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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2008 oil price, ~ $145 per barrel
December 16, 2011 oil price, $93.53 per barrel.
If that is “skyrocketing prices”, give me more …
Willis, the raw price isn’t important. What is is the ratio the average person has to pay for energy and energy related consumables like food.
The spike in 2008 was caused by demand greater that supply. Notice the price of oil ic steadily climbing back up from a major drop after 2008. Question is, what is the price going to be to trigger another recession? Below 140.
@Michael Irwin
The graph you posted presents the IEA’s official view of the world through rose colored glasses. You have to to learn how to read the IEA to understand how to get around the political message it needs to send.
First, everything but the Blue field are optimistic projections; the best case scenario. How often does that happen? Smart readers know projections never pan out as planned.
Developing existing reserves (purple zone) assumes ALL reserves will be developed as planned and that such reserves actually have the oil assumed. That never happens. A more realistic assumption is to cut it in half. Enhanced oil recoveries (green zone) assumes modern technology will have amazing success at squeezing every last drop of oil out of a well. Again, there will be some success but the realistic assumption is to cut it in half. The NCO (tan zone) is too small to matter, even if it’s 100% correct. The red zone is pure wishful thinking.
With that understanding, what should really stand out is the Blue field. It’s the only one based on hard production numbers and know decline rates not guessing (no matter how educated or politically motivated). That is the information we should be planning around because it’s the only one that is pretty close to realistic.
Here’s a quote form Fatih Birol, chief economist at the IEA: “We are on the brink of a new energy order. Over the next few decades, our reserves of oil will start to run out and it is imperative that governments in both producing and consuming nations prepare now for that time. We should not cling to crude down to the last drop – we should leave oil before it leaves us. That means new approaches must be found soon” The Independent March 2, 2008.
Coming from a conservative organization that’s a pretty telling quote.

Willis, the only part of that graph that shows any increase is the undeveloped. That’s just a guess..
Page 26:
Peak Oil
As the figure at right shows, petroleum must continue to satisfy most of the demand for energy
out to 2030. Assuming the most optimistic scenario for improved petroleum production through
enhanced recovery means, the development of non-conventional oils (such as oil shales or tar
sands) and new discoveries, petroleum production will be hard pressed to meet the expected future demand of 118 million barrels per day.
“That production bottleneck apart, the potential sources of future energy supplies nearly all present their own difficulties and vulnerabilities. None of these provide much reason for optimism.”
Page 30:
“A severe energy crunch is inevitable without a massive expansion of production and refining capacity. While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India. At best, it would lead to periods of harsh economic adjustment. To what extent conservation measures, investments in alternative energy production, and efforts to expand petroleum production from tar sands and shale would mitigate such a period of adjustment is difficult to predict. One should not forget that the Great Depression spawned a number of totalitarian regimes that sought economic prosperity for their nations by ruthless conquest.”
@Michael Irwin
From the J.O.E. Energy Section
“ENERGY
To meet even the conservative growth rates posited in the economics section, global energy production would need to rise by 1.3% per year. By the 2030s, demand is estimated to be nearly 50% greater than today. To meet that demand, even assuming more effective conservation measures, the world would need to add roughly the equivalent of Saudi Arabia’s current energy production every seven years”.
And,
“Peak Oil: Assuming the most optimistic scenario for improved petroleum production through enhanced recovery means, the development of non-conventional oils (such as oil shales or tar sands) and new discoveries, petroleum production will be hard pressed to meet the expected future demand of 118 million barrels per day”.
Note that the J.O.E. uses I.E.A. information including their usual rosy projections. Yet still, the military shows deep concern of energy supplies.
Where are we going to find a new Saudi Arabia every 7 years? They produce about 9.5 mbd. What if the projections are at best half right, we’ll need more fossil fuel than the military thinks.
Again, if a conservative organization is concerned about future energy, we all should be.

Stephen Harris says:
December 17, 2011 at 12:50 pm
Hey, I’m not the one who cited that graph. You’ll have to take it up with a) jrwakefield, or b) the us and german military. They posted it.
w.
jrwakefield says:
December 17, 2011 at 12:52 pm
jr, you are the one who cited that graph, not me. Peak oil is only mentioned once in the document. Even without any new discoveries there’s no “peak” in their graph.
