PDA

View Full Version : A look at reserves vs. production



c1ue
01-04-12, 11:01 AM
Much of this is not new for iTulip readers, but the assembly is still of note.

Key points:

1) Many of the key OPEC producers have had no reductions in reserves over multiple years despite large volumes of production

2) Stated production increases have failed to materialize

3) Higher prices do not seem to be translating into more supply

I do think the conclusions here may be overstated, but perhaps GRG55 can comment on how production technology has impacted reserve numbers with/without accompanying exploration. The Canadian tar sands, for example, are a clear function of price. When oil was $20/barrel, they weren't classified as reserves, but now they are.

Nonetheless of interest.

http://wattsupwiththat.com/2012/01/03/peak-oil-the-rp-ratio-re-visited/#more-54146


On Dec 13, Willis Eschenbach posted a convincing (and eloquent as always) argument “The R/P Ratio” (http://wattsupwiththat.com/2011/12/13/the-rp-ratio/) against Peak Oil being imminent. I would like to present a different view. In fact I draw the opposite inference from the same statistic.

From the BP data [1], Willis argued that the “R/P ratio” – the ratio of reserves R to production rate P – is higher than ever, and that therefore the world is even more able to continue producing oil at today’s rate than it was yesterday at yesterday’s lower rate.

My argument is that the high R/P ratio shows that it is getting very difficult to increase P in spite of a high R and a high oil price. This argument is based on two factors of which Willis took no account – the reliability of stated reserves and the quality of the oil.

Reliability

The first major hiatus in the oil world occurred in 1973, when OPEC caused the price of oil to quadruple. The second was the Iranian revolution in 1979. Their effects are clearly seen in the historical oil price:

http://wattsupwiththat.files.wordpress.com/2012/01/clip_image002_thumb.gif?w=244&h=181 (http://wattsupwiththat.files.wordpress.com/2012/01/clip_image002.gif)
Figure 1 – Historical Oil Price – click image to enlarge

Over the following years, 1980 to 1988, the world’s oil reserve increased by 331.5 billion barrels, of which 329.6 were OPEC.

http://wattsupwiththat.files.wordpress.com/2012/01/clip_image004_thumb.gif?w=244&h=181 (http://wattsupwiththat.files.wordpress.com/2012/01/clip_image004.gif)

Figure 2 - Historical Oil Reserve - click image to enlarge

What is thought to have happened is that certain OPEC countries artificially inflated their reserves so that they could sell more oil, because OPEC production quotas were based on official reserve figures [17][22]. It is quite possible that none of this reported increase in reserves actually exists. There has recently been supporting information from Wikileaks [2].

Questions about the reliability of reserve figures are not restricted to the reserves declared between 1980 and 1988. For example, the UAE’s official reserve has been stuck on exactly 97.8bn barrels since 1996 (and was at 98.1bn barrels from 1989 to 1995), in spite of total production of 15bn barrels over that period (21bn barrels 1989-2010) and no major discoveries [21]. That’s mathematically possible, but rather unlikely.

Some other countries have similar patterns – Iran reserve at 92.9bn barrels from 1986 to 1993 (9bn barrels produced), Iraq 100.0 from 1987 to 1995 (5 produced) and 115.0 from 2001 to 2010 (8 produced), Kuwait 96.5 from 1991 to 2002 (8 produced) and 101.5 from 2004 to 2010 (7 produced), Saudi Arabia in a tight range 260.1 to 264.6 from 1989 to 2010 and not falling more than 0.1 in any one year (75 produced).

It does appear likely that a significant proportion of stated reserves do not in fact exist.

