Why Just Looking at Oil Reserves is Oversimplified
With BP recently reporting the estimated total at over 1.7 trillion barrels, the world today has more proven oil than it ever has in history, This is amazing of course because oil has been the main source of global energy for many decades, with another 32 billion barrels of crude devoured this year. Just going back to 1980, despite the extraction of around 950 billion barrels, proven oil reserves have soared by over 1 trillion barrels.
This begs the question: with more and more oil being produced, how do reserve counts continue to increase?
The difference between a "reserve" and a "resource" is monumental in the international oil business. Although reserves impress banks and gain shareholders, the resource is what actually indicates how much petroleum a country holds. Only reflecting what can be produced today under current prices and technologies, reserves are just subsets of the overall ever-expanding resource.
Prices and technologies, however, are always in flux. As time goes along, more of the resource gets lifted into the reserve category and replaces and then often adds to the oil that was produced during the year. Reserve counts are only snapshots in time, rising when prices go up and/or new technologies get deployed. This explains why a long history of predictions for “peak oil production” has been proven wrong time and time again.
Indeed, the U.S. itself illustrates the oversimplicity of just examining reserves to gauge future global supply. The country has had a reported oil supply lifetime ("Reserves-to-Production ratio") of just 8-14 years reported every year since the end of WWII. This suggests that we really should have run out of oil many decades ago. Yet, now at over 50 billion barrels and 12 million barrels per day, proven reserves and total crude production are the highest in U.S. history.
This short- to mid-term horizon for U.S. oil reserves will remain because that is the planning perspective the industry adopts. There is little economic incentive to look for resources that will not be needed for many decades. With the option to wait, producers often under-invest until new information about future market conditions arrives.
Further, the global oil stockpile continues to be extended in a variety of ways. Global shale and deepwater opportunities are overwhelmingly underexplored but will become more attractive as demand continues to mount. And most people probably do not know that 60-70 percent of a reservoir’s original oil in-place remains stranded after primary and secondary operations because it is too difficult or expensive to extract.
Deploying the tertiary technique of CO2-EOR, however, helps lower the viscosity of this hard-to-reach crude to drastically lift the recovery rate. Utilized for decades in Texas but at a smaller scale (~450,000 bpd today) CO2-EOR could be the next oil revolution in the U.S. after shale. With a DOE-reported hundreds of billions of barrels available, CO2-EOR helps reduce CO2 emissions by safely storing it in the ground and becomes especially attractive as prices rise.
In that light, the constant evolution and proliferation of technologies will continue to open up more production zones. The U.S. shale revolution itself illustrates how quickly massive opportunities can present themselves in the oil extraction business. U.S. crude oil production was long thought to have peaked in 1970 but production has surged 140 percent since 2008 to records not previously imagined.
Ultimately, since future changes in price and technology are unknown, the amount of crude oil the global industry could get access to is also therefore unknown. We do know that it is a lot. Oil remains a finite resource but as the “unconventional” continually becomes the “conventional” the total amount remaining is measured in centuries not decades. Any constraints on future supply will surely come from above ground, not below it.
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