Next time, read before citing. Your backing and filling is totally unconvincing.
w.
Willis, you posted it in support of your view because you misinterpreted it. Not us, nor the US military.
That is just one of many reports, such as
http://www.ukerc.ac.uk/support/tiki-index.php?page=Global+Oil+Depletion
Here is the German report: http://www.energybulletin.net/sites/default/files/Peak%20Oil_Study%20EN.pdf
Wiliis writes “Funny, I don’t recall any of your predicted bad outcomes occurring from that 15 years of diminished oil production …”
Short memory Willis.
http://en.wikipedia.org/wiki/Early_1980s_recession
Dont forget there will be no coming back from peak oil.
Willis writes “2008 oil price, ~ $145 per barrel December 16, 2011 oil price, $93.53 per barrel. If that is “skyrocketing prices”, give me more …”
Look carefully at your top graph where production dropped just a little recently.Compare that to the oil prices at the time and you will see that corresponds to a period where prices dropped. What kind of demand-supply condition creates that effect do you suppose? Normally reducing prices mean increasing usage dont they?
TTTT says,
“Dont forget there will be no coming back from peak oil.”
But the question remains: are we at or past peak oil? The facts show that we’re not nearly at peak oil yet.
http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=04212e22-c1b3-41f2-b0ba-0da5eaead952
then there is also the IEA and IEA which also publish the reserve #’s
RE: Willis Eschenbach: (December 17, 2011 at 11:29 am)
The graph that you have posted is similar to one of the charts that Dr. Chris Martenson presented in the ‘Peak Oil’ clip from his longer (71 min) presentation at the Gold & Silver Meeting in Madrid. The full presentation was entitled “Unfixable – welcome to the new abnormal” and it was presented under the auspices of the Gold Money Foundation. He first points out that the growth of Total US Credit Market Debt from 1970 was almost a perfect fit to an exponential curve until 2008 when that growth suddenly stopped. This halt appears to correlate to the oil shock of 2008 and peak ‘cheap and easy’ conventional oil on your curve.
It is his view that the coming twenty years are going to be a period of stalled or limited growth in contrast to the past twenty-year period we have known. It appears that he advises people how they should adjust their investment strategies in the light of this view, as traditional growth dependent investments may be a losing proposition.
Ref: http://www.youtube.com/watch?v=8WBiTnBwSWc
Smokey writes “But the question remains: are we at or past peak oil? The facts show that we’re not nearly at peak oil yet.”
Which facts? Your link doesn’t show anything about whether we’re at peak oil or not. I’ll simply point to the graphic Willis started with at the top of this page and direct you to look at global production (blue line) which hasn’t increased in the last 6 or so years.
Anyhoo, who cares if “peak oil” has occurred? With the proliferating discoveries of tcf of Frac Gas, who needs it? Certainly not electric power plants. Lotsa Frac Oil and liquids associated with the FG wells, too, IAC.
Cue the desperate attempts to pooh-pooh and prohibit FG exploration …
yeah. “who cares” if the peak is sooner or later…??? let’s just dig it up and burn it. let’s just pumpit and BURN IT… let’s burn the whole planet! yahoo!!! who cares about future generations?
Apparently there are somewhere between 7 to 75 billion kg. of Gold in the worlds oceans.
we’re rich! rich I tell you!
/sarc
TTTT, look at the link in my post above. There is ample energy available in fossil fuels within the CONUS. Just because flow rates are artificially restricted does not mean we are at peak oil.
Smokey writes “Just because flow rates are artificially restricted does jnot mean we are at peak oil.”
Artificially restricted? I’m not sure what link you’re referring to exactly but the one you did point out was regarding reserves and not production rate growth potential. If you truely believe in the free market then you’d believe production rates should be rising in line with strong asian growth over the last decade. We’re not seeing that.
What evidence or even considered reasoning do you specifically point to, to indicate the current 6 year flatlining of production is artificial?
