Reserves

The question of reserves is one of the thorniest issues in the oil question. As we saw in the Jargon page, the Recoverable Resource consists of the oil that they estimate is worth retrieving. (There is always some oil which cannot be retrieved, either because it is physically impossible, or the costs would always be prohibitive.) Out of this, you have the part you have already taken out (the Cumulative Production) which is fairly accurately measured, the part that you haven’t discovered yet but you can estimate is there (the Yet-to-Find), and the part that you have found but not yet taken out (the Reserves).

One way to estimate a field’s reserves comes fairly late in the extraction process. As explained in the Production page, oil production reaches a peak when half of its oil has been extracted and then declines. When it is clear that the decline is occurring, you can simply take the amount extracted up to the peak and double it to find the approximate total oil that initially existed in that field.

R1. Oil Production per Field (Idealised)

The chart above shows how, in an ideal production flow, half of the oil is extracted up to the peak (in reality, politics and economics distorts the curve). Since the curve is symmetrical, you can double the first half to work out the field’s total Recoverable Reserves.

Unfortunately this doesn’t help us very often for many reasons. Many fields are not far enough over their peak to judge the midpoint. Also, oil production is not smooth, being distorted by other factors. Consequently we have to rely on countries and oil companies’ estimates which, as we shall see, are misleading.

An alternative way of estimating reserves is to compare cumulative discovery with cumulative production. There is a strong correlation between a field or country’s rate of discovery and its production (with a variable gap of around thirty years). This is the source for the ‘technical’ data which is usually quite different (and confidential) from the ‘published’ or ‘political’ data.

Published Figures

R2. Proved Reserves – BP (World) **

Turning to the BP Statistical Review figures, the chart of the world’s apparent proved reserves looks promising. From a value of 667 Gb in 1980, it has risen pretty much constantly to 1,208 Gb today (2006 figures). To put that in context, at the present rates of consumption, that changed from 21.8 years’ worth of oil left to over 39.5 years. And look at those wonderful times in the 1980s when reserves rose by 29% in just three years. Where’s the problem?

The problem appears when you re-examine the figures with a bit of care. The chapter on consumption shows that oil usage has been rising constantly during those years (apart from the first few). So we have been using more oil every year and yet the amount of oil available has also been increasing! This goes against common sense. The only explanation seems to be that we have discovered more of the Yet-to-Find resource.

But when we look at the chart of oil discovery, we see a very different picture.

Oil discoveries have been falling consistently (with occasional bumps) since a peak during the 1960s. So we have been using more oil and finding less, yet the reserves continue to rise. Chart R4 also shows that we have been eating into our stores since 1980, using more per year than we find. So what is going on?

One problem is that there is no agreement on what figures are used for proven reserves. Some countries such as the USA use minimum values, others (eg. the former Soviet Union countries) use maximum values, and most use P50 (see Proved Reserves on the Jargon page) values.

Also, the figures published are often politically influenced. Countries may want to appear optimistic or cautious, depending on their audience, so they will often use different figures.

Creaming Curves

To find a better way of estimating reserves, some geologists turn to the ‘creaming curve’, so called because the earliest wells find the easiest and largest fields - the 'cream of the crop') . This technique was introduced by Shell and plots cumulative discoveries against exploration activity (cumulative new field wildcats). A wildcat is an oil well speculatively drilled in an area not known to be productive. Drilling a well is expensive so an increasing number of wildcats generally indicates that it is getting harder to find oil.

With a creaming curve, you plot the total amount of oil that is discovered against the total number of exploratory wells drilled. Initially, there will be large amounts of oil found from relatively few wells, meaning that the oil is large and easy to find. As time goes by, you have to drill more speculative wells to find the oil but get less in return. The advantage is that time is eliminated from the equation and any reductions or increases in exploration are removed. You are simply looking at how easy it is to find oil.

The resulting graph gives one or more hyperbolas which can be used to estimate the total amount of original oil.

R5. Example of Creaming Curve

Jean Laherrère, an experienced oil geologist, has spent much time on creating creaming curves and it is these that produce the figures for the ASPO reserves data along with the idea of 'backdating' reserves. This is explained by Colin Campbell:

An oilfield contains what it contains because it was filled in the geological past, but knowledge of how much it contains evolves over time. If we want a genuine discovery trend, we need to backdate revisions to the discovery of the field. Failure to backdate gives the illusion that more is being found than is the case. It is a cause of great misunderstanding.

Jean Laherrère has also produced a chart of reserves based on this technical data rather than countries' reported reserves (R6). It contrasts strongly with the BP figures (chart R2). Bearing in mind that, since 1980, we have been using more oil than we discover, his chart appears much more realistic.

R6. Proved Reserves - Laherrère (World)

The 1980s Reserves Fiddle

What about the amazing rise in oil reserves reported in the 1980s? (See chart R2.) Was that genuine or a mistake? Or a fiddle? If you suspected the latter, you are right. If you examine the reported reserves (same source) for a selection of countries, you will see something strange.

R7. The Reserves Jump

Notice how certain countries increased their reported reserves (their own data remember, not an objective inspector) quite dramatically during the later half of the 1980s while others moved on without a noticeable change to their trend. And notice which those countries are - Saudi Arabia, Iran, Iraq and Venezuela. In fact, the six OPEC countries with the greatest reserves all increased their apparent totals with no corresponding major discoveries. Why was this?

The reason is that an individual OPEC member’s quotas are proportional to their proven reserves. Since the larger the quota, the more money they can earn, this obviously gave them a strong incentive to ‘adjust’ their figures. Kuwait began first in 1984 with the others following mainly in 1987 (Saudi Arabia in 1989).

In fact, even without the massive jumps of the 1980s, the lines for Saudi Arabia, Iraq and Iran in Chart R7 look rather suspicious anyway, trundling along fairly level for long periods, even while their oil is being pumped out of the ground. It’s rather like a magic barrel that stays at the same level no matter how much is taken out.

Although there was probably some adjustment needed in the 1980s, it was nowhere near the amount suggested. The OPEC reserve fiddle is a clear example of how unreliable reported reserves are. Not all of the subterfuge is as blatant as this.