The Truth(?) About Oil Reserves
December 17, 2007
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Some very disturbing news was presented Oct. 22 in a study by the German firm Energy Watch Group (EWG) in regard to the peaking of world crude-oil output in 2006 and the predicted continual decline of about 7% per year. This is quite a different picture than that offered by the U.S. Geological Survey, which regularly paints a rosy picture of reserves and recently unveiled an amorphous, gauzy concept called “reserve growth.”
Other reports, like those from International Energy Agency (IEA), base predictions on various interpretations of reserves. However, it seems everyone except this German think tank ignores an important, measured reality – crude-oil production is starting to decline. This is an excellent but alarming study.
The EWG report relies on worldwide production data and essentially ignores unreliable estimates of reserves – claimed to be 1.255 gigabarrels (Gb), or a 42-year supply. Joerg Schindler, who authored the EWG study, calculates reserves at 854 Gb based on industry data. Only oil that has been found can be produced, and the golden age of discovery was the 1960s when 527 million barrels (Mb) per “new wildcat field” was average. In the period of 2000-2005, on the other hand, there was only 20 Mb.
It is notable that 90% of crude reserves are owned by governments, with OPEC nations owning 77% of proven reserves, none of which are best friends of the U.S. The largest privately owned reserves are held by Exxon-Mobile at 1.08% of world supply, while the top five private firms cumulatively own only 4% of the total. The U.S. has about 2% of reserves but produces about 8% of annual world output. It is perplexing that the aggregate performance of all international producers has not increased output in the last 10 years despite the unprecedented rise in crude-oil prices.
The EWG report lists 25 national fields that have passed their crude-oil production peak. Here is a sampling of countries, with the peak year:
Argentina ... 1998
Australia ... 2000
Austria ... 1955
Canada ... 1974
Columbia ... 1999
Denmark ... 2004
Ecuador ... 1999
Egypt ... 1993
England (UK) ... 2000
Germany ... 1967
India ... 1995
Indonesia ... 1977
Malaysia ... 1997
Mexico ... 2004
Norway ... 2001
Oman ... 2001
Romania ... 1976
Syria ... 1995
Venezuela ... 1998
Yemen ... 2001
USA (Alaska) ... 1989
USA (lower 48) ... 1971
USA (Texas) ... 1971
USA (gas liquids) ... 2002
There are energy-industry spin-meisters that want to debunk this matter as a “theory,” but the facts are that there is steep decline in production after the peak. The EWG study projects that global oil supply peaked in 2006 at 81 Mb/day, and by 2020 will shrink to 58 Mb/day and by 2030 to 39 Mb/day. Meanwhile, the IEA says that in 2020 crude output will be 105 Mb/day and 116 Mb/day in 2030. The EWG predictions for North America are that 2020 output will be 9.3 Mb/day and in 2030 only 8.2 Mb/day, while the IEA continues to predict production at 15.9 Mb/day throughout the period.
It is notable that the EWG includes about half the North American output from tar sands in 2030, as conventional liquid crude supply just is not there. But production from such non-conventional sources requires enormous investment, a long time to reach goals and can have devastating consequences on the environment. For example, it is estimated that commercialization of Canadian tar-sand deposits will consume 40% of the Province of Alberta’s water supply (an unacceptable penalty) and produce half again as much carbon emissions as burning conventional petroleum products.
The EWG report carries devastating news if it is correct. The author believes that this turn of events ushers the beginning of a structural change in world economic systems and that the cheery IEA and USGS reports on reserves mask reality and send false signals to politicians, industry, consumers and the media. Since 35% of world primary energy use is derived from oil (followed by coal at 25% and natural gas at 21%), the decline in crude production and availability is a singular turning point for the U.S. and all industrialized societies. The IEA itself has projected that world oil demand will grow to 120Mb/day by 2020 and that price increases of $10/ barrel will result in a drop in national GDP of 0.5%. Seeing the price of crude oil rise by about $40 per barrel over the past year and knowing that there is a lag time of six to nine months before economic effects translate to industrial measures, it is predictable that America and the world is on a cusp.
