliable, but other countries manipulate the numbers for various reasons. These OPEC members reported these numbers (billions of barrels) to the Oil & Gas Journal in this egregious example; (The highlighted numbers are suspicious because the sudden jumps are unexplained.)

	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	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!

Big numbers are hard to relate to. Here are some facts to help visualize the numbers.

The world's annual oil consumption could fill a mile square swimming pool one mile deep.
The United States consumed 7.2 billion barrels of oil in 2002. Each person consumed about a thousand gallons.
The oil reserves of Iraq are worth $15,290 per US citizen.
The oil producing areas of UAE, Iran, Iraq, Kuwait, and Saudi Arabia form a triangle whose area about equals the state of Oklahoma. That triangle contains 75% of the world's oil.

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.

	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

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 27 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 25 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, but it has been known for years.

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 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. However, Canada does not have large gas reserves, although Canada was a net gas exporter in 2003. It seems likely that Canada will be using all 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.

It is certainly true that tar and oil sands will supply some of the world's future energy needs because there is a lot of it all over the world. According to the annual review, Canada's Proven Reserves are second only to Saudi Arabia, but only if you count tar sand. However, 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 says 1213, a large discrepancy.

Economics, ROI and EROEI

An investment is only worthwhile if the return is great enough to make it profitable. Economists measure worthwhileness with this formula:

ROI = Investment / Return -1

ROI (Return on Investment) means the accounting is done in dollars. If an oil well produces enough oil to cover expenses with some left over, then the ROI is positive. Some oil is too expensive to produce at current prices. An economist would predict that the expensive oil would be produced if oil prices rise sufficiently.

It is possible to determine whether an energy investment is worthwhile in a similar way with this formula:

EROEI = Energy Invested / Energy Returned -1

EROEI (Energy Return on Energy Invested) means that the accounting is done in energy units. It is possible to calculate the energy cost of oil production. Energy is required to make the steel, to run the drill, to transport the oil, etc. This energy is subtracted from the energy in the produced oil. If the result is positive, the EROEI is positive. Producing oil to get energy becomes pointless if the EROEI goes negative. That does not mean that oil production will cease. It means that oil will be used for fertilizers, plastics etc., but not for electricity, transport or heating.

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 negative. That is because the energy cost of natural gas required to make syncrude is not considered. The natural gas is "stranded" meaning that it is too far away from markets to be useful in any other way. You might say that syncrude production is a way to export natural gas.

[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 2003. The Review is widely referenced because it is convenient, complete, colorful and very well done. BP's CEO, The Lord Browne of Madingley, is irascible and quotable. He says that BP now stands for "beyond petroleum." BP's new logo, which looks like a leafy sun, would seem to bear him out.

[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/ seems to be not working. 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 is associated with Petroconsultants and he had access to Petroconsultants data when he wrote this book. This highly regarded book is available now 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

[5] Click here to see The End of Cheap Oil by Colin J. Campbell and Jean H. LaHeréere. The End of Cheap Oil originally appeared in Scientific American in 1998. It is a classic and well worth reading. This is an HTML file on this website so it loads fast.