Elsevier

Energy Policy

Volume 38, Issue 8, August 2010, Pages 4743-4749
Energy Policy

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The status of conventional world oil reserves—Hype or cause for concern?

https://doi.org/10.1016/j.enpol.2010.02.026Get rights and content

Abstract

The status of world oil reserves is a contentious issue, polarised between advocates of peak oil who believe production will soon decline, and major oil companies that say there is enough oil to last for decades.

In reality, much of the disagreement can be resolved through clear definition of the grade, type, and reporting framework used to estimate oil reserve volumes. While there is certainly vast amounts of fossil fuel resources left in the ground, the volume of oil that can be commercially exploited at prices the global economy has become accustomed to is limited and will soon decline. The result is that oil may soon shift from a demand-led market to a supply constrained market.

The capacity to meet the services provided by future liquid fuel demand is contingent upon the rapid and immediate diversification of the liquid fuel mix, the transition to alternative energy carriers where appropriate, and demand side measures such as behavioural change and adaptation. The successful transition to a poly-fuel economy will also be judged on the adequate mitigation of environmental and social costs.

Introduction

Fossil fuels have been at the centre of growth and trade since industrialisation re-organised economies for the purpose of manufacturing goods (O'Sullivan and Sheffrin, 2003). In many applications, energy dense crude oil-derived fuels displaced coal and have long since dominated as a transport fuel. In recent years, however, concerns have grown over the environmental consequences of burning large volumes of oil, and whether reserves have the capacity to service growing demand (Alekkett, 2007; Campbell and Laherrere, 1998; Laherrére, 2009a; Robelius, 2007; Sperling and Gordon, 2007; USGAO, 2007).

Here we review the status of conventional crude oil reserves. As crude oil is a finite non-renewable resource, by definition it cannot continue to meet ongoing demand. Of particular interest is the point at which oil production becomes limited by the capacity of extraction technology, causing supply and demand curves to diverge. To determine when this may occur requires access to a number of contentious and inherently uncertain data sets.

Although it is not the intention of this report to discuss motivations for reserve misreporting, it is necessary to investigate ambiguities and sources of error that are broadly acknowledged but not taken into account in public data1 due to the politically sensitive nature of reserve information.

It was found that the failure to report according to guidelines set out by the Society of Petroleum Engineers (SPE) and the World Petroleum Council (WPC) together with intentional false reporting, could go a long way to explaining the polarised views on the status of conventional oil reserves.

Evidence suggests that conventional oil production has a limited capacity to meet growing demand, and most additional demand will have to be met by unconventional sources (IEA, 2008). Unconventional resources are abundant and may meet supply deficits, although the capacity for substitution is also contingent upon the effective mitigation of environmental, social, and technical challenges associated with the production of unconventional resources (Bergerson and Keith, 2006; NEBC, 2006).

Section snippets

Literature survey

A literature review reveals that opinion is divided over the volume and grade of oil remaining in reserves. Data available in the public domain originates from surveys conducted by the OGJ and WO magazine, and the OPEC Secretariat (Haider, 2000; Laherrére, 2009a). In general, these sources give more optimistic estimates compared to independent parties that assess reporting methodology. They do not question surveyed reserve estimates, and probably regard such queries as being outside their

Sources of ambiguity

Ambiguity in public data mostly arises from: (1) a lack of binding international standards to report oil reserve volume and grade (Alekkett, 2007; Bentley et al., 2007; Laherrére, 2009a; Robelius, 2007; Society of Petroleum Engineers (SPE), 2007); (2) the point at which resources may be classified as commercially exploitable reserves (Hirsch, 2005); (3) intentional mis-reporting to further a financial or political agenda (Alekkett, 2007; IEA, 2008; Laherrére, 2009a, Laherrére, 2009b; Robelius,

Global oil reserves

Until now, the widening gulf between discoveries and production can be almost entirely attributed to reduced discovery rates as shown in Fig. 2. In the near future, however, this rift could be driven further apart by forecasted declines in production from the relatively few fields that support supply.

World oil reserves are unevenly distributed between 70,000 fields (IEA, 2008). In total 507 fields are classified as ‘giant’ and account for 60% of conventional oil production (Robelius, 2007). The

Oil price and future resources

Restricted crude oil production will obviously affect crude oil price. Fig. 5 shows a history of the nominal crude oil price and price adjusted to 2009 dollars. Oil prices reached record highs in both measures in 2008.

Prominent price fluctuations in Fig. 5 are labeled. Past surges have been abrupt and commonly reflect a single event; either supply shortages from conflict or deliberate restrictions on production to inflate prices. The most recent price escalation that began in 2002, however, has

Key conclusions

This paper supports the contention held by many independent institutions that conventional oil production may soon go into decline (Alekkett, 2007; Campbell and Laherrere, 1998; IEA, 2008; Laherrére, 2009a; Robelius, 2007; Sperling and Gordon, 2007; USGAO, 2007) and it is likely that the ‘era of plentiful, low cost petroleum is coming to an end’ (Hirsch, 2005). Significant supply challenges in the near future are compounded against a backdrop of rising demand and strengthening environmental

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