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Page added on June 13, 2016
Falling global oil reserves: Pricing blip or panic alarm? — Fuel for Thought
For years global oil majors have brushed off speculation that an imminent peak in global oil reserves spells the beginning of the end of the hydrocarbon age. There is a long-term trend of new oil finds and improved recovery outpacing consumption each year, they say, underpinning future output and returns.
BP’s latest benchmark energy review, however, makes this line a tougher sell.
The figures show that, since 2011, the world oil reserves have flatlined and are now dropping. Total proven reserves peaked at 1.7 trillion barrels in 2014 and, had BP not revised its 2013 figure downwards, last year’s 1.698 trillion barrel total would have marked the second consecutive fall since BP’s data began in 1980.
A key metric for future production potential, proven reserves are notoriously a moving target.
By definition they should account for the economic recoverability of the oil at prevailing prices and not everyone uses the same yardstick.
To what extent oil prices affect BP’s proven reserves figures is unclear and the historical correlation is weak. Many countries use opaque reserves accounting criteria and apply less rigorous measures for economic recoverability. Others, including the US and Brazil, use more stringent rules. Brazil wrote down a fifth of its proven reserves last year partly due to lower prices, accounting for most of the outright fall in 2015.
The price impact makes the recent slowdown in proven reserves even more troubling.
Reserves hit their apogee as oil prices surged to all-time highs over $100/b, a move which should make more, not less, oil in the ground worth developing and hence “proven.”
There are political motives why some oil producing countries, particularly within OPEC, may been keen to overstate or fail to update their data as output depletes reservoirs, some market watchers believe.
Michael Jefferson, a former Shell chief economist, believes world proved oil reserves could be overstated by up to half as a result of less scrupulous national reporting and the addition of less valuable, harder-to-produce unconventional oil such as oil sands and bitumen. Moves to curb climate change could put even more of the proven oil out of reach.
The impact of the massive cutbacks in global upstream spending is another key concern.
Exploration drilling has taken a big hit since the 2014 downturn and, although yet to feed through to proven reserves, future discovery rates will likely slow in the coming years as a result.
Tight oil to the rescue?
BP itself remains upbeat over the bigger trend of growing reserves.
Its chief economist Spencer Dale is keen to set aside annual statistical “wiggles” and focus on the “bigger picture” that there’s still plenty of proven oil in the world.
“I would take the message that there are enormous amounts of proved reserves relative to production levels…and that those reserves appear to be going up over time despite the fact that we keep consuming oil,” Dale said while presenting BP’s latest statistical review last week.
The technological breakthroughs that sparked the US tight oil boom are another reason why we should be upbeat over the world’s volumes of remaining oil, according to BP. Recovery rates of US tight oil have risen from around 5% to above 10% in some geological “sweet spots,” Dale said, with further gains still possible.
“This is enormously important because, if the big constraint for how long US tight oil can continue to grow is the size of the resource base…if you increase the recovery rate by 50%, you increase the resource base by 50%, so this is huge,” Dale said.
US proven oil reserves have already jumped 78% since 2009 largely due to tight oil, according to BP. At 55 billion barrels, US reserves now rank as the world’s 9th biggest after the UAE. At current production levels, that would last the US 12 years, about the same as BP’s own proven reserves, but well behind the global average of 50.7 years.
Referred to as the reserves-to-production ratio, the measure of how low long the world’s proven reserve could sustain current production also peaked in 2011, the numbers show.
Even more pressing for global oil majors is that Big Oil only controls a tiny proportion of the world’s remaining oil.
The proven reserves of the world’s biggest five oil and gas majors, for example, account for less than 3% of the total proven oil, Dale notes. By contrast more than 70% of the world’s reserves is mostly off-limits in OPEC member countries and two thirds of OPEC’s oil is in the Middle East.
