free html hit counter Peak Oil Debunked: 298. RESERVE GROWTH

Sunday, April 30, 2006

298. RESERVE GROWTH

There was a bit of confusion regarding the previous post (#297), so let me shed some light with a simple calculation.

Turning again to the BP Statistical Review, we obtain the following figures:

World oil reserves in 1980: 667Gb
World oil reserves in 2004: 1189Gb
Word oil production 1980-2004: 609Gb

Now, I have also previously transcribed Colin Campbell's "Growing Gap" graph of discovery (Feb. 2006 version):
The "Growing Gap"

From this graph, we can derive total world discovery for the period 1980-2004:

World oil discovery 1980-2004: 339Gb

So let's do the calculation. We start in 1980 with 667Gb of reserves in the world. Over the course of 24 years (1980-2004), we pump out 609Gb of that, leaving us with 58Gb. To that we add the amount discovered in the period 1980-2004 (i.e. 339Gb), giving us a total of 397Gb in 2004.

Clearly, something has gone seriously haywire because the actual reserves in 2004 are 1189Gb, i.e. 792Gb more than we should have if discovery is the only way to increase reserves. That's a massive discrepancy roughly equal to 4 Saudi Arabias, or 66 Prudhoe Bays. So, all you peak oil geniuses out there, where did it come from? It could not have come from discovery.

Spurious additions to OPEC reserves won't explain it. OPEC reserves only increased by 456Gb from 1980 to 2004, so that still leaves us with 336Gb unaccounted for. That's 28 Prudhoe Bays which somehow got added to world reserves between 1980-2004, without being discovered. Where did that 336Gb come from?

We saw this same phenomenon at work in 239. GHAWAR NOW EMPTY. We have already pumped more oil out of Ghawar than the 1975 estimate of Ghawar's ultimately recoverable reserves (URR), according to data from Matt Simmons himself. So how do you explain that? Did the reserves in Ghawar somehow grow without any new discovery taking place? It definitely seems that they did. But if the reserves of Ghawar can grow without new discovery, why can't other OPEC oil fields grow in the same way? Why is it so outrageous to think that OPEC reserves can grow given that we are forced by the facts (as given by Matt Simmons) to admit that the reserves in Ghawar have grown?

Now, it's true that OPEC updates its reserves figures in an unorthodox way, and the additions seem fishy on the face of it. Nevertheless, it is silly to think that OPEC reserves do not grow, even though non-OPEC reserves world-wide do so. If OPEC reserves do not grow, then the reserves of Ghawar have not grown since 1975. Ghawar is now completely pumped out, as I have previously shown, and we are all already dead from the cataclysmic repercussions of that event.
-- by JD

17 Comments:

At Sunday, April 30, 2006 at 8:33:00 PM PDT, Blogger Ben Hamilton said...

I just want to say that I just happened to find this site today and I am glad I did. I've been reading the posts and there are a lot that talk about terrorists and how things have changed.

I want to come out and formally say that of there is any reasonable person that think that just because 9-11 happened and now "everything has changed" than they're crazy. Why? Because if there is anything who thinks that terrorism is more dangerous than the 40 years we spent on the brink of nuclear disaster with the USSR then you've drunk the juice.

 
At Sunday, April 30, 2006 at 8:49:00 PM PDT, Blogger Stephen Gloor said...

JD - "Clearly, something has gone seriously haywire because the actual reserves in 2004 are 1189Gb"

Actual STATED reserves. How much oil is actually in the ground is anyone's guess.

You have posted the graph - do you dispute this? How do you explain the drop off in discovery?

 
At Sunday, April 30, 2006 at 10:51:00 PM PDT, Blogger DC said...

How do you explain the drop off in discovery?

Oh, I dunno, something about a crash in the price of crude back in the 80's and 90's. Silly things like that tend to increase the risk aversion of investors.

It also provided the right environment for the consolidation that was observed. Why assume ANY of the risk of developing a new field when you can just as easily cannibalize the sure bets from the other players? Hell, even Simmons has been harping on this point for years.

Just because these factors don't fit into a silly artifice like a Hubbert Linearization model doesn't mean they don't warrant consideration.

 
At Monday, May 1, 2006 at 1:10:00 AM PDT, Blogger Stephen Gloor said...

dc - "Oh, I dunno, something about a crash in the price of crude back in the 80's and 90's. Silly things like that tend to increase the risk aversion of investors."

So with oil at USD$70 a barrel then discovery rate should be up - right? Rig count is up however the discoveries are getting smaller.

