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.
Don K said:
December 14, 2011 at 1:01 am
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.
One of the interesting comments by Ron Paul is about the price of gas.
Back in the early ’60s you could buy a gallon of gas (neglecting taxes) for one thin silver dime.
Today you can still buy the gallon (neglecting taxes) for that same dime. (a silver dime not the Johnson dimes we now use)
The problem is not that prices have risen, rather it is that the government has been robbing us by means of inflation. A 1916 nickel had more purchasing power than todays dollar. The Fed has been busy printing dollars.
Part of the reason OPEC was formed was to get oil prices back in parity with what the were before the rapid devaluations associated with the costs of the VietNam War.
PaulC says:
December 14, 2011 at 12:41 am
[snip . . you need to be a bit more specific or you may be considered a troll. . kbmod]
A little bit of history.
When the UK government decided to permit onshore exploration for oil, Canadian oil explorers looked at the published geological maps of Britain, then applied for and were awarded licences over the Silurian rocks of southern Wales.
Why? Because they were used to finding oil in the Silurian rocks of Canada.
Compositional variability of crude oils and source kerogen in the Silurian carbonate–evaporite sequences of the eastern Michigan Basin, Ontario, Canada.
http://bcpg.geoscienceworld.org/content/48/4/307.abstract#fn-1
Worldwide, the chance of finding oil does not stop at the Carboniferous.
A good article.
I have not read all the comments so apologise for any repetition of points made. My views are:
1. As you say, oil will not be running out any time soon. It is almost certainly the case that in 30 years time we will still have 40 years worth of proven reserves.
2. Proven oil reserves are under-declared for many reasons both political and financial. Therefore the 40 years worth of proven reserves is an under-estimation.
3. Estimates of unproven reserves are substantial and based upon past experience, we shall be finding new sources of reserves for the next 50 or so years. Indeed, the arctic openning up may yield much in the way of new reserves.
3. It is largely a question of economies of extraction. However, Oil will be a viable resource even at 200 or 300 dollars a barrel. Don’t forget that the price you pay at the pumps is mainly tax. If the tax was reduced (and it is levied purely for political reasons and could easily be reduced) a high barrel price would not limit consumer demand.
4. As the price goes up, the viability of extraction from more difficult fields goes up thereby increasing viable reserves, But also in this scenario, it becomes viable to extract oil from coal and coal reserves are far more substantial.
5. At some stage, but this is long in the future, the use of Oil will have to be directed to manufacturing plastics and the like.
By the time oil reserves become a problem, other energy sources will be available and those will not be wind and almost certainly not solar. We should just press on with business as usual. Technology in the end will solve any problem that we might experience some 50 or 100 years in the future.
The new process of “fracking” has just doubled all the numbers (particularly for natural gas) and extended the depths that fossil fuels can be recovered from. Everyone is now trying out this technique everywhere and it is making a big difference.
Contrary to a comment above, fracking has opened up the deep oil and gas shales which can come from before the Ordovician period. The Bakken oil shale in North Dakota, Montana and Saskatchewan is now putting up huge production numbers (and it is from the late Devonian 360 Mya).
This is important because over the last 480 Mya, all the continents will have witnessed warm wet, shallow ocean, periods where oil and gas could have formed and been buried. It is unknown how many more deep fossil fuel fields will be found.
Look at North America’s gas shale deposits (which should be accessible now).
http://www.estatevaults.com/bol/_oil_shale_basins.jpg
Willis, you are way way off base. Your graph does not take into consideration that the production rate has a long tail, mostly trending flat right now, and the issue is “what price will a bbl be as Chinese demand squeezes supply into negative numbers each summer and fall as northern hemisphere demand peaks”
I think strategic petroleum reeserve releases will be the norm to try and keep a lid on prices.
Otherwise, I look to $125 a bbl for sure, maybe $150 a bbl within 2 years.
Yes we will have oil, but some people will not be able to afford it.
The future of the USA is Detroit, ie urban slums, unless the current President is replaced by a President willing to move the USA to natural gas transportstion.
Otherwise, the $150 oil will strangle the economy.
Your chart does not show that.
You might be interested to know……….
Twenty years ago, as the first of the original 5 Environmental Auditors, Contaminated Land, appointed in Victoria Australia with state signatory power over site investigations and cleanups, I performed the first such audit for a site where the Japanese government had conducted research at a pilot plant known as BCLV (Brown Coal Liquefaction of Victoria). Brown coal being somewhere on the spectrum between peat and lignite, of which vast reserves exist within Victoria and Siberia, to name just two locales. It was here that the Japanese, as a result of the oil shock of 1974, conducted one research project as a part of their Sunshine Program, directed towards assuring a stable supply of hydrocarbon fuels other than OPEC. The pilot plant was built for a 50 ton/day throughput. At the eventual 5,000 t/d output of a full design the Japanese estimated that in Victoria alone there would be a 500 year supply for Japanese and Australian needs.
