Guest Post by Willis Eschenbach
In oil, as in other extractive industries, you have what is called the “R/P ratio”. In the R/P ratio, “R” is reserves of whatever it is you are extracting, and “P” is the production rate, the rate at which you are extracting and using up your reserves.
Figure 1. World annual oil production in billions of barrels (blue line), and years left at that production rate (R/P ratio, red line). Right scale shows the proven oil reserves for each year, in billions of barrels (dotted green line). DATA SOURCE: BP Statistical Review of World Energy 2011, a most fascinating Excel spreadsheet. PHOTO Spindletop Hill Gusher, 1901
When you divide the amount you have in reserves by the rate at which you are extracting the resource, you get the number of years the reserves will last at that rate of extraction. Accordingly, I include the R/P ratio in Figure 1 as “Years Left”
A couple of things to point out. First, the “Years Left”, the R/P ratio, is currently more than forty years … and has been for about a quarter century. Thirty years ago, we only had 30 years of proven oil reserves left. Estimates then said we would be running out of oil about now.
Twenty-five years ago, we had about forty years left. Ten years ago we had over forty years left. Now we have over forty-five years left. I’m sure you see the pattern here.
Second, this is only what are termed “proven reserves” (Wiki). It does not include “unproven reserves”, much of which is in the form of unconventional oils such as shale oil and oil sands. Even discounting the unproven reserves, while the rate of production has increased, the proven reserves have also increased at about the same rate. So the R/P ratio, the years left at the current rate of production, has stayed over forty years for almost a quarter century..
Now, at some point this party has to slow down, nothing goes on forever … but the data shows we certainly don’t need to hurry to replace oil with solar energy or rainbow energy or wind energy in the next few decades. We have plenty of time for the market to indicate the replacement.
Don’t get me wrong. I’d love to find a better energy source than oil. In fact, the huge new sources of shale gas will substitute in many areas for things like heating oil, and will burn cleaner in the bargain. And I do think we’ll find new sources of energy, humans are endlessly inventive.
I’m just registering my protest against the meme of “OMG we’re running out of oil we must change energy sources right now tomorrow!!”. It is simply not true. We have plenty of time. We have decades. We don’t have to blow billions of dollars of our money subsidizing solar and wind and biofuels. The world has enough oil to last for a long while, plenty long enough for the market to determine whatever the next energy source might be.
w.
NOTE: Oil figures, particularly reserves, are estimates. Oil companies are notoriously close-mouthed about their finds and the extent of their holdings. The advantage of the BP figures is that they are a single coherent time series. Other data gives somewhat different results. As far as I know the increase in proven reserves despite increasing production is common to all estimates.
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Where on earth is the good ole Peak Oil??
Yes, someday the oil will run out. Someday, not tomorrow or the day after or even in the next twenty years. Peak Oil is just another version Chicken Little doom mongering. Good post.
Worth a watch. Peak oil on Australia’s ABC
http://www.abc.net.au/catalyst/stories/3201781.htm
The graphs here, if they pan out as described, bode ill for NZ
http://oilshockhorrorprobe.blogspot.com/2011/10/when-might-new-zealands-oil-imports-dry.html#more
“we certainly don’t need to hurry to replace oil with solar energy or rainbow energy or wind energy in the next few decades.”
mmmmmmmmmmmm… raaainbow energy.
The present arguments are tempered by urgency, if “tempered” is indeed a correct term. If we have the time, we should take it, and be very deliberate about finding a solution. But humans being the way they are, there will be some barbaric goings-on as oil dwindles, as those who resisted change cling to the remaining supplies. Ugly-sounding, but look at it. We already have the tip of the iceberg with the implications from Durban. Instead of taking steps to change at a deliberate rate and adapt to any changes (regardless of cause), instead the impetus is to cripple the world’s economy through the urging of unelected groups. That’ll teach ’em! Alarmism has become the engine of change, except that the choice of action is equally emotional….read useless.
Maybe this sounds callous, but I’m glad I’m getting older, because I won’t get to see what happens a few decades from now. Meanwhile, I’ll keep working on flattening the R/P curve, while some very smart people try and find an alternative that doesn’t destroy us all.
