free html hit counter Peak Oil Debunked: 244. USGS EVALUATES ITS OWN TRACK RECORD

Monday, February 20, 2006

244. USGS EVALUATES ITS OWN TRACK RECORD

In 226. THE SUPPOSEDLY "DISCREDITED" USGS, I quoted peakearl reciting the usual peak oiler soundbites about the USGS World Petroleum Assessment (WPA) 2000. Let's quote him again:
My understanding is the USGS report is based on a statistical procedure, not geology. The procedure would predict vast amounts of oil in many regions, and enough years have passed to see if their procedure had any validity. Predicted levels of discovery have not occurred at all, and I think have invalidated the analysis, which wasn't based on any known oil. Deffayes has commented that we are a full Middle East behind their predictions, and it's getting worse with time, as discoveries continue to shrink in number and size, with no sign of the trend reversing.
I refuted much of this as uninformed baloney in #226.

Today I have more hard data with a bearing on this issue. It turns out that, in August 2005, T. R. Klett, Donald L. Gautier, and Thomas S. Ahlbrandt (two members of the WPA 2000 team, and the Project Chief) authored a paper for the AAPG (American Association of Petroleum Geologists) Bulletin. This paper ("An evaluation of the U.S. Geological Survey World Petroleum Assessment 2000", AAPG Bulletin, v. 89, no. 8 (August 2005), pp. 1033–1042) looks back at the first 8 years of the 30-year period covered by the USGS survey (1995-2025), and calculates how well the USGS WPA 2000 mean estimates compare against actual reserve growth and new discoveries. In other words, it is a scientific study by the USGS itself to see whether the critique by Campbell, Deffeyes and other peak oilers holds water.

This is another one of those "get it while you can" documents. The original pdf is lost behind a subscription firewall, but you can still get an html version (minus the graphics) from the Google cache. It is located here.

Here's the results in a nutshell:
This study compares the additions to conventional crude oil and natural gas reserves as reported from January 1996 to December 2003 with the estimated undiscovered and reserve-growth volumes assessed in the U.S. Geological Survey World Petroleum Assessment 2000, which used data current through 1995. Approximately 28% of the estimated additions to oil reserves by reserve growth and approximately 11% of the estimated undiscovered oil volumes were realized in the 8 yr since the assessment (27% of the time frame for the assessment). Slightly more than half of the estimated additions to gas reserves by reserve growth and approximately 10% of the estimated undiscovered gas volumes were realized.
Breaking this down, it is clear that the USGS estimate has been accurate regarding reserve-growth. Additions to oil reserves through reserve growth are right on schedule (28% added in 27% of the 30-year time frame). Additions to gas reserves through reserve growth are way ahead of schedule; as the study notes "51% of the estimated 30-yr growth of gas reserves had occurred in about 27% of the forecast span."

It is true that discoveries of oil from 1996-2003 occurred at a slower pace than one might infer from the USGS estimates. There are a number of good reasons for this, none of which have to do with lack of oil in the ground. The first is the price of oil. The period from 1996-2003 was marked by some of the lowest real oil prices in history, and the nominal price only briefly nudged above $30 at its highest, as you can see in the following chart (click to enlarge).

It's hardly suprising to see flagging discoveries in the middle of an unprecedented oil glut. The authors' describe the situation like this:
The decision of investors in the global market to preferentially invest in development of previously discovered fields instead of exploration for new ones is not explained by the statistics. However, several explanations exist for such a decision. One explanation is that the U.S. Geological Survey estimates are overly optimistic, and that much smaller volumes of oil are actually available for new-field discoveries than were estimated in the U.S. Geological Survey 2000 study. However, this explanation seems unlikely. In contrast to gas, oil may be transported from anywhere in the world where it occurs, therefore representing a complex balance of supply and demand. Until very recently, the price of oil has been relatively low since 1995, the last reported data used in the 2000 U.S. Geological Survey study. At the same time, rates of exploratory drilling have also been at a very low level. Reserves replacement has come about mainly through enhanced development of previously discovered oil fields. The preference for reserve growth in previously discovered fields instead of wildcat exploration is not surprising. Reserve growth represents a very low-cost, minimal-risk strategy. Most of the undiscovered resources reported in the U.S. Geological Survey World Energy study are in environmentally, economically, or politically difficult locations. Some of the oil resources estimated by the U.S. Geological Survey were expected to come from remote localities such as northeast Greenland, but the World Petroleum Assessment 2000 predicted that most of the undiscovered oil could be found in and around the existing major petroleum provinces of the Middle East, North Africa, and the countries of the former Soviet Union. Large parts of these important areas were not available to exploration during the first 8 yr of the forecast span. This is certainly the case in some of the countries of the Middle East and North Africa. Iraq, Iran, and Libya presented limited investment opportunities during the 8-yr period of this study, and investment in oil and gas exploration in Russia, Azerbaijan, and the central Asian republics has been limited also by various constraints on pipeline construction and perceived political and economic instability. In contrast, many previously discovered fields have consistently presented a stable, known opportunity for oil and gas investment. In this context, it is surprising that as much as 11% of the estimated undiscovered oil resource was found, and that 28% of the estimated potential reserve growth was realized in the 8-yr period. This large volume of reserve additions probably reflects the unprecedented global increase in oil demand that has occurred in recent years.
The peak oilers would have a lot better case against the USGS if somebody was actually exploring/investing in places like Iran and Iraq, where the USGS says most of the undiscovered oil is located.
-- by JD

6 Comments:

At Monday, February 20, 2006 at 12:59:00 PM PST, Blogger Rembrandt said...

