How Much Oil Is Left?

Abstract: The question: 'How long is our oil supply good for?' has surfaced again as it does periodically.

Analysis: The question of running out of oil has been around almost as long as oil has been part of the broad social fabric--in particular, since R. King Hubbert posited in 1956 that U.S. oil production would peak in the early 1970s. His prediction was illustrated by a linear graph that showed how recovery (or for that matter any mineral extraction) progressed through stages of growth, peak, and decline. That graph is now called Hubbert's curve.

Hubbert was widely criticized at the time by many oil experts and economists, but in 1971 his prediction came true: U.S. production peaked and began a slow decline.

Just in Time
Fortunately (for the U.S. economy at least) the oilfields of Saudi Arabia had developed to the point where they were able to ramp up and meet the shortfall. The world saw in the Saudi fields a picture of almost limitless oil availability at, we know today, bargain prices. Other Middle Eastern fields in Qatar, Kuwait, and Venezuela came into production.

Despite a couple of episodes of severe shortage, the U.S. and other consuming countries developed economies based on abundant supplies of cheap energy.

In the early 1980s, nobody but a few energy industry specialists and academics thought much about Hubbert. In fact, plentiful oil and low prices led to a couple of near collapses of the oil industry. Then the Association of Oil Exporting Countries, OPEC, was formed and set production limits to keep price swings from periodically bankrupting energy-related businesses. Not all oil exporters signed up with OPEC, but enough did that its production controls have until recently effectively held prices in a band that OPEC considers fair to all parties.

The Demand Jump
In 2003 a run-up in prices began to cause price increases at the gas pump and get the public's attention. Blame for price increases first fell on oil companies and greed, then OPEC and greed took some blame as prices went above the OPEC band top. OPEC insisted plenty of oil was available in world markets and that distribution bottlenecks were responsible. So it seemed high prices might be short-lived.

In fact, demand is up permanently. For several years oil discoveries have barely replaced consumption. Growing economies have demanded more and more fuel. This year, with apparent suddenness, growth of China's economy and Japanese economic recovery escalated oil demand just when production fell short in Iraq, and when Venezuelan strikes also limited supply.

These increases in demand have persisted. OPEC member companies have had to produce more oil to help meet them. In fact, there is strong indication that a production cushion which Saudi Arabia maintains for emergencies has been tapped. The Saudi flexibility to do this may be at an end. Saudi Arabia may be near the peak of its Hubbert curve. Some observers believe it has already passed and is on the downside.

Given the fact that no other field on earth could make up for the loss of the main Saudi field--the Ghawar--the question must again be asked: How much oil is left?

How Much Oil Is Left?
There are plenty of estimates. The United States Geological Survey puts known or proven world reserves at 1.1 trillion barrels. But to this can now be added Canada's oil sands. These sands are tarry substances and convertible to oil. An estimated 1.7 trillion barrels of petroleum is trapped in the sands, with 255 billion barrels currently considered recoverable. Research is continually reducing production costs, so that these sands can be counted as proven reserves. The Oil and Gas Journal rates proven reserves to 1.266 trillion when Canada's oil sands are added.

A top five list of reserve-holding countries includes Saudi Arabia, Russia, Iraq, Iran, and the United Arab Emirates. That too is changing.

Iran announced early this month that new oil discoveries raised its reserves to 132 billion barrels and would lift it to second rank behind Saudi Arabia and ahead of Russia.

Just as important as how much is available is the question of when we will hit Hubbert's Peak. Some say it will come soon, maybe in five to 10 years. Others say it will take 30 to 40 years. But given the importance of the correct answer, it is worth looking into.

It is a controversial question. You can find some interesting information when you begin looking into it. Some answer with optimistic estimates, some say we are beyond Hubbert's peak and the situation is grave. Some say there is no decline in reserves at all. Others look at the data and say: That can't be right. Still others say we simply don't know.

Real questions need debating by policymakers:

  • The impact of declining oil production on countries throughout the world.
  • Ways to minimize the decline's effects.
  • How soon we should act.

  • Until policymakers develop a sense of urgency about the matter, they won't act, of course. A lot of very good and able technologists are looking into the reserves question. In upcoming columns, we'll explore some of what they are finding out.


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