Food for thought……….
We will never run out of oil it’s abiogenic and formed at the earths mantel and is being constantly produced. What we have been extracting is what you might call the “low hanging fruit”, deposits that for geological reasons have been easy access. These we are depleting with over extraction, like over use of an aquifers, there’s only so many gallons before demand is higher the supply. But technically we will never run out.
With today’s deep sea drilling we are just scratching the surface and with future technologies we will be able to get at that source better. I’m sure that won’t be running low on oil for hundreds of year, depleting our low hanging fruit yes, running out no.
That said, drilling that deep does come with real environmental risks and we should be working on other alternative energy sources(beside the reason of commodity and political interference), like making nuclear safer and cheaper. There’s also room for solar technology and can be a great alternative when applied in the right circumstances, but for large application the technology is not there yet. Even using nuclear or solar or any source(besides hybrid) for electric powered personal transportation is still pretty unpractable and way to expensive for most to use, someday maybe.
There’s also a thousand other uses for oil beside burning it in your car or heating your home, and most have made our lives easier, healthier and saved our environment from burning up every thing for fuel, so I see no reason to stop using it now!
Sorry about the abiogenic rant, I know some ardently disagree with it, but hey! 🙂
What’s not widely known is “proven reserves” estimates depend also on… regulations which can make known reserves inexploitable!
In nearly all countries, you own the land, the State owns what is beneath. If more countries had the same properties rights as the USA where landowners also own the underground, there would be much more drilling and proven reserves would be much higher.
Since this legalistic scarcity source is there to stay, it’s a certainty the age of oil will end well before the end underground oil.
[snip. No religious rants, please. ~dbs, mod.]
DG;
News flash: production matches consumption. When more is wanted, more will be produced.
As a result of frac gas and oil, the long term trend for prices is down.
Deal.
Don’t forget that
STONE AGE DID NOT END BECAUSE WE RAN OUT OF STONES
I remember well as a child in the mid-1960’s reading an encyclopedia printed in 1928 that boldly stated that the world would run out of oil within 20 years or so. This was stated as if it was an indisputable fact. I remembered thinking at the time that the forecast had clearly been grievously incorrect. Nearly 50 years later such predictions continue to be made and so-called intelligent people profess their belief in such predictions and their belief in the need for government to “solve” the impending “disaster”. And Malthus and his devoted followers have been predicting the imminent demise of homo sapiens since the 18th century due to overpopulation. In each case we are always told that “this time is different”, that the end is neigh. To the contrary, the end is not neigh.
AndyG55 says:
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. 😉
Wow! I see 4 peaks, must be the macular degineration.
Interesting article. It is true that proven reserves always seem to be about 40 years into the future. However, Although I reject the peak oil argument, I still have a nagging doubt.
Oil prices seem to be going up, and I suppose it would be useful to see a graph of oil prices over the same period in inflation adjusted dollars. Worryingly, even though the world is in an economic slump. oil prices are stuck around $100. This is very high. I suspect that oil prices will become a major factor limiting global glowth in the future. If oil shoots up to $150 as soon as there is any sign that the world is moving into economic growth, that could well choke off the same growth. Very worrying.
David Gould says:
December 14, 2011 at 2:45 am
Willis,
Peak oil has never been about peak oil reserves. It has been about peak oil [i]production[/i]. And your graph shows production flatlining since around 2004, which is an indication that peak oil might be upon us.
_________________________________
The entire fossil fuels market is heavily manipulated in order to keep prices inflated. With the western world in dire financial straits and demand curtailed, is it any wonder that production numbers are down?
________________________________
PaulC says:
…Old oil fields are reported as filling up after many years of being abandoned.
________________________________
Old oil fields went to water flood and other techniques as overall production declined. As many have discovered, easing off on the water flood combined with modern extraction methods allows the oil (which was already there), to flow back into the production zone from which it was forced with the water flood.
The Saudis have been engaged in water flooding for some time now.
On another note, the Germans powered their WWII schemes with synthetic fuels made from coal. Is anyone bemoaning a shortage of coal?
Let’s not forget the impact of improvements in recovery. The “reserves” are based on what is technically recoverable. I believe we are at +/- 30% today. That means that over twice as much oil as has ever been produced is still where it was found. We know it is there, we just have to get it out. Naturally a lot of effort is going into improving recoveries…the impact of getting just another 5 or 10% will be huge.
As has been said, the eventual decline will be slow; it is not like the end of a drink. That will encourage the switch to alternatives, both for fuel and feedstock: gas, gas liquids, gas/liquids from coal, etc..