 
At Monday, May 1, 2006 at 2:04:00 AM PDT, Blogger JD said...

stephen, the whole point of this post is that factors other than discovery increase reserves. Pull your head out and answer the question: Where did that 336Gb (24 Prudhoe Bays) discrepancy come from? Explain it to me. Did it just appear out of nowhere? Or do numbers make your poor wittle head hurt?

 
At Monday, May 1, 2006 at 7:49:00 AM PDT, Blogger Velociryx said...

I'm new to this site, having come here after watching a vid by Mike Ruppert, and getting the hell scared outta me.

Some of his points just "sat wrong" with my brain, so I determined to get the "other side of the story" by continuing to explore.

I wound up on this site (and a few others), and now have a firmer understanding.

JD, great site, and kudos for all the tireless work! Really though, you coulda stopped at entry 69 (and the graph showing the infamous "green line," below which, no economic growth should have been possible, but which was, in fact, a period of rampant growth and expansion.

That's really the beginning and the end of the discussion, in my mind.

The hard core doomer crowd seems to have backed away from social collapse and die off, and we have data indicating that economic growth can (and has) occured during periods where global net oil production actually shrank....so where's the problem?

Yes, eventually we will reach a point where we've pumped out half of all the oil that used to be in the earth....and?

If the hard core doomers have backed away from the die-off theory (for the most part), and we can rule out social collapse, and we have data indicating that economic growth is possible even in the face of declining production, and we have new (and promising) technologies in various stages of development right now, then where, precisely, is the crisis?

I come to this discussion with an economic background, not a geologic one, and I can tell you with absolute certainty that as the cost of a barrel of oil becomes pricier, one of the functions that unwittingly serves is to make the hunt for alternatives more profitable and compelling.

Bring on $100 oil! It only means that we'll get sustainable technologies that much more quickly.

$0.02

-=Velociryx=-

 
At Monday, May 1, 2006 at 8:00:00 AM PDT, Blogger nick said...

I think this is usually just a mixup of reserves and their accounting. 'Proven' reserves are more than a trillion barrels with plenty more that is probable and possible (can't find numbers). This is the case for an arbitrary region: a single field or the world. Proven usually doesn't equate with URR as can be seen with just about any oil field in the world. Probable and possible reserves make up a significant if not majority of the URR.

Reserve growth is simply a shifting of probable and possible to proven as it is definitive that oil is there as it is being or will be shortly produced. This is mainly what happened with OPEC's numbers in the 80's and early 90's. Simply a shift of reserves from probable/possilbe to provendone by a prince. The move was rather caustic as the prince probably has little formal training in petroleum engineering or geology. But he's had plenty of advisors around to know what he's doing. Instead of increasing the reserves every year or even quarter, he simply waited and did it all at once when it was clear that they had more oil than previously stated.

There's nothing against reserve growth in OPEC's fields, it's just the suspicion of it all being done at once with no discoveries, which have accounted for at least half, maybe 3/4 of the new oil in the past 25 years.

When I think of oil in the world, I usually take off a few hundred billion and just call it an even 1,000 gigabarrels. I don't believe it's all there, but they haven't done much exploring and will probably come up with much more once they/we do explore.

 
At Monday, May 1, 2006 at 10:40:00 AM PDT, Blogger Chris Vernon said...

Can you please clear up what you are talking about? P50 or proved?

Please read Bentley's article here (page 6):
http://www.iaee.org/documents/06spr.pdf

 
At Monday, May 1, 2006 at 11:42:00 AM PDT, Blogger Flow said...

Reserve growth is easy to explain wthout discovering another drop of oil. Proven reserves are based on two things: (1) current technology and (2) current cost of production.

As technology increased (i.e. injecting wells with water) proven reserves grow. The same thing has been said of CO2 injections, which could increase the amount of oil that can be extracted from an exisiting oil well from around 35% to around 50-60%.

The same could be said of what happens when the cost of a barrel of oil goes up. What was not economically feasible to extract at $20 a barrel is now feasible to extract at $70 a barrel. How many time have you read "can be developed for a profit at $35 a barrel but has to be at $35 a barrel of an extended amount of time to get investors hooked." For example, oil from Tar Sands can be extracted for around $35 a barrel. When they set up shop in Alberta, Canada in the 70/80's the price of oil feel rapidly to the point that it was not economically feasible to produce. Witht he cost of oil well above that $35 a barrel level and not looking like it will drop below that level, Tar Sand production is back up in Canada.

 
At Monday, May 1, 2006 at 6:30:00 PM PDT, Blogger JD said...