20 Comments on "Falling global oil reserves: Pricing blip or panic alarm? — Fuel for Thought"
Revi on Mon, 13th Jun 2016 6:56 am
It’s hard to tell how much is left, but maybe around 1.1 trillion barrels? Is that a good guess? I have heard that we have used some of the right side of the peak already and that some are saying more like 825 billion barrels is left in ultimately recoverable resource.
What do you think? It seems like we are heading towards the empty side of the global tank anyway.
shortonoil on Mon, 13th Jun 2016 8:20 am
The reserve argument has been going on for decades. It has become a bit of a red herring. Reserves are a matter of price and production cost, and no one seems to know what the future of either will be. It is therefore a “how many angles can dance on the head of pin” argument.
The ultimate quantity of oil that will ever be extracted is a matter of how long there will be an oil industry to extract it. With the industry now losing $1.7 trillion per year on its full life cycle production cost, that won’t be long at all!
Kenz300 on Mon, 13th Jun 2016 8:40 am
Climate Change is real and it will impact all of us..
It is time to move away from fossil fuels and embrace alternative energy sources like wind and solar.
Clean energy production with wind and solar and clean energy consumption with electric vehicles.
Electric cars, bicycles and mass transit are the future…..fossil fuel ICE cars are the past…………..
Think teen agers vs your grand father…………………. cell phones vs land lines…….
NO EMISSIONS……..climate change is real………
Save money……no stopping at gas stations…..no oil changes……..less overall maintenance……
Go Speed Racer on Mon, 13th Jun 2016 9:20 am
Don’t worry that the gas gauge is on E, focus on ‘the bigger picture’ that it’s a newer car, has a great ride, and the scenery out the window is lovely.
joe on Mon, 13th Jun 2016 9:38 am
Never changing reserves is not somthing to worry about per se. Only what we can get in 5 years really matters. So as long as there is about 200 billion barrels in proven reserves then we are fairly ok. The thing that matters is what we can get very short term. Right now we can get loads in very short term, so prices are low. The real issue about reserves is extractability, the more easy oil we use, the less extractable it is. Theres no point in saying that oil is cheap at 40 dollars if it costs you 39 to get it. So they can talk reserves all day.
shortonoil on Mon, 13th Jun 2016 10:04 am
Petroleum production directly accounts for 38% of world GDP. When 10% of it goes off line it reduces GDP by 3.8%. That is called a depression. The highly indebted, over leveraged monetary/ financial system fails, and that is when the lights go out. The $1.7 trillion annual losses that the industry is now racking up ensures that will not be too far into the future.
Calculating reserves is like repainting the lines for the shuffle board game on the Titanic. The time would be better spent trying on life jackets!
Boat on Mon, 13th Jun 2016 10:14 am
short,
When does 10 percent of oil production go offline? Demand is growing.
shortonoil on Mon, 13th Jun 2016 11:34 am
Venezuela, and Nigeria are dissolving. Two nations with some of the largest oil reserves in the world. The majors are showing huge losses, and over 300 oil firms are slated to go bankrupt this year in the US. World oil producers are replacing less than 8% of the reserves that they are extracting, and Saudi Arabia, the richest oil producer in the world now has to borrow money to pay its bills. The industry as a whole is taking a $1.7 trillion loss per year.
“When does 10 percent of oil production go offline? Demand is growing. “
You must be kidding, insane, or living on Planet X?
Apneaman on Mon, 13th Jun 2016 11:40 am
GS: Expect More Oil Patch Bankruptcies
http://www.valuewalk.com/2016/06/gs-oil-patch-bankruptcies/
rockman on Mon, 13th Jun 2016 11:47 am
Revi – No: there is much more the 1.1 trillion bbls left in the earth. Probably closer to 10X that amount. But that’s not relevent. What is: how much can be produced…which will be a function of future prices. And given no one can accurately make that prediction very far into the future means there really is no valid number for how much oil is left to produce.
And that’s not too important anyway. As has been pointed out many times the global economy does not depend on the amount of remaining oil reserves. It is primarially dependent of two factor: the price and global production rate.