The abiotic oil theory is quite intriguing. My memory is that it came out in the 1940’s from someone in or tied to the oil industry, and it has largely been scoffed at and research has not been institutionally pursued.
What would widespread knowledge that oil is replenished, even if at a very small rate do to oil companies ability to get the hghest price.
What would it do to the piece of the propaganda campaign of the CAGW scaremongers where they say; “But we we’re running out of oil anyway, so we’ve got to tap the rainbow.”
[snip . . . OT]
Paul C, Lucy, etc.
A few years ago when I worked for Weatherford we would do some work for a Chevron (I think it was Chevron) well located in Lysite, WY. At the time the well was over 25,000 ft deep. They are still drilling.
A couple of links on Abiogenic Hydrocarbon Production
http://www.sciencemag.org/content/319/5863/604.short
https://www.llnl.gov/news/newsreleases/2011/Apr/NR-11-04-04.html
Willis
Beware the pretty R/P line fed to investors. Take a closer look at World Oil Production.
Growth: Oil production rose about 43% in the 20 years between 1985 and 2005 from 21 to 30 billion bbl/year while population grew 33% from 4.85 to 6.45 billion.
BUT
Plateau: There has been NO GROWTH in the 6 years from 2005 to 2011 (within a 6% band), while global population grew 8.5% to 7.0 billion.
Skyrocketing prices:
Since 1998, spot prices rose about 10X from $9.8/bbl to $98/bbl (besides spiking to $147/bbl).
This precipitated the housing crisis, the 2008 economic crisis,and the 2010 EU crisis. In Historical Oil Shocks” 2011, James Hamilton shows:
Prices DON’T t rise from an abundance of supply!
Prices are very INELASTIC: OPEC’s 5% cut in supply caused oil prices to increase 400%.
Backdating reserves: When reserves are backdated to original discovery, consumption has exceeded discovery every year since 1980 and that gap is growing.
The Reserve/Production is deceptive because of SEC reporting rules etc. When a field is first discovered, after a few wells geologists can make a good guess at the total field size. However, they only count as “reserves” the resource immediately around each well actually drilled. Thus the appearance of steadily growing “Reserves” as more wells are drilled into that same oil field discovery.
Jean Laherrere formerly with TOTAL provides the most prolific detailed graphs.
Declining Reserves/Production: Look at the bigger picture. Laherrere (2007) Fig 8 shows global Reserves/Production DECLINED 75% from about 120 during 1910-1950 down to 30 by 2010.
See Laherrere’s critique of the National Petroleum Council Draft.
Supply/Demand Models
See Steve Mohr’s Geologic Resources Supply – Demand Model (GeRS-DeMo). He provides his Excel GeRS-DeMo model free for anyone to explore the actual production depletion trends.
Declining “Available Net Exports.”
If we are swimming in oil, why did the Available Net Exports (after China & India) peak in 2005 and decline 13% since then? <a src=”http://i1095.photobucket.com/albums/i475/westexas/Slide08.jpg” alt=”Available Net Exports”
See westexas at TheOilDrum.com http://i1095.photobucket.com/albums/i475/westexas/Slide08.jpg
Current Available Net Exports are already 15 million bbl/day (5.5 billion bbl/year) BELOW Yergin’s 2005 projection. At this rate, the US and other oil importing nations will have NO oil exports available in 20 years after China & India import their rising demand.
Oil importing nations urgently need to reduce transport fuel demand and increase alternative fuels.
Thanks again Willis for yet another great article.
I think our reserves can be stretched even further if all of the (government-funded) climate alarmists and green activists would STOP being hypocrites and CEASE USING ANY FOSSIL FUEL ENERGY OR PETROLEUM PRODUCTS. TODAY! RIGHT NOW! That means YOU Mr. and Ms. Troll (and you know who you are). Thank you for your cooperation in this matter.
David Gould says:
December 14, 2011 at 2:45 am
Willis,
Peak oil has never been about peak oil reserves. It has been about peak oil [i]production[/i]. And your graph shows production flatlining since around 2004, which is an indication that peak oil might be upon us.
Production flatlined from 88-95 as well, but it wasn’t “peak oil.” Increase in cost could have reduced demand, causing oil companies to reduce supply. But that’s just a guess.
One thing to watch out for – I believe it came up in the context of CG 2.0 – is the political strategy of sequestering coal, oil, and natural gas resources in “national preserves” of one type or another. The motivation seems to be that when a government is unable to meet its financial obligations to e.g. The Fed or the World Bank, those preserves will be confiscated by the creditor organization, which, just by “coincidence”, will have large energy reserves that can then be exploited for power and profit. I wonder if this might be the motivation for the sanctity (among lefties) of ANWR, or the surprise (as in no public input) creation of the Grand Staircase-Escalante National Monument by Clinton.