Quality

After 1988, the next significant increases in world reserves occurred in 2002 and 2008-9.

http://wattsupwiththat.files.wordpress.com/2012/01/clip_image006_thumb.gif?w=244&h=181 (http://wattsupwiththat.files.wordpress.com/2012/01/clip_image006.gif)

Figure 3 – Annual change in reserves - click image to enlarge

In 2002, most of the 60.7 billion barrel increase was in Russia, Iran and Qatar, and I haven’t checked it. I have no reason to suppose that it was anything but a genuine increase in good quality oil. However, of the 123.0 billion barrels increase in 2008-9, 111.8 were in Venezuela. This is an ultra-heavy crude, difficult and expensive to produce at high production rates [3].

This is where the problem lies. Much of the easy oil has gone. We are into the difficult and expensive stuff. It is a major challenge to maintain high production rates. Heavy and unconventional oil are now dominant in world reserves [4] …

http://wattsupwiththat.files.wordpress.com/2012/01/clip_image008_thumb.jpg?w=244&h=195 (http://wattsupwiththat.files.wordpress.com/2012/01/clip_image008.jpg)

Figure 4 – Total World Oil Reserves by Type - click image to enlarge

[http://en.wikipedia.org/wiki/File:Total_World_Oil_Reserves.PNG]

… to the extent that actually being able to increase the total production rate may prove to be out of reach [8].

Global oil production has basically flatlined for the last 5 or 6 years …

http://wattsupwiththat.files.wordpress.com/2012/01/clip_image010_thumb.gif?w=244&h=186 (http://wattsupwiththat.files.wordpress.com/2012/01/clip_image010.gif)

Figure 5 – World Oil Production - click image to enlarge

… while the oil price has surged over the same period (Fig.1). I would argue that a high R/P ratio does not necessarily indicate an ability to increase production. Rather, a high R/P together with a high oil price would seem to indicate that it is difficult to increase production. Note that for 5 years now the price of oil has been higher (in 2010 dollar terms) than it was after the 1973 oil shock.

In Venezuela (heavy and very heavy oil), the production rate has declined nearly 30% from 1965 to 2010. In 2006, before the large 2008-9 increases in reserve, its R/P was already high at 85, but was still exactly what it had been in 1985. From 1985 to 1998, production did increase markedly, bringing R/P down to 60, but production has been in decline since.

It is possible that the major factor here was Hugo Chavez being elected president in 1998, so let’s look at all the countries with above average R/P –


<tbody>

R/P


Venezuela

233.9


Iraq

128.0


Kuwait

110.8


UAE

94.0


Iran

88.4


Libya

76.6


Saudi Arabia

72.4


Kazakhstan

62.1


(World average)
46.1

</tbody>
- maybe Venezuela, Iraq, Iran and Libya have political reasons for relatively low production rates. The UAE, whose oil is chiefly in Abu Dhabi, does have difficulty increasing production [10]. Kuwait [11][12] and Saudi Arabia [13] do too.

For comparison, Canada’s Alberta Tar Sands, which began production in 1967, have an R/P of 662. It is hoped that it may in future come down to around 150 (reserve 174bn bbls, prodn 720k bpd, target 3m bpd [6]).



There is a clear tendency for high R/P to be associated with heavy and unconventional oil, that is, oil for which high production rates are very difficult.

[B]The Future

The oil industry has been successful in <s>maintaining</s> reporting a world R/P of 40+ since 1988.

http://wattsupwiththat.files.wordpress.com/2012/01/clip_image012_thumb.gif?w=244&h=181 (http://wattsupwiththat.files.wordpress.com/2012/01/clip_image012.gif)

Figure 6 – World R/P - click image to enlarge

But in order for the rate of oil production to keep increasing, a lot has to go right. Things like:

Major new conventional oil discoveries.
Technological progress in heavy and unconventional oil production.