May I remind JD that according to the world energy outlook 2005, most oil will NOT be found in the middle east

MENA (middle east North Africa) accounts for around 313 billion barrels while rest of the world accounts for around 570 billion barrels

 
At Monday, February 20, 2006 at 1:11:00 PM PST, Blogger Roland said...

That nominal/real oil price graph is quite a good debunker in itself, since it shows oil is currently more expensive than in the first 70s oil crisis. I wasn't around back then, but from what I've heard it was a much worse situation than today.

Combine this with figures of food prices, which stayed quite steady in the second oil crisis, and it's as if the current high prices are giving us the same preparation for a later surge.

The third thing it shows is that even in the 70s, when we were apparently more oil-sensitive, a very sudden reduction in supply of over 10% only made the price go to $90 a barrel in today's money. Far from the "$1000 oil!!!!" we keep hearing about.

Anyway, sorry, that was off topic.

 
At Monday, February 20, 2006 at 4:33:00 PM PST, Blogger JD said...

I didn't mean to suggest that most new oil will be found in the middle east. That's why I said "in places LIKE Iran/Iraq". I was using those two countries as examples, and didn't mean to suggest that there aren't other examples, both in the middle east and elsewhere.

Good point, though. I'm going to post a country-by-country breakdown of the USGS estimates of undiscovered oil to shed more light on the issue.

I would also note that the 11% discovered in the 1996-2003 period is an underestimate for a number of reasons:
1) It does not include discoveries of NGL, even though NGL is counted as oil production.
2) It does not include discoveries of heavy/tarsands oil, even though that too is counted as oil production.
3) The 11% figure is an early-stage figure prior to reserve growth. The newly discovered fields comprising that 11% will grow over time.

 
At Tuesday, February 21, 2006 at 5:22:00 PM PST, Blogger David W. Martin said...

I am still agnostic on 'peak oil', but very interested in the question. I found your explanation for a perceived slow rate of exploration compelling (i.e., price). However, I have a question on one of the points you make. You say that the USGS predictions seem to be almost perfectly reflected in dicoveries to date (28% discovered in 27% of time elapsed). However, I also read recently (John Grace, "Russian Oil Supply: Performance and Prospects" that 1) the distribution of field sizes in a given basin is almost always lognormal (i.e., most of the resources in a basin are concentrated in a few large fields and the rest is divided among a very large number of small fields) and 2) since field area is also (by defintion) lognormally distributed, the largest fields will almost always be discovered first, with the size of future discoveries in the basin dropping precipitously thereafter. If this is the case, one would expect to find a very large percentage ultimate recoverable reserves at the outset of a given time period, and a smaller percentage in the later part of the time period. We should thus expect to see a much higher than 1:1 (or 28:27) ratio of discovered reserves to time. This would suggest that the actual discoveries are actually way below USGS expectations and will likely miss the mark handily. There may be an explanation for this, but it is troubling on its face, at least. Thanks!

 
At Tuesday, February 21, 2006 at 6:36:00 PM PST, Blogger JD said...

Hi David, welcome to POD.

You say that the USGS predictions seem to be almost perfectly reflected in dicoveries to date (28% discovered in 27% of time elapsed).

You're misunderstanding this point. The USGS identifies two ways to increase reserves:

1) Reserve growth: Increases in volumes available from already discovered, known fields, AND
2) New discoveries

It is reserve growth which is on schedule (28% of estimated growth realized in 27% of time elapsed for oil, and 51% of estimated growth realized in 27% of time elapsed for natural gas). New oil discoveries are behind schedule (11% of estimated discovery realized in 27% of time elapsed).

If this is the case, one would expect to find a very large percentage ultimate recoverable reserves at the outset of a given time period, and a smaller percentage in the later part of the time period.

This is not necessarily the case. For example, if the largest fields are discovered first, why did it take roughly 90 years after oil drilling began to find Ghawar? Similarly, Iran recently discovered 2 super-giant oil fields: Azadegan (2001) and Ferdows/Mound/Zagheh (2003). Azadegan was the largest field discovered in Iran in 30 years, and Ferdows is even larger. Oil exploration in Iran began in 1901. So why did it take 100 years to find these large fields if large fields are discovered first? Similarly, Kazakhstan discovered the gigantic Kashagan field (the country's largest field) in 2000, even though oil exploration in the area began prior to WWII. Prudhoe Bay, the largest field in the U.S., was discovered in 1968. Why wasn't it discovered in 1859 by Colonel Drake? Norway recently discovered gargantuan coal deposits in the North Sea holding 3 times more coal than all the previously known coal resources in the rest of the earth's crust. It was the biggest coal discovery ever, and it happened hundreds of years after people began mining coal.

In short, I think the situation is a little more complicated than "the largest fields are discovered first".

 
At Wednesday, February 22, 2006 at 2:50:00 AM PST, Blogger David W. Martin said...

Thanks for your thoughtful reply. Your points are well-taken. I agree that it's a bit more (or rather a lot more)complicated than 'the largest fields are found first', although , if true, it would be an important generalization for informing expectations, especially in the aggregate. Regardless, keep up the great work!

 

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