More Fun with Oil and Gas

Guest Post by Willis Eschenbach

Well, having had such a good time with M. King Hubbert meeting the EIA, I thought I’d toss out another puzzle. This one is inspired by a statement from the King himself that someone quoted in that thread, viz:

“A child born in the middle 30s,” Hubbert told reporters, “will have seen the consumption of 80 percent of all American oil and gas in his lifetime; a child born about 1970 will see most of the world’s [reserves] consumed.”

Since M. King Hubbert was concerned about how most of the world’s reserves were going to be consumed, I thought I’d see how much of the US reserves have been consumed over the last third of a century. It’s an interesting answer …

us proven reserves and cumulative productionFigure 1. A comparison of the annual estimates of the US proved oil reserves (red line), and the US cumulative oil production (blue line), for the period 1980-2012. Data from the 2013 BP Statistical Review of World Energy. “Proved reserves” in the dataset are defined as follows: “Proved reserves of oil – Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions.”

It appears that since 1980 we’re totally out of luck. First we completely used up every drop of the proved reserves.

Then we used them all up again. Then we used them all up for a third time … and the proved reserves are still about where they started. Go figure.

Since the King was also concerned about using up the US and global natural gas reserves, I thought I should look at that as well.

us proved gas reserves and cumulative productionFigure 2. A comparison of the annual estimates of the US proved gas reserves (red line), and the US cumulative gas production (green line), for the period 1980-2012. Data from the 2013 BP Statistical Review of World Energy.

Well, it’s about the same story. We started in 1980 with 6 trillion cubic metres of proved reserves of gas. Since then we produced almost 18 trillion cubic metres, about three times our original reserves. The main difference between the gas and oil is that the proved reserves of gas are about a third larger than they were in 1980 … go figure indeed.

I bring this up for a simple reason—to show that we don’t know enough to answer any questions about how much oil and gas we’ve used, or to determine if the King was correct in his claims. According to all the data, since 1980 we’ve used three times the proved reserves of oil and gas, and despite that, the proved reserves are the same size or larger than they were back in 1980. So how can we decide if Hubbert was right or not?

Now, please don’t bother patiently explaining to me all of the reasons for this curious phenomenon, because I’ve heard them all. I assure you, I understand the difficulties in estimating proved reserves, and the fact that the numbers come from the oil companies, and that technology improves, and that the companies tend to explore until they’ve got maybe twenty years in the bank, and the fact that the reserves numbers are sometimes radically revised, and that economics plays a huge part, and the rest … I know all the reasons for what I showed above.

I’m just pointing out that it is very, very hard to say what will happen to future reserves, or what their total extent is, or how much recoverable energy the world contains.

The underlying problem is that the proved reserves represent the amount of economically recoverable gas and oil … and that, of course, depends entirely on the current price and the current technology. In other words, the amount of “natural resources” in the world is not really a function of the natural world—it is a function of human ingenuity. For example, in the 1930s, the big concern was “peak magnesium”, because the proved reserves of magnesium were dropping fast. Or they were, until a clever chemist realized that you can extract magnesium from seawater … at which point the proved reserves of magnesium became for all purposes infinite.

Now, did the natural world change when the proved reserves of magnesium went from almost none to almost infinite? Like I said, the amount of natural resources depends on human ingenuity, and not much else.

Best regards to all,

w.

PS—Again, if you disagree with something that I or someone else said, please QUOTE THEIR EXACT WORDS and state your objection. That way we can all understand just what you are objecting to, and the nature of your objection.

Advertisements

  Subscribe  
newest oldest most voted
Notify of
albertalad

Bank on Willis – the oil sand in Alberta and fracking in the US are two examples of what you mentioned. One time neither was worth the time, effort, or cost to access – price and human technology change the course of history. Moreover, here in the oil sands we have hundreds of gas wells shut down because of low gas prices just in my area alone.

cnxtim

“Proven” does not include reserves hoarded in secret. Sleep easy GenX, you will be consuming cheap energy from “fossil” fuels until you and your grandchildren “drop off the twig”.

Yep, like Aluminum reserves in 1860 when Queen Victoria received an aluminum utensil set to put into the crown jewels…

HLx

I’m afraid the graphs do not tell the whole truth, since you do not represent the cumulative reserves – regular reserves are continually corrected for already extracted, and it also depend on year

Willis Eschenbach

denniswingo says:
January 12, 2014 at 11:50 pm

Yep, like Aluminum reserves in 1860 when Queen Victoria received an aluminum utensil set to put into the crown jewels…

Thanks, Dennis. When it was built in the 1880s, the peak of the Washington Monument was crowned with a pyramid of that most expensive, special, and precious material, aluminum.
At the time aluminum was $1 per ounce, and a skilled workman made $1 per 10-hour day. Today a skilled workman makes maybe $30 an hour, which would put the current dollar value of the aluminum at around $300 per ounce …
w.

Willis Eschenbach

HLx says:
January 12, 2014 at 11:59 pm

I’m afraid the graphs do not tell the whole truth, since you do not represent the cumulative reserves – regular reserves are continually corrected for already extracted, and it also depend on year

Thanks, HLx. I don’t understand what you mean by “cumulative reserves”, because there’s no such thing.
From the definition above, proved reserves are:

… those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions.

As such, a “proved reserve” is something that can be measured or estimated at any given instant, but yesterday’s reserves can’t be added to today’s reserves. They are an estimate of an asset given conditions at a specific time (technology, economics, costs) and they are not combinable with any other instantaneous estimates.
“Proved reserves” are like a balance sheet. A balance sheet is the snapshot of the assets at a given instant.
But if your balance sheet this Jan. 1 shows you have $100,000 in assets, and your balance sheet last Jan.1 also showed you had $100,000 in assets, you cannot add them together to give you “cumulative assets” of $200,000. Doesn’t work that way.
w.