Thus the critical questions remain: how much oil will we produce daily for the next 50 years or so and at what price during that time. Unfortunately no one has a demonstrative answer for either question. As shorty pointed out the remaining global oil reserves is a red herring designed by some to distract from the criyical questions. And they do so because they don’t have credible answers for those two questions.
Boat on Mon, 13th Jun 2016 12:05 pm
Saudi oil profits should not be confused with overspending in domestic affairs. Several countries are growing production in spite of low oil prices. Why? Because they can still make a profit.
Investors will supply money if they think there is money to be made. They care nothing about a countries fiscal health as long as they get their cut. This is capitalism 101. You should read some on the topic PHD. Lol
PS Why is demand growing? Eia updated world demand to 1.5 from 1.2
PracticalMaina on Mon, 13th Jun 2016 1:10 pm
And by they can still make a profit you mean, they are desperate to stay in business and or not turn into Venezuala, borrow borrow borrow to drill drill drill to pump pump pump, burn baby burn. Mother nature is gonna end up smashed on a highway like some wasted venison.
shortonoil on Mon, 13th Jun 2016 1:40 pm
” Why? Because they can still make a profit. “
What that is saying is that when oil was $98 that these producers were turning a 51% profit margin on their gross sales. That when oil was $98 that the world’s producers were making $1.7 trillion per year in profit. That must be why hundreds of US Shale operators are going bankrupt, Venezuela can’t afford toilet paper, and Saudi Arabia is borrowing money to pay its bills. They were getting fabulously rich?
Sort of like your comments!
yoshua on Mon, 13th Jun 2016 2:29 pm
If the price of oil commands how large the global oil reserves are, then today we have zero reserves and those reserves are worth zero dollars ?
rockman on Mon, 13th Jun 2016 4:04 pm
Y – Not that bad but not that good either. First, the undrilled reserves are written down to some degree because they are no longer economic to drill. Thus the PND (Proved Not Developed) reserves are reduced ON THE BOOKS. OTOH very few of the PDP (Proved Developed Producing) reserves see a big reduction in their NPV (Net Present Value) but not in the NUMBER OF BBLS. That’s because the cost to produce an existing well is much, much less then to drill one. At current prices even a well producing 10 bopd can still have a positive cash flow.
Of course having PCF doesn’t mean the initial investment will ever be recovered. A lot of shale wells completed just before the price crash might have very nice PCF’s but may never prove to be profitable.
If you don’t follow that just let me know.
dave thompson on Mon, 13th Jun 2016 4:42 pm
Rock you say; “the global economy does not depend on the amount of remaining oil reserves. It is primarily dependent of two factor: the price and global production rate.” What does the EROEI say?
yoshua on Mon, 13th Jun 2016 5:25 pm
rockman – I think I get the picture.
The reserves that are Proved Developed and Producing today are counted as reserves… even if the value of those reserves are written down… and even if the investment turns into a loss in the end.
The wells on stream today will be producing as long as they have a positive cash flow… if not to make a profit on initial investments… then at least to reduce losses on those investments.
energy investor on Mon, 13th Jun 2016 7:47 pm
Boat, I think you missed the point with KSA. If they could cover their welfare state’s bills by increasing output, why wouldn’t they do it? Their direct cost is probably less than USD10/bbl and with a selling price of USD40-50/bbl the contribution to the KSA budget could be filled by only another 5 million bbls per day. If they haven’t increased production, why not?
They already have the tar sands and shale producers going bust, so why not produce a lot more and finish the job?
The answer is simple.
Because they can’t.
Who really cares why that is?
energy investor on Mon, 13th Jun 2016 7:49 pm
Given the intensity of competition between Iran and KSA, don’t you think they wouldn’t produce more if they could?
JV153 on Tue, 14th Jun 2016 10:55 pm
Reading a few articles that off-shore development is almost frozen .. any truth to it ?