Michael Lynch: The Urban Legend Of Inadequate Discoveries

In my first piece on peak oil, I included a graph showing discoveries and production, and some commented that this seemed to invalidate my arguments since discoveries have not been replacing production for decades. This is another example of the ignorance of many who comment on the peak oil issue, and I will clarify.

The term “discoveries” refers to estimates, at the time reported, of the amount of oil discovered. These estimates are frequently revised, sometimes down but on average up, as the fields are better understood and recovery improves over time with better technology and more investment. This is what the industry (and geologists) refer to as “reserve growth”. The initial people in the current wave of neo-Malthusian arguments known as peak oil, especially Jean Laherrere, argued that reserve growth only occurred in the US and represented the use of the term “proved reserves” representing P90 or 90% probability estimates, instead of the more accurate “proved plus probable reserves” otherwise P50 or 50% probability estimates, which should on average be accurate.

No supporting data was ever presented to confirm this argument, and it has been refuted again and again by others in the industry, including the source of the data, a company now part of the IHS corporation, which Campbell and Laherrere relied on for their reserve data. Efforts to refute this, by arguing that there is no new technology or that production trends can provide accurate field reserve estimates, have ranged from incorrect to laughable.

This explains why, despite the fact that “discoveries” have been deficient in replacing production for so long without any decline in proved reserves for decades: reserve additions to existing fields typically outpaces new discoveries in any given year. The practice of postdating these additions to the year of the initial discovery in some data sets, so as used in the graph shown, misleads the novices into thinking that oil supplies are becoming more scarce, when in fact they are easily keeping pace.

Peak oil advocates try to undermine this argument by pointing to the late-1980s reserve revisions in some Middle East producers as being ‘spurious’ and intended to lead to higher production quotas within OPEC. (They mistakenly believe that OPEC adopted a formula using reserves and capacity, among other things, to set quotas. It was considered, but never adopted.) However, they tend to completely ignore the fact that excluding those revisions still leaves us with increasing reserves.

Thus, one of the major pillars of the peak oil movement, inadequate discoveries, is shown to be nothing more than a misinterpretation of a technical term used by the industry, plus gullibility by the supporters of peak oil advocates.

Forbes