[Mercian63]

There is an article about oil on the BBC website:

https://www.bbc.co.uk/news/business-49499443

Towards the bottom it contains the claim:

There was a time when it seemed as though oil might simply start to run out - "peak oil" was the phrase - pushing prices ever higher, and giving us the impetus to move to a clean, renewable economy.

In fact, oil is being discovered far more quickly than it is being consumed.

Is the latter point about discoveries true? It's a while since I did much reading on PO, but my recollection is that oil discoveries peaked about 50 years ago.

Is the writer getting confused with "recoverable reserves" growing more quickly than consumption? And is even that claim safe?

[Pops]

It's a good and evergreen question.
First, "discoveries" are a guess, perhaps educated but a guess that is inevitably revised.
Second, most oil is "owned" by states so their pronouncements are inherently political
Third, reserve numbers themselves are dependant on many factors including the price of oil on the last day of the year or some such, Roc knows the answer.

Here is a reserve to production ratio chart I found, this is number of years reserves at current production



The huge jump in the green line is venezuela tar, huge resource but hugely hard to produce. The chart is from BP reprinted here but you can see the latest on page 15 here:
https://www.bp.com/content/dam/bp/busin ... report.pdf

[Plantagenet]

$this->bbcode_second_pass_quote('Mercian63', '
')There was a time when it seemed as though oil might simply start to run out - "peak oil" was the phrase - pushing prices ever higher, and giving us the impetus to move to a clean, renewable economy.

In fact, oil is being discovered far more quickly than it is being consumed.

Is the latter point about discoveries true? It's a while since I did much reading on PO, but my recollection is that oil discoveries peaked about 50 years ago.

Is the writer getting confused with "recoverable reserves" growing more quickly than consumption? And is even that claim safe?

[Outcast_Searcher]

$this->bbcode_second_pass_quote('Plantagenet', '')$this->bbcode_second_pass_quote('Mercian63', '
')There was a time when it seemed as though oil might simply start to run out - "peak oil" was the phrase - pushing prices ever higher, and giving us the impetus to move to a clean, renewable economy.

In fact, oil is being discovered far more quickly than it is being consumed.

Is the latter point about discoveries true? It's a while since I did much reading on PO, but my recollection is that oil discoveries peaked about 50 years ago.

Is the writer getting confused with "recoverable reserves" growing more quickly than consumption? And is even that claim safe?

[Mercian63]

Thanks very much for the informed responses.
Superficially, it appears that recoverable reserves are growing at least as fast or faster than consumption. Presumably the recoverable reserve of an oil field is an educated guess, and heavily contingent upon expectations of the price of oil.

I always felt the weakness in the "simple Hubbert peak" anticipation of peak oil was not taking enough account of price rises + technology.
That said, governments nowadays are to a large extent legitimised by the "cheap oil" lifestyle they facilitate, and expectations grow by each generation. I grew up in quite comfortable circumstances in the 60s and 70s, but few of my peers then expected to enjoy a foreign summer holiday more than once or twice during their adolescence. Few families had more than one car, and it was probably a pretty basic car like a Cortina or a Viva (this is UK). Nowadays a winter and summer holiday abroad every year is taken as virtually a divine right by the vast majority in employment, as is driving to work (alone) in the second or third sophisticated, powerful car of the family. I won't even start on the "right" to cheap clothes, food from the far side of the world, amazing digital gadgets etc etc.

Behind the scenes, the whole pleasuredome is kept inflated by an every-increasing heap of debt.
In the UK, we are taking on more and more debt, but national productivity has not increased in ten years. That's crazy!

It's no mystery that governments are dragging their feet over Climate Change. To act decisively would hack away at their own legitimacy to rule. Cheap oil is inherent in the social contract.

I'm becoming a bit ponderous here, but what I'm getting at is a subtle but potent cocktail of rising expectations clashing with steadily rising (real) oil prices, against a backdrop of rising debt, generation by generation. This would undermine public faith in democratic government, unless there were leadership powerful enough to alter the above-mentioned "cheap oil" expectations. Personally, I don't believe it will happen. Since when did governments balance the books?

I foresee progressive stratification of societies into what amount to caste systems, as the Haves (essentially, the rentiers and their expert servants) continue to exploit positions of commercial power to sustain their "cheap oil" lifestyles whilst the Have-nots (salaried employees and semi-employed contractors) lose status. This has already been going on in the US for decades and the trend has spread.
In this scenario, nation-states would decline in influence relative to corporate power. This is dangerous, as the lack of government direction in a crisis like 2008 would likely be curtains for all concerned.

What makes this scenario plausible to me is the gradualness of it, plus, it's already happening and has been under way for decades.
There is a last factor, the chile sauce you might call it - overcrowding. The frustration of the Haves that wherever they go on their globe-trotting lifestyle, or wherever they try to distract themselves in their 12-cylinder cars, they are hindered by plebs, waves and waves of plebs. A hatred of crowds will grow across the arrogant classes. They will have a powerful collective interest to exert their private power against any collective power to draw as much wealth up to their level as possible to strangle the overcrowding problem. Perhaps this is how Climate Change will be "solved"? Then comes the big debt avalanche, and it all falls into history...