Willis, Thanks for this industry level summary. Please note that the numerator (Reserves) is a consequence of exploration investment decisions, and does not tell us much at all about reserves in a geological sense. Holding reserves beyond 30-40 years makes as much sense as an automotive company keeping a 30-40 year stock of engines in a warehouse. DaveS
Just ask it.
https://sites.google.com/site/myteurastaja/no-trespassing/uxix-timestamp-txt
I understand that the privately owned oil companies do not report all of their proved resources for tax reasons. I also understand that the nationally owned oil companies do the same for political reasons.
It is obvious that oil will be with us for many a long year to come.
Willis, I enjoy your stuff. Neat, clear and simple.
tokyoboy says:
Where on earth is the good ole Peak Oil??
if you look at the red line, you can see it has peaked in 2009. 😉
By jingo! Just how did this poor little planet support all those critters in the distant past to leave us this wonderfull world wide fossil legacy? /sarc
We’ll never run out of oil.
At some point in the distant future, it will become just too expensive a commodity to waste by burning it (gasoline in automobiles or heating oil for home heating). At which point, from out of left field will appear some upstart energy company that’ll solve the problem for the car companies and knock the socks off the oil companies.
Of course, if the “we know what’s best for you” politicians get into the act, we’re doomed.
Good article.
2 points of comment.
Modern technology will always find more reserves than old technology.
Oil is not a “fossil” fuel. It is being “created” continually by reactions in the Earths’ interior.
Posts on this site have mentioned this a few times. Apparently the Russians are investigating this seriously.
There are no fossils associated with Oil.Oil comes from the bottom to the up. Old oil fields are reported as filling up after many years of being abandoned
Worth following up.
As a layman with no particular expertise in oil production, nor in how they actually work out what the proven reserves are, but I do know that for decades there have been alarmist predictions of things running out and humanity facing catastrophe because of it. From the predictions of food running out when the world’s population exceeded 5 billion, to this, they have all been wrong. We are beginning to see the same false alarmism being proven wrong in regards to climate change.
Willis,
I would like to point out there are 6000 products made from oil as a base product. Second, with new technics combined with new technology being utilized in the oil sands even as I write our reserves are stretching out further and further every ten years it seems. Once we thought we could not get to the deep oil sands – and of course at that time we were surface mining. Since then much has changed. Of course you are also correct when not mentioning the US and Canadian Arctic reserves nor the offshore reserves off both the US and Canadian west at least. However in the Arctic we have no real idea where all the oil and gas is or in what quantities, however, we do know oil and gas is there and have some idea where it is in a few places. Nor that of Russia and other world offshore oil in multiple locations. And you are more than dead on when you mention oil reserves have been stretching out when compared with past estimates – once again due to new technics and new technology.
BUT for the most part we (as an oil company) never, EVER say outright exactly what our reserves are at any given time (trade secrets). Should the US ever get its shale and offshore on the go then North America will be sitting very nicely for 200+ years or more.
BTW, try living up here in Canada with windmills and solar – or leftists magic gerbil wheels all the way up into the Arctic with six months of darkness. I’ll tell you this much – you’re gonna need a whole lot more clothes than the eco-leftists had in Durban.
Oil is a diminishing resource – 40 years is little time to wean ourselves off oil, and find alternatives. This is a bigger longer term problem than climate change, but agree that the best answer is to let the market find solutions, not have governments trying to pick winners through crazy subsidies. Coal on the other hand I believe has several hundred years of reserves provided we are allowed by the UN to burn it. Or as in Australia under Gillard required to live within a “clean energy future” – rationing anyone?
Richard111 says:
December 14, 2011 at 12:31 am
By jingo! Just how did this poor little planet support all those critters in the distant past to leave us this wonderfull world wide fossil legacy? /sarc
Rhyming slang there by any chance?
Are you supporting abiotic oil then?
Forgive me for sounding a melancholy note.
Forty years is not a long time.