RE: miko: (December 18, 2011 at 3:15 am)
“yeah. “who cares” if the peak is sooner or later…??? let’s just dig it up and burn it. let’s just pumpit and BURN IT… let’s burn the whole planet! yahoo!!! who cares about future generations?”
Over the next thousand years, there should be 40 generations. Do you propose to leave 97.5 percent of the oil in the ground for them; what about the next 40 generations after that?
I think our only responsibility to future generations is to leave them an undamaged world and a basis for living on it. That may include initial development of a new sustainable energy source. This is a case where you cannot eat your cake and let all your descendents eat it too. They have to bake their own.
TTTT says:
“What evidence or even considered reasoning do you specifically point to, to indicate the current 6 year flatlining of production is artificial?”
The artificial restrictions on supply are in red. That is a HUGE restriction. Open those red areas to drilling, and the supply of oil will skyrocket, causing prices to plummet. Econ 101.
Smokey;
and when it comes to Frak Gas and oil, the onshore red areas are sprouting up all over, including NY state, which could really use it. Pennsylvania is chortling all the way to the bank on that one.
P.S.;
similar story in the EU. A few countries like Poland are saying “fuggedaboudit”, tho’.
Amusing note: it seems Poland is likely to block imports of excess super-wobbly German renewables power supply. The random surges and dips are too damaging and expensive to deal with. The Deutsch are horrified at losing a convenient garbage-watts dumping ground, apparently. Heh!
Said descendents will do just fine, in fact. The current generation is, as do all generations, working hard to improve the quantity and quality of energy sources. Renewables-freaks excepted.
E.g.: if the project at LPPhysics.com succeeds, proof and engineering and initial implementation could be in place in under 5 years. In which case the high-quality cheap energy problem is solved until about when the sun goes Red Giant.
Price of Oil to Remain High as OPEC Limits World Production
http://oilprice.com/Energy/Oil-Prices/Price-of-Oil-to-Remain-High-as-OPEC-Limits-World-Production.html
There would seem to be several reasons for applying an overall cap to OPEC production:
1. OPEC needs/wants high oil prices. They certainly don’t want the price of oil to fall by very much, if they are to have enough funds to pay for all their social programs. So holding production down is in their best interests. An overall cap provides as direct a way as possible of keeping overall production down.
2. It is not clear that most OPEC members have any spare capacity. Saudi Arabia may, in fact, need to “rest” its wells after pushing production to its recent high of 9.94 million barrels a day in oil production. Writing the agreement as an overall cap gives Saudi Arabia “cover” for resting its wells, as needed.
3. This approach is at least theoretically easier to administer. One or two or three countries can make a change in production, if desired, to bring total oil production down to the desired level, if others raise their production.
4. This approach gives a framework for future agreements that can be helpful if Iraq’s oil production should actually increase by very much. Iraq’s production is in effect pulled back in under the agreement.
5. This approach provides great “cover” if one or more OPEC countries experiences a decline in oil production. There is no need for embarrassment if an individual country should experience declining production, since a country can simply blame the result on a need to keep overall production within the selected limit, and thus “save face”. A country with very high stated reserves might be especially embarrassed by an unexplained decline in production, since this might also suggest that the stated reserves were inaccurate.
Willis, peak oil is probably much closer than what you seem to believe.
“Proven reserves” is not the same as “predicted” reserves. Proven reserves include only the 90 % certain part. But there are also more uncertain, possible (50 % ) reserves. So the correct ratio should be R/(0.9 Proven+0.5Possible). The growth of Proven reserves has been technically obtained by the reclassification of possible reserves. However, even R/P has stopped to increase. Past the peak, both reserves AND production will decrease exponentially. So don’t expect R/P to decrease, we’ll always have 30 years of production ahead – but with a continuously decreasing production. IEA has already announced that conventional oil has peaked in 2006, and the perspectives after 2015 are glooming. That’s why most of fossil intensive scenarios are implausible – and the corresponding warming as well, even “if” climate models are right.
@ur momisugly gilles
which is precisely why r/p is useless
this was explained earlier in this thread
follow the money, not the theory. who is getting rich by manipulating the “free” market??? look at the facts, people!