Political stability in producing countries.
Political stability in consuming countries.
A high oil price.
Increasing demand in spite of the high oil price.
Oil remaining competitive with alternatives.
Non-obstruction by governments (think “carbon” trading and taxes, USA offshore exploration ban)

More optimistic estimates of the Peak Oil date range from 2014 [7] to the IEA’s 2035 or later [5][5a]. But in the IEA presentation, note that although foil #8 “Oil production becomes less crude” …

http://wattsupwiththat.files.wordpress.com/2012/01/clip_image014_thumb.jpg?w=244&h=164 (http://wattsupwiththat.files.wordpress.com/2012/01/clip_image014.jpg)
Figure 7 IEA forecast - click image to enlarge
… shows production increasing to at least 2035 , there is enormous (heroic?) reliance on “fields yet to be developed or found” which are more than half of all oil production by 2035. Note also the relatively low contribution from “unconventional oil”, and the rapid decline of currently producing conventional fields.

There is another figure worth keeping an eye on for the next few years – Saudi Arabia’s production rate. The IEA presentation [5] expects Saudi Arabia to increase production by 50% between 2009 and 2035.

http://wattsupwiththat.files.wordpress.com/2012/01/clip_image016_thumb.jpg?w=244&h=185 (http://wattsupwiththat.files.wordpress.com/2012/01/clip_image016.jpg)

Figure 8 – IEA forecast by country - click image to enlarge

In mid 2008 Saudi Arabia announced that they would increase production by 500k bpd [14], but production fell 8% over the next two years. Perhaps this confirms that the producing Saudi fields are already in decline [15]. In June 2011, Saudi Arabia again stated that they would raise production [16]. It will be interesting to see if they are able to.

Saudi Arabia’s (2010) R/P is 72. They do have some as yet undeveloped fields, but none are anything like as large as the now-declining Ghawar [20].

Conclusion

The increasing world R/P, together with the high oil price, probably means that it is getting ever more difficult to increase production, rather than that Peak Oil is obviously many years away. I suspect that we are already at or close to Peak Oil, but it can only be identified in retrospect [see footnote 4].

It is, admittedly, still mathematically possible that Peak Oil is many years away. I would agree that “Peak Oil & Gas” and “Peak Energy”, as opposed to “Peak Oil”, are many years away – provided sanity returns to western governments.

Footnotes

1. All production and reserve amounts, associated amounts (eg. R/P), and graphs, are from or derived from the BP data [1] unless otherwise indicated. BP’s reserve data includes “gas condensate and natural gas liquids“, but does not include the Canadian oil sands.

2. Oil reserves are relative to economic and operating conditions, so they can increase without new discoveries.

3. Why did I quote the IEA 2010 report instead of the 2011 report? Because in 2011 the IEA lost its marbles and interlaced everything with the need to reduce CO2 emissions [18]. When the world wakes up to the fact that CO2 emissions are not dangerous, much of the 2011 report will be useless. FWIW, in the 2011 report oil production is still expected to increase by a similar amount by 2035, with OPEC increasing its share [19].

4. I understand “Peak Oil” to mean the point in time after which global oil production does not materially increase. The peak in oil production does not signify ‘running out of oil’ [9]. It doesn’t mean that oil production cannot physically be increased, simply that it does not increase. Peak Oil can therefore be influenced by factors such as price, changes in use and efficiency of use, and competition from alternatives. Basically, it is only possible to identify it in retrospect.

Mike Jonas

Jan 2012

###

Mike Jonas (MA Maths Oxford UK) retired some years ago after nearly 40 years in I.T.. He worked for BP in the 1960s and 70s, including 3 years in Abu Dhabi.