Whew! Right, those are a few thoughts for the day.

[Plantagenet]

$this->bbcode_second_pass_quote('Mercian63', '
')I always felt the weakness in the "simple Hubbert peak" anticipation of peak oil was not taking enough account of price rises + technology.

[Pops]

Very good!

Reserves are indeed a function of price and as the price is currently 3x the price in 2000, a calculation must be made as to the relative utility available for any particular price. Presumably as oil with lower production cost is depleted, the cost must rise, not because cost (or thermodynamics or any other esoteric consideration) is the basis of price, but simply because price is based on scarcity. Taken together, without higher price, more expensive oil will not be produced.

So production may continue increasing for some period, but at what price?

I'm somewhat of a luddite to begin, and much of the material available from folks supposedly knowledgeable reinforced my view early on. Frankly, the shortcoming in my earliest assessments was a lack of confidence in technological advancement. Directional drilling, hydrofracking, xheavy production, scaling of PV, expansion of wind, battery tech, vehicle tech, even lighting efficiency have have all combined to mitigate scarcity 'enough' so that my personal wild ass guess of big problems by the mid-teens was averted.

I made big changes in the oughts in part because of po. It's all good, didn't hurt me, but a lesson I now take into account. The impossibility of mitigation seems less daunting to me now, though non-hydro renewables are still a fraction of the total. All we have to do is survive global warming, bio-collapse, peak population, and the next world war.

;^)

[rockdoc123]

Let me clarify the Reserves issue once again since numerous folks here (Short for one) keep equating exploration discoveries with replacing Reserves. The press doesn't help as they also clearly don't have a clue what the term Reserves means. Many who post here and go on and on about Reserves clearly are confusing the various categories.

By definition, all Reserves must be economically recoverable at the time of booking. Resources, on the other hand, are hydrocarbons that are discovered or known to exist but are currently not economic.

Reserves are divided into 3 categories, Proven, Probable and Possible. 1P reserves refers to Proven only, 2P refers to proven plus probable and 3P refers to proven plus probable plus possible. The guidelines for booking are that Proven reserves should have a 90% probability of being produced under current conditions with little in the way of additional capital. There is a special category of Proven reserves called Proven Undeveloped or PUDS which first became important for booking very large gas reserves and then became important for the unconventional reserves. The view is that PUDs are known to be there with very high certainty but need an additional well in order to be produced. Probable reserves or P2 have a 50% chance of being produced under current conditions and require additional expenditures to be elevated to P1 or Proven category. Possible reserves are usually those that sit between or close to existing wells where seismic or another similar tool have demonstrated their presence. They have a 10% chance of producing but of course need a well to move up to Probable and Proven categories.

The issue here is that when someone discovers hydrocarbons in an exploration program what they usually report is either a 3P or Resource number. What companies report in their filings in the US is Proven reserves (Proven and Probable in Canada) and production is balanced yearly against Proven reserves. Reserve replacement as measured by companies and by groups like E&Y, BP, WoodMac, IHS Energy etc. is the difference at year end between Proven remaining reserves and produced reserves in that year. But probable and possible reserves are always being upgraded so the Proven category can remain the same or grow each year even though a large portion of the original Proven reserves have been produced in a given year. This is why over the past 5 years companies in the US have replaced reserves by 160% on average and also why BP's analysis of reserve life for various countries often remains static for many years even though there is ongoing production. This highlights the issue that you cannot compare Proven reserves to new discoveries as a means of understanding depletion. And the EIA, IEA, BP, SEC, TSX etc all mean Proven Reserves when they use the term Reserves.

Plant was correct in pointing out that there was a large increase in Proven reserves in the US due to unconventional technology improving but the story is somewhat more complex. Price was also important. We saw this first with natural gas reserves booked in North America which jumped upwards quickly back when natural gas was seasonally bouncing up and around $10 - $14/Mcf. Companies like Encana one year looked like gold, the next year looked like dung and then the following year looked like gold again due to reserve adjustments based on price. The reserves were still there but they had dropped down a category (just to be upgraded when the price rose seasonally). It happened again when oil prices first hit over $100/bbl and suddenly all the heavy oil in Canada and Venezuela became economic resulting in a huge jump in proven reserves. Increased price along with land access and better horizontal testing and completion technology resulted in much of the unconventional becoming economic once again increasing reserves in North America and places such as Argentina. With prices falling all of these companies had to take reserve write downs. On the books they seemed to have less reserves but what really happened was their P1 decreased but P2 increased meaning 2P (proven plus probable) didn't actually change and indeed when prices recovered P1 reserves increased.