But something else is more important than short-term economic measurements. If these predictions are what they portend, half of the world crude-oil supply will disappear from availability over the next two decades. What the civilized and industrial world does to accommodate this catastrophe is of enormous importance. What the uncivilized world and our adversaries do with this situation is of greater predictability and consequence. Do you know how to spell “war?” IH
Other reports, like those from International Energy Agency (IEA), base predictions on various interpretations of reserves. However, it seems everyone except this German think tank ignores an important, measured reality – crude-oil production is starting to decline. This is an excellent but alarming study.
The EWG report relies on worldwide production data and essentially ignores unreliable estimates of reserves – claimed to be 1.255 gigabarrels (Gb), or a 42-year supply. Joerg Schindler, who authored the EWG study, calculates reserves at 854 Gb based on industry data. Only oil that has been found can be produced, and the golden age of discovery was the 1960s when 527 million barrels (Mb) per “new wildcat field” was average. In the period of 2000-2005, on the other hand, there was only 20 Mb.
It is notable that 90% of crude reserves are owned by governments, with OPEC nations owning 77% of proven reserves, none of which are best friends of the U.S. The largest privately owned reserves are held by Exxon-Mobile at 1.08% of world supply, while the top five private firms cumulatively own only 4% of the total. The U.S. has about 2% of reserves but produces about 8% of annual world output. It is perplexing that the aggregate performance of all international producers has not increased output in the last 10 years despite the unprecedented rise in crude-oil prices.
The EWG report lists 25 national fields that have passed their crude-oil production peak. Here is a sampling of countries, with the peak year:
Argentina ... 1998
Australia ... 2000
Austria ... 1955
Canada ... 1974
Columbia ... 1999
Denmark ... 2004
Ecuador ... 1999
Egypt ... 1993
England (UK) ... 2000
Germany ... 1967
India ... 1995
Indonesia ... 1977
Malaysia ... 1997
Mexico ... 2004
Norway ... 2001
Oman ... 2001
Romania ... 1976
Syria ... 1995
Venezuela ... 1998
Yemen ... 2001
USA (Alaska) ... 1989
USA (lower 48) ... 1971
USA (Texas) ... 1971
USA (gas liquids) ... 2002
There are energy-industry spin-meisters that want to debunk this matter as a “theory,” but the facts are that there is steep decline in production after the peak. The EWG study projects that global oil supply peaked in 2006 at 81 Mb/day, and by 2020 will shrink to 58 Mb/day and by 2030 to 39 Mb/day. Meanwhile, the IEA says that in 2020 crude output will be 105 Mb/day and 116 Mb/day in 2030. The EWG predictions for North America are that 2020 output will be 9.3 Mb/day and in 2030 only 8.2 Mb/day, while the IEA continues to predict production at 15.9 Mb/day throughout the period.
It is notable that the EWG includes about half the North American output from tar sands in 2030, as conventional liquid crude supply just is not there. But production from such non-conventional sources requires enormous investment, a long time to reach goals and can have devastating consequences on the environment. For example, it is estimated that commercialization of Canadian tar-sand deposits will consume 40% of the Province of Alberta’s water supply (an unacceptable penalty) and produce half again as much carbon emissions as burning conventional petroleum products.
The EWG report carries devastating news if it is correct. The author believes that this turn of events ushers the beginning of a structural change in world economic systems and that the cheery IEA and USGS reports on reserves mask reality and send false signals to politicians, industry, consumers and the media. Since 35% of world primary energy use is derived from oil (followed by coal at 25% and natural gas at 21%), the decline in crude production and availability is a singular turning point for the U.S. and all industrialized societies. The IEA itself has projected that world oil demand will grow to 120Mb/day by 2020 and that price increases of $10/ barrel will result in a drop in national GDP of 0.5%. Seeing the price of crude oil rise by about $40 per barrel over the past year and knowing that there is a lag time of six to nine months before economic effects translate to industrial measures, it is predictable that America and the world is on a cusp.
But something else is more important than short-term economic measurements. If these predictions are what they portend, half of the world crude-oil supply will disappear from availability over the next two decades. What the civilized and industrial world does to accommodate this catastrophe is of enormous importance. What the uncivilized world and our adversaries do with this situation is of greater predictability and consequence. Do you know how to spell “war?” IH
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