Can you please clear up what you are talking about? P50 or proved?

The note in the data says:

"Proved reserves of oil - Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions.

Source of data: The estimates in this table have been compiled using a combination of primary official sources, third party data from the OPEC Secretariat, World Oil, Oil & Gas Journal and an independent estimate of Russian reserves based on information in the public domain."

 
At Monday, May 1, 2006 at 10:47:00 PM PDT, Blogger Chris Vernon said...

Therein lies the problem, this is hopelessly wide of the mark, as proved reserves usually report quantities of oil well below what can be recovered with reasonable certainty under existing conditions.

 
At Monday, May 1, 2006 at 11:35:00 PM PDT, Blogger Stephen Gloor said...

JD - "Or do numbers make your poor wittle head hurt?"

No numbers do not make my head hurt - losing posts does. Not sure where the one that I posted before went.

As far as I can see it is you that has to explain the discrepancy. You are stating categorically that the oil in the ground is 1189Gb. This is stated reserves and includes the inflated OPEC reserve figures.

The figure you started from was most likely the P50 figure which could easily understate the actual reserves by as much as 300Gb. I am sure that you are aware of the difference between the reported reserves and the URR of any single resource. Also proven reserves are not the URR of a field.

 
At Wednesday, May 3, 2006 at 2:16:00 AM PDT, Blogger DC said...

So with oil at USD$70 a barrel then discovery rate should be up - right?

It doesn't happen instantly for a variety of reasons. For one, risk aversion doesn't suddenly evaporate, as evident by such admissions as Exxon's CEO, in which he estimated a speculation premium of $20+ on the price of oil. I don't pretend to know when the big wigs will decide that prices won't crash and that additional investment in exploration, development and refinement is needed. However, I do have enough of a brain to realize that it won't happen immediately. Consider the following quote from IHS Energy's Report on 10-Year Petroleum Trends (based on the same database that Laherre and Cambell allegedly use in their shoddy analyses):

We believe we will now see an upturn in strategic exploration investment and the report identifies a time-lagged correlation between higher oil prices and exploration activity

These higher prices are already starting to crank the exploration wheels, but it takes time. It's ridiculous for you to assume that no time lag exists between a sustained run-up in prices and the results from exploration.

Rig count is up however the discoveries are getting smaller.

I hate when the kids try to play grown-up on the web. Get a clue, Steve-O. Anyhow, Lynch argues:

The primary error for Hubbert modelers is the assumption of geology as the sole motivator of discovery, depletion and production. In the work of Campbell, Deffeyes, and Laherrere, they go further, equating causality with correlation. This is one of the most basic errors in (physical or social) scientific analysis.

“Oil is ultimately controlled by events in the Jurassic which are immune to politics” (Campbell 2000) and “…discovery and depletion are set respectively by what Nature has to offer and the immutable physics of the reservoirs.” (Campbell 2002) The idea that production is influenced by oil prices (which determine the amount of capital available for drilling) and by policy choices in producing governments, which decide when exploration will be allowed, and/or set production ceilings, is considered foolish.[13] And yet, they do acknowledge restrictions on operations, particularly in the Middle East.

The argument that the drop in global discoveries proves scarcity of the resource is the best example of the importance of understanding causality. While it is true that global oil discoveries dropped in the 1970s from the previous rate, this was largely due to a drop in exploration in the Middle East. Governments nationalized foreign operations and cut back drilling as demand for their oil fell by half, leaving them with an enormous surplus of unexploited reserves. It is noteworthy that none of those pessimistic about oil resources show discovery over time by region, which would support this.

And two recent discoveries, Kashagan in Kazakhstan and Azedagan in Iran, reportedly would together equal over ten percent of Campbell and Laherrere’s estimated remaining undiscovered oil. Statistically speaking, this is unlikely. Laherrere’s argument that the Middle East is near the end of its undiscovered oil is entirely based on the assumption that the observed fall-off in discoveries was due to a lack of geological opportunities, rather than government decision-making. (Laherrere 2001b) To an economist, the drop in exploration reflects optimal behavior: they do not waste money exploring for something they will not use for decades.


source: http://www.gasresources.net/
Lynch(Hubbert-Deffeyes).htm

Thus, there are several factors explaining the discovery trend that you and the rest of the doomer brigade misinterpret:

1) As JD previously pointed out, some of the best prospects are off limits. How can you explore, discover and/or produce if the majors can't even set foot in the area? This is true in the Middle East, FSU and most recently, South America.