What alternatives at the necessary scale are even feasible for future heavy road transport and fast air travel?
Willis, I wouldn’t put much faith in “proven reserve” numbers. OPEC sets production quotas partially on reserves. And — surprise — reserve figures for OPEC countries continually increase. Other countries probably have reasons for mis-stating their reserves (Some may be understated).
A question one might ask themselves. If there is all that oil in the world, why are oil prices so high? Market manipulation is certainly one possibility. But I wouldn’t rule out the possibility that the world is producing about as much oil as it can and the reserve numbers are largely fiction. My guess is someplace in between.
On the bright side, Natural Gas Liquids — oil that turns up in natural gas wells (sort of) — seem generally not to be counted in oil reserves and sometimes not in oil production. In the US, a significant percentage of our “domestic oil production” is NGLs, and the number will probably increase.
Note also, that the years left probably doesn’t tell us a lot. It is pretty clear that the 85% of the world that does not live in OECD countries is going to suck up oil on a grand scale in future years — if it can be produced, and if they can afford it.
Willis:
Thanks for your graph. It provides a clear, pictorial presaentation of the facts.
The simple truth I always state (and have made on WUWT) to refute the ‘peak oil’ scare is as follows.
Oil reserves were about 40 years throughout the twentieth century and will be about 40 years throughout the twentyfirst century. This is because oil companies have a planning horizon of about 40 years. So, the oil companies pay people to look for more souces when oil reserves fall below 40 years, And they don’t pay people to look for more sources when they have 40 years supply because they don’t pay people to look for what they don’t need.
Richard
Willis,
Thanks for that antidote to the Peak Oil shills. A few additional points to addd, which you nod to with you reference to this being “proven” reserves only. We need to be cogniscant of the following:
– Additional finds that will occur at current prices
– Additional additional finds that would occur if prices increased (i.e. supply did become more of a problem)
– Additional extraction and recovery that will occur over time with technological progress
– Additional extraction and recovery that would occur if prices increased
– The fungibility of fossil fuels (you gotta luv ’em), which means that, for example, that fracking gas makes these numbers even bigger in real terms (i.e. the MASSIVE amounts of gas new technology is bringing NOW can substitute for oil in many areas)
@Ken Hall December 14, 2011 at 12:50 am
Very true.
And climate alarmism has the advantage of putting the blame on a very conveniently measurable, taxable and tradable scapegoat, CO2.
This doesn’t show demand and if the amount produced will meet demand or how that will affect prices. Also the reserves here are economically viable reserves. I.e. as price goes up reserves go up as it become viable to exploits fields that we know about. New discoveries is actually less than production and not shown on this graph.
The estimates for remaining oil are massive non-conventional reserves are estimated at some 10 times more than the conventional oil produced so far. If you’ll be able to afford it and if they produce it fast enough is another matter entirely
wow. There is a correlation between projected oil reserves and projected climate change. The deadline is always 40 years away from any moment, past or present. Difference is, we shall have to do something about oil, and what happens when it gets rare.
But what about the precautionary principle? Shouldn’t we be developing the world’s first lunar collector? Of course we should! Solar power doesn’t work at night, but we could protect the world against falling energy reserves by employing lunar green cheese energy collectors at night. Here at the State Pen Energy Research Institute’s Travestron Project, we’ve had unprecedented success* in producing a robust collimated beam of lunar energy on our rooftop at night, using VW hubcaps as parabolic reflectors. A grant of a few billion more dollars is needed to reduce this to commercial practice. Send us your green! [PayPal only; no checks, money orders, euros, or Zimbabwean currency.]
* Except for an incident when Michael, one of our most dedicated researchers, walked into the beam and was afflicted with lunacy, wandered off, and hasn’t been seen since.
Thanks for the post, Willis. I appreciate the effort that must go in to discovering all the data behind your posts.
There’s one other factor (that I know of) that controls Years Left, and that’s the technology used on the consumption side. It gets more efficient and Years Left increases. e.g. when fuel injection replaced carburetors in motor cars and mpg figures increased significantly. I don’t think that technology has stalled.