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OIL (proved reserves)
Source : Oil and Gas Journal 1999 : Thousand Million Barrels
The level of what common wisdom defines "reserves" or "proved reserves" is critical for any non recoverable resource such as crude oil. The estimation of these reserves is extremely relevant for industrial economies.
As scarsity determines the equilibrium price of a competitive market, when aggregate supply of a good, service or product drops down, prices raise to match a growing demand with a diminished supply.
Consequently, inflation pops in the scenario and the situation can be described as an "exogenous oil shock" as via petrol prices'increase, inflation attacks all sectors of the economy...
Various scientists tried to depict the depletion process of a finite resource, nevertheless, the most impressive theoretical model was set in 1959 by Dr.M.King Hubbert.
Dr. Hubbert drew a bell shaped curve to describe the trend of production in the lower 48 US States.
Concerning this curve, which was actually designed as the former and world known "Gauss Curve", production and unrestrained exctraction of a finite resource such as oil would reach its peak/crest or mid point by the year 1960 in the North American case and then would start declining till the complete depletion.
This analysis can be extended to other countries with reference to crude oil.
Doctor Hubbert's theory has proved itself by empirical evidence.
When the peak is reached, prices generally start to raise abruptly and oil would loose its supremacy as one of the main sources of energy of the planet.
Starting from the assumption that the model's inference and likelihood are true, the next step would be to establish how much oil is left and when would the world run out of cheap and abundant oil.
Conventions over definitions should be set first.
Often, reserves' calculations are too optimistic, not reliable, questionable and based on distorted estimates.
Reserves are known as being the amounts yet to produce from discoveries at a reference date, nevertheless, this definition is not exhaustive and does not fully satisfy us.
The current designation used in some statistics is the "proved oil reserves".
This definition states that the proved reserves are the reserves that can be estimated with a "reasonable certainty" which means that the probability Px of finding an amount of X Giga Barrels Gb ~ billion barrels is 90%, whereas the probability of exceeding this amount of reserves is about 10%.
This calculation method does not apply all over the world as each country is different from a geological, economic, political and social point of view.
According to Mr. Campbell, one of the major world experts, in the former Soviet Republics, reserves quantities with a probability of 10% have been used during the 80's to inflate figures.
This portion of reserves witch exceeds the actual figure have been named by some ''political or paper reserves''.
Some countries provide higher figures for the following reason :
To raise the quotas as the higher the reserves are the higher the quantity of exportable oil is.
To obtain bilateral loans as the quantity of projected reserves can be pledged as a guarantee to obtain financing.
In addition to biased estimates of reserves, there are also amounts of oil that are yet to be discovered but which are too expensive or too difficult to reach with the current technologies and that should be left in the ground ''all things being equal''. These quantities are called ''unconventional oil'' (tar sands, oil shales, oil not recoverable with today's technology).
Hence, the most interesting measure to be applied to determine reserves is the sum of the medianes / averages of the oil production of each field.
The estimate acquired in such way is a ''Proven and probable mediane'' which is the so called probability P50 i.e. the probability that the actual amount will turn higher or lower are equally matched or the quantity of oil that will be extracted from a well is the same as the probability that this amount is not going to be extracted from a well.
A correct picture could be drawn by using this measure of P50 which allows the sum of errors to be equal to zero as it is a mean or mediane of a probability distribution.
At this point, we can set three important categories to illustrate the current figures of oil reserves :
Cumulative production i.e. what has been produced up till now.
Reserves of conventional oil excluding unconventional oil sources.
Yet to find = discoveries.
Cumulative production + Reserves + Yet to find = Ultimate .
The Ultimate is a constant quantity, it represents the total endowment of the earth in terms of crude oil.
Campbell estimates that up till now the cumulative production is about 900 Giga barrels and that there are approximately 1000 GB left.
Other statistics show higher amounts, Campbell argues that these figures should be purged from "unconventional sources and political reserves".
In some OPEC member states, statistics, from one year to another boomed or remained stable.
This is not very realistic as the reserves do not remain constant taking into account the new discoveries and the fields that have been completely exploited.
In case reserves were constant, new discoveries would be equal to produced quantities.
According to geologists, given the technologies, the next 1000 Gb left are ''thighter and deeper'' than the cumulative production up to date.
A simple calculation shows that, if on average, the world produces 23.6 Gb per year, we would run out of oil in about 43 years this means around the year 2040...
In America, according to Dr.Hubbert estimates the mid point was reached in 1960, in the UK and Norway the crest was attained in 1999 and Middle East would reach the climax in 2010.
During the '70s, OPEC states reined their recources while other countries were producing their oil at full capacity. The subsequent crises of 1973, 1980 and 1991 could be explained by supply constraints.
The oil crisis of September 2000 can by clarified by the fact that the aggregate demand of energy is higher than the supply.
In addition to OPEC quota restrictions which explain the supply constraints of this year 2000, it has to be mentioned that Middle East has a market share of 50% which represents a 20% increase compared to 1970.
Middle East became a strategic factor in the contemporary oil market scenario, even so, a solution has to be found as the Arab countries are about to reach their production peak in a few years...
The solution to avoid tentions, wars and conflicts would be to discover new technologies to exploit what we currently call ''unconventional oil'', to come accross technological breakthroughs, to obtain liquid fuels from natural gas, to conservate and develop alternative energies like wind, solar, nuclear, etc...
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(October 2000) |
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