References
[1] BP Statistical Review of World Energy, Jun 2011.
http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review_2011/STAGING/local_assets/spreadsheets/statistical_review_of_world_energy_full_report_201 1.xls
[2] Time report “Have Saudis Overstated How Much Oil Is Left?” Feb 2011
http://www.time.com/time/world/article/0,8599,2048242,00.html
[3] Wikipedia “Oil reserves in Venezuela”
http://en.wikipedia.org/wiki/Oil_reserves_in_Venezuela
[4] Wikipedia “Oil Reserves”
http://en.wikipedia.org/wiki/Oil_reserves
[5] IEA “World Energy Outlook 2010” Presentation to the Press Nov 2010
http://www.worldenergyoutlook.org/docs/weo2010/weo2010_london_nov9.pdf
NB. See Footnote 3 above.
[5a] Gail Tverberg, Comment on IEA “World Energy Outlook 2010”, Nov 2010.
http://www.countercurrents.org/tverberg101110.htm
[6] Popular Mechanics “New Tech to Tap North America’s Vast Oil Reserves” Oct 2009
http://www.popularmechanics.com/technology/engineering/4212552
[7] msnbc.com “Peak oil production predicted for 2014” Dec 2010.
http://www.msnbc.msn.com/id/35838273/ns/business-oil_and_energy/ – .TumIeGAch0I (http://www.msnbc.msn.com/id/35838273/ns/business-oil_and_energy/#.TumIeGAch0I)
[8] AAAS Member Central “Peak Oil Production May Already Be Here” Mar 2011.
http://www.sciencemag.org/content/331/6024/1510.short
[9] Energy Bulletin “Peak Oil Primer”
http://www.energybulletin.net/primer.php
[10] My comment on JudithCurry.com, re Zakum, Tupi and Peak Oil. Nov 2011.
http://judithcurry.com/2011/11/24/emails/ – comment-144017 (http://judithcurry.com/2011/11/24/emails/#comment-144017)
[11] H. M. Shalaby “Refining of Kuwait’s Heavy Crude Oil: Material Challenges” Kuwait Institute for Scientific Research. Dec 2005
http://www.arabschool.org/pdf_notes/20_REFINING_OF_KUWAITS_HEAVY_CRUDE_OIL.pdf
[12] Bloomberg “Kuwait Reduces Its 2020 Heavy-Oil Production Target by More Than Half”. Oct 2010.
http://www.bloomberg.com/news/2010-10-21/kuwait-reduces-its-2020-heavy-oil-production-target-by-more-than-half.html
[13] WSJ “Facing Up to End of ‘Easy Oil’”. May 2011.
http://online.wsj.com/article/SB10001424052748704436004576299421455133398.html
[14] The Independent “Saudi King: “We will pump more Oil”” June 2008
http://www.independent.co.uk/news/world/middle-east/saudi-king-we-will-pump-more-oil-847830.html
[15] Energy Security “New study raises doubts about Saudi oil reserves” March 2004
http://www.iags.org/n0331043.htm
[16] NY Times “Saudi Arabia, Defying OPEC, Will Raise Its Oil Output” June 2011
http://www.nytimes.com/2011/06/11/business/energy-environment/11oil.html
[17] Telegraph article “Oil reserves ‘exaggerated by one third’” Dec 2011.
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7500669/Oil-reserves-exaggerated-by-one-third.html
[18] IEA “World Energy Outlook 2011” Presentation to the press Nov 2011
http://www.worldenergyoutlook.org/docs/weo2011/homepage/WEO2011_Press_Launch_London.pdf
[19] IEA “World Energy Outlook 2011 Fact Sheet” (see “Global oil production”)
http://www.worldenergyoutlook.org/docs/weo2011/factsheets.pdf
[20] NY Times “Forecast of Rising Oil Demand Challenges Tired Saudi Fields” Feb 2004
http://www.nytimes.com/2004/02/24/business/24OIL.html?pagewanted=all
[21] Gerald Butt “Oil and Gas in the UAE”
http://www.geopowers.com/energie/sites/default/files/images/PDF – VAE.pdf (http://www.geopowers.com/energie/sites/default/files/images/PDF%20-%20VAE.pdf)
[22] Dr. Jean-Paul Rodrigue, Hofstra University “Changes in Major Crude Oil Reserves, 2001-2006” http://people.hofstra.edu/geotrans/eng/ch5en/appl5en/oilreserves.html