It is very difficult to know how much oil is actually left to be produced for several reasons:
- although we have a good understanding of P1 and likely 2P in most places we often have little idea of 3P and probably zero idea of Contingent and Prospective Resources.
- it is very difficult to make predictions of what may or may not be recoverable in the future given predicting oil and gas prices is a bit of a mugs game and advancing technology and prices go hand in hand (technology is unlikely to advance quickly in a low price environment). This does become important given that in conventional reservoirs around the world the average Primary recovery is somewhere around 30% but Secondary recovery can be quite high in water flood or gas sweep scenarios such as in Saudi Arabia (~70%) recovery. Going from 30% to 70% recovery is obviously non-trivial. This becomes even more important in the unconventional tight plays where average Primary recovery is in the 3% - 5% range. Just increasing that to 15% is very significant given the size of the in place resource.

[Mercian63]

Excellent replies, especially that by rockdoc123.

A few questions:

Do all countries/regions report reserves in a consistent way? You note differences between USA and Canada. Worldwide, do producers report a mess that gets sorted out by analysts at places like IHI and WoodMac? Possibly with the assistance of a little inside knowledge?

How political are these proven reserve numbers? Would there not be a temptation to report the same proven reserves (or years of production remaining) every year? On the basis that rising reserves could set off expectations that could be difficult to sustain, whilst falling reserves have an obvious negative impact on public image.

How thoroughly are proven reserves independently audited around the world?

Concerning reserves and price, how is it that the "years of production" lines on the chart shown by Pops do not show an obvious correlation with oil price? They should rise to a peak in 2008 and then fall away as the oil price collapsed, followed by a slow rise. The sharp rise for Venezuela is sustained after the fall in oil price - politics?

[rockdoc123]

$this->bbcode_second_pass_quote('', 'D')o all countries/regions report reserves in a consistent way? You note differences between USA and Canada. Worldwide, do producers report a mess that gets sorted out by analysts at places like IHI and WoodMac? Possibly with the assistance of a little inside knowledge?

[Mercian63]

Rockdoc123, thanks once again for the detailed explanation.

There is one point, although I may be just being obtuse.

The reserve life of Venezuela shot up in 2006/08 as the oil price rose. Why did it not fall back as the oil price collapsed in the recession? Similarly, why did other regions not see a large rise in reserve life with higher oil prices? You note that reserves are revised in line with commodity price changes, so the effect should have been seen across the world (surely?).

[marmico]

https://www.eia.gov/naturalgas/crudeoilreserves/#menu

[rockdoc123]

$this->bbcode_second_pass_quote('', 'T')he reserve life of Venezuela shot up in 2006/08 as the oil price rose. Why did it not fall back as the oil price collapsed in the recession? Similarly, why did other regions not see a large rise in reserve life with higher oil prices? You note that reserves are revised in line with commodity price changes, so the effect should have been seen across the world (surely?).

[Darian S]

Some speculation:

The rumors of vast unprofitability of shale companies, even at high oil prices, suggest to me that it wasn't some revolutionary tech that allowed shale play to take place, the play was done even if unprofitable.

The timing around the 2005 conventional oil peak, suggests that it was done with the expectation that there'd be no significant competition from conventional oil and there'd be exhorbitant prices. The U.S did quantitative easing and artificial low interest to further lubricate the finances, even so many were still unprofitable.

OPEC managing to offer some competition by increasing production wasn't expected, and drove many to bankruptcy.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'T')he rumors of vast unprofitability of shale companies, even at high oil prices, suggest to me that it wasn't some revolutionary tech that allowed shale play to take place, the play was done even if unprofitable.

The timing around the 2005 conventional oil peak, suggests that it was done with the expectation that there'd be no significant competition from conventional oil and there'd be exhorbitant prices. The U.S did quantitative easing and artificial low interest to further lubricate the finances, even so many were still unprofitable.

[Pops]

$this->bbcode_second_pass_quote('Darian S', 'T')he timing around the 2005 conventional oil peak, suggests that it was done with the expectation that there'd be no significant competition from conventional oil and there'd be exhorbitant prices.

[Darian S]

$this->bbcode_second_pass_quote('rockdoc123', '')$this->bbcode_second_pass_quote('', 'T')he rumors of vast unprofitability of shale companies, even at high oil prices, suggest to me that it wasn't some revolutionary tech that allowed shale play to take place, the play was done even if unprofitable.

The timing around the 2005 conventional oil peak, suggests that it was done with the expectation that there'd be no significant competition from conventional oil and there'd be exhorbitant prices. The U.S did quantitative easing and artificial low interest to further lubricate the finances, even so many were still unprofitable.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'I')'ve been hearing for years that most shale companies are unprofitable, even when we had high oil prices.

[Darian S]

$this->bbcode_second_pass_quote('rockdoc123', '')$this->bbcode_second_pass_quote('', 'I')'ve been hearing for years that most shale companies are unprofitable, even when we had high oil prices.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'h')ow about bankruptcies, haven't there been many for the past few years?