2) Why the hell should OPEC spend money on discovery when their proven reserves have been more than sufficient for the foreseeable future?

So quit this nonsense of interpretting the discovery profile as proof of some imminent geological barrier. It is not. It is a reflection of many different factors, including geology, politics and economics.

 
At Friday, May 5, 2006 at 1:58:00 AM PDT, Blogger Stephen Gloor said...

dc - "It's ridiculous for you to assume that no time lag exists between a sustained run-up in prices and the results from exploration.

Rig count is up however the discoveries are getting smaller.

I hate when the kids try to play grown-up on the web. Get a clue, Steve-O. Anyhow, Lynch argues:"

So how long has oil been above $30.00 per barrel? At least 2 years which is plenty of time for exploration to ramping up to be noticeable. BTW where are the new discoveries?

According to Rigzone:
"Another indicator of deepwater activity is the recent rig count. In mid-March, there were 42 rigs drilling or working on development wells in deepwater, including ten rigs drilling in 5,000 feet of water or greater - the ultra-deepwater zone. One year ago, 6 drilling rigs were in ultra-deepwater."

and

"The size of the Persian Gulf rig fleet remained fairly constant from 2001 through early 2004, as well. But, in mid-2004 new rigs began to move into the area and augment the size of the fleet. In the last 2 years, the number of jackups has increased from 58 to 68 rigs, a 17% increase. Of those new rigs moving into the area, only one new-build jackup, National Drilling's 150' ILC the Al Hail, joined the fleet. The other rigs moving into the area came mainly from the US Gulf of Mexico and West Africa."

Again nothing in Peak Oil says that the oil will run out. The fact that most new discoveries are in deep water and harder to reach places is exactly in line with peak oil.

Now for Kashagan:

"By early 2003, Agip KCO’s rough estimates of 7 to 9 billion barrel reserves for Kashagan were an accepted figure throughout the world petroleum industry, although some industry observers did offer that the field might eventually yield up to 13 billion barrels. On the other hand, some projections have been even lower. In April 2002, Gian Maria Gros-Pietro, then chairman of Italy’s ENI, speaking at the Eurasian Economic Summit in Almaty, Kazakhstan stated that the entire Caspian contained only 7.8 billion barrels out of which Kazakhstan held only 5.4 billion.(16)"

Which takes it right out of the supergiant class. It is also in an area that is extremely difficult to operate in.

 
At Wednesday, May 10, 2006 at 3:14:00 PM PDT, Blogger macles said...

dc

We (petroleum geologists) can shoot and process the best 3d seismic in the world.

We can interpret the data and run the best basin models in the world.

We can have the best geochemical models for source rock maturation you wish.

But, if the area of the world we are exploring didn't "jive" with the right sea-level stand, flora, fauna, ocean temperature, sedimentation rate, tectonics, heat flow ... shall I go on?... we will find "diddly squat".

Geology is for the large part the study of the results of the actions of the laws of physics on the evolution of the Earth's crust (and mantle if you like that kind of thing). Whether those laws of physics were operating in the Callovian, Turonian, or even Eocene sometime, they were more or less the same and were and are, in fact, immutable.

Economists will never discover oil. Geologists do that. And if geologists tell economists there is not much more oil to discover, and they know to well within a factor of 2 how much was already discovered, the economists either listen and shut up, or leave the room.

 
At Thursday, June 8, 2006 at 1:16:00 PM PDT, Blogger Mike Lorrey said...

JD-
Great site. I would posit that the increases in reserves are primarily due to technology increasing the percent of actual oil in the ground that is recoverable. 1970's reserve estimates were based on recovering a few percent of the actual oil in the ground. Newere slant drilling, bore reaming, multiple bore, and other technologies are increasing the recoverability percentage significantly.

Another factor impacting reserves is that easily recoverable fields are being replenished from below, as the abiotic oil crowd posits, though I don't really regard this oil as abiotic, since it is primarily created by tectonically subducted methane hydrates reacting in subduction zones and becoming oil, propane, natural gas, etc. By my calculations, several cubic kilometers of subducted methane hydrates are converted into oil and gas every year.

 
At Thursday, July 6, 2006 at 9:04:00 PM PDT, Blogger 5to12 said...

macles - just have to note that if you are or ever have been a working geologist, you could not so easily dismiss either the economic or the political, though I guess today with so many who are essentially corporate bureaucrats or consultants it may be easy to imagine away the above two factors.

Simple enough - the geology may be fixed but the rest never has been.

Peak oilers seem to have a particular problem with process, i.e. change.

 

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