Declining Oil Reserves

Declining Oil Reserves:
Some Key Concepts and Possible Consequences

The Hubbert Curve

The peak in production of any nonrenewable resource is a very critical point.  At that point, demand remains the same, but supply drops off.  The first result is rapidly increasing prices.  Secondary results include substitution and conservation.  Historically, peaks in production of mineral resources have been very close to their halfway points in production.  Graphs describing this phenomenon are known as Hubbert Curves after their inventor, Dr M King Hubbert.

Figure 1. The Global Hubbert Peak Forecast of Future Global Oil Output ( Campbell 1996)

 

In the case of oil, once we're past the peak or halfway point, other sources of energy will become more economical.  This will include renewable sources such as solar, wind, water and biomass (including wood), but it could also include nuclear and coal.  Conservation efforts will be directed towards insulating buildings and retrofitting them for passive solar heat, plus development of more fuel-efficient cars and other means of transportation.  Manufacturing processes will also become more energy efficient.

Reserves and Resources

Looking at the bottom row in the table below, it appears that we have some time before we reach the critical halfway point for oil production.  We've used up over  900 Gb globally, but we still have 1500 Gb remaining.  Unfortunately, according to the world-renowned oil geologist Dr Colin Campbell, these totals are deceptive.  They're deceptive because the major oil-exporting nations have major incentives for exaggerating their estimates of reserves: the more reserves they can claim, the more oil they can pump.

Table 1. Leading Oil Countries' Production, Reserves and Resources in 1995
(In Billions of Barrels = Gb)
 

Country

Cumulative
Production

Reserves

Undiscovered
Resources

Reserves &
Resources

         

Saudi Arabia

71.5

261.2

41.0

302.2

Russia

92.6

100.0

68.0

168.0

Iraq

22.8

100.0

45.0

145.0

Iran

42.9

93.0

22.0

115.0

UA Emirates

15.1

98.2

7.0

105.2

Kuwait

27.6

97.5

3.0

100.5

Venezuela

47.3

83.3

17.0

100.3

United States

165.8

50.7

49.0

99.7

Mexico

20.5

50.4

37.0

87.4

China

18.8

24.0

48.0

72.0

Kazakhstan

3.2

17.3

26.0

43.3

Canada

16.1

5.1

33.0

38.1

Libya

19.0

22.8

8.0

30.8

Nigeria

15.5

17.9

9.0

26.9

Norway

6.3

11.3

13.0

24.3

Indonesia

15.2

5.8

10.0

15.8

United Kingdom

12.3

4.6

11.0

15.6

Algeria

9.1

9.2

2.0

11.2

Totals

621.6

1052.3

449.0

1501.3

Data source: Encyclopedia Britannica, which adapted them from Oil & Gas Journal and US Geological Survey data. The data for these 18 countries represent 94% of the world's oil reserves and 82% of its undiscovered resources.

Note: Dr Colin Campbell calculates that over 300 Gb of reserve claims are spurious (Saudi Arabia, Iraq, Iran, UA Emirates, Kuwait, Venezuela). He also states that much of the undiscovered resources are in fact "unconventional oil" (tar sands, oil shales and other currently unrecoverable resources) and will be much more expensive to extract than "conventional" reserves, and therefore should not be considered as equivalent to reserves.


Campbell calls these overstated reserves
"paper reserves" or "political reserves."  He estimates that fully 30% of stated global oil reserves are in fact of the paper/political variety.  Furthermore, he claims that a large percentage of "undiscovered resources" should not even be considered resources because they are not economically recoverable now, and never will be.

After subtracting for "political reserves" and "unrecoverable resources," Campbell comes up with about 900 Gb remaining.  But of course these 900 Gb are not the same as the 900 Gb that we've already burned.   In geologist's terminology, a good part of them are much "tighter and deeper," that is, they are much harder to find and much harder to extract and refine.

Energy Profit Ratio

For many oil fields, the total energy used in finding, extracting, refining and transporting the oil will approach the energy in the oil itself.  At that point, the energy profit ratio approaches 1:1 and it becomes more economical to just leave that oil in the ground, and to look for other energy resources elsewhere.     

The peak in global oil discoveries occurred back in the 1960s.  Since then, geologists have discovered progressively less oil annually, and at progressively greater cost.  In fact, annual oil discoveries are currently only about a quarter of annual oil consumption .  Obviously, this is not a trend that can continue for very long. 

After the Peak

Recent price increases may indicate that we are very close to the peak.  With oil currently at $25 per barrel, the price is 20-30% above the price that economists have set as the optimum for maintaining the supremacy of oil as an energy source.  Therefore oil prices are already at a point where alternative energy sources and conservation are very competitive. 

If oil prices continue to rise to $30 or even $40 per barrel, we could see massive shifts to alternative energy sources and conservation.  But we could also see massive inflation and dislocations in national and global economies.  People who drive a lot and who have poorly insulated homes will feel the crunch.  Whole industrial sectors will undergo major transformations.

On the upside, we'll see much less air pollution.  Reduced carbon emissions will reduce the effects of climate change over time as the excess carbon already in the atmosphere gets absorbed by forests and oceans.  There will be a boom in the new sectors of the economy associated with alternative energy sources and conservation.  

Land use patterns will change.  There will be greater pressure on our forests as sources of energy.  Increased energy costs in paper manufacturing will make paper recycling more economical.  Some pulp plantations will be converted to energy plantations.  Some marginal agricultural lands and high-graded forests will be converted to energy plantations.  Energy efficient tree crop systems for food production will be be developed and expanded.

Global Competition

We may see more wars over control of oil and control of access to oil.  The 1991 Gulf War and the 1999 Yugoslavia War may come to be seen as preludes to a century of 21st century oil wars.  We could see war with Russia over control of its vast oil reserves, which are second only to those of Saudi Arabia (Table 1).  We could also see war with China over access to Russian oil reserves. 

We will probably see NATO occupation of Iraq and Iran to better control their large oil reserves (Table 1).  If they don't submit to the demands of the major consuming nations, ie, those of North America,  Western Europe and East Asia, these oil reserve nations and others on the list will be effectively "globalized."  This process has already occurred in Iraq and Yugoslavia, and it's about to occur in Columbia.