Ronald

Look a Mann to me. Strange that you always look for an hockeystick if you see a upward trent.

Andyj

Telling the world there is nothing under the counter would keep the price high but it’s barely a secret to anyone who doesn’t bother with the msm.
The few oil rigs of cheap easy to get oil that literally gushed out of the ground are being replaced by more rigs that are drilling ever deeper for less these days. Gas rigs out to sea near me are like feasting mosquitoes. They feed and move on. Coupled with fracking they can also extract ever more that had to be previously left behind but at a greater energy cost. My bro’ in law is in the piping industry and his business load has been growing year on year since we helped set him up in the ’90’s.
A slight omission in the graph is a present day line for the cost of extraction in KWH/KWH.

AlanG

Ingenuity on its own is not enough. You need a combination of reserves which are unknown at the margin plus price to bid for the capital investment plus the ingenuity thing. Price also determines demand. We get much more GDP per barrel than in 1980. So ingenuity (and price) works on the demand side too. That said, the peak oilers will tell you that what matters is flows, or rate of production, and not reserves. Brick clay can contain 20% organic matter which can be cooked into oil if the price is right. Coal and shales can be turned into oil or gas. There is lots of buried hydrocarbons out there but its hard to do it at tens of millions of barrels a day.
If anything Life has got far too good at burying carbon. We are actually helping by counteracting that. OT but human agriculture may have helped stabilise the Holocene. The NH would be covered by dense forest by now instead of grasslands (which includes crops). Forests leading to cooler temperatures plus more evaporation leading to increased snowfall near the pole would bring on the next ice age.
Hubert wasn’t a bad scientist given the information he had available. His greatest weakness was in not understanding the price mechanism. The same applies to the peak oilers. Demand is not fixed.

Peter Melia

There’s something screwy going on here. I was born right slap-bang in the middle of the ’30s, so according to the King, I should have seen a depletion in US oil reserves from about 38 x 10^6 BBO to about 5 x 10^6 BBO. However that has not happened, the reserves seem to have scarcely budged.
I smell (as well as oil), a plot by Big Oil!
Something must be done!

Konrad

I would say the idea using “peak energy” as a stalking horse for global socialism is pretty much dead and repeated flogging is unlike to revive it. There’s too much natural gas and thorium to get that old nag up and trotting. There’s also a Chinese moon rover currently sniffing at the He3 in the lunar regolyith. And there’s the tiny problem of the moon Triton. Lots of natural gas. No known biology. Did someone say “Fossil”?
“Bio-crisis” and “Sustainability”, the UN backup plans for AGW, will crash and burn on take-off. All the NGO’s and activists they need as “useful idiots”are already covered in the putrescent slime of global warming advocacy. In the age of the Internet that doesn’t wash off.
So what’s next?
I’m hoping they will go with “peak fresh water”. But this may not be the next move. The fellow travellers in the global warming inanity will shortly be less concerned about advancing their aims and more concerned with their very political survival. I fear that their next move will be “kicking up some dust” and hoping to slink away to fight again another day.

Steve R

The basic problem is the general misunderstanding about what is meant by “reserves”. For the part of the world where oil and gas is not a nationalized resource, the term “reserves” is meant to describe an asset on a companies balance sheet. It should not be suprising for most companies to hold no more than 8 to 15 years worth of reserves when you think it through. Management needs to decide how to apportion its finite resources between 1. Generating revenue (from production from reserves) and 2. Replacing reserves either by going out and exploring, or buying reserves which someone else has discovered. It would not really be consistent with the capitalistic way to keep spending effort looking for oil if you have many years worth already booked (shareholders would revolt) Then again, if you managed a company that had produced most of your reserves and you were down to your last 2 years worth, shareholders would likewise become quite concerned. The whole reserve business is really just a reflection about how management of exploration and production companies manage resources. Some social scientists have simply misunderstood reserves and took them to be an estimate of the total.
For nationalized oil companies (OPEC members), estimates of resources and reserves are essentially state secrets, puplished estimates might be inflated (or deflated) for reasons of national interest.

sadbutmadlad

Proven reserves are those that we know about and have measured. But we also know that there is more oil and gas underground. It’s just that we don’t know how much so we don’t include any guesstimates about this unknown quantity in the published figures. Some of the unknown oil and gas is also uneconomic to extract with known technology. The reason why reserves never seem to run out is that the unknown quantities are investigated and quantified and new techniques and technology used to extract it and they are included in published figures.

DirkH

Steve R says:
January 13, 2014 at 12:50 am
“The basic problem is the general misunderstanding about what is meant by “reserves”. For the part of the world where oil and gas is not a nationalized resource, the term “reserves” is meant to describe an asset on a companies balance sheet. It should not be suprising for most companies to hold no more than 8 to 15 years worth of reserves when you think it through. ”
Yeah but. M King Hubbert should have known.
It might be of interest in this regard that M King Hubbert was a cofounder of Technocracy, the short lived central planning movement in the 1920ies that planned to power all of North America (the “TechNat” for Technocratic Nation) with water power – which was the “renewable” panacea of the day- think Hoover dam or the unrealized Atlantropa.
In the 20ies, many still expected socialist / centrally planned systems to work better than and overtake capitalist systems (those who hadn’t read their von Mises / Adam Smith).
see for instance
http://mkinghubbert-technocracy.blogspot.de/

Andrew

Proved reserves is only one category of reserves.

Willis:
I’m afraid you misunderstood me. Let me use your analogy:
If i have $100.000 in reserves 1.jan 2010, and I extract $50.000 of those reserves in 2010 (let us not bother with interest rates and such), and I still have $100.000 in reserves 1. jan 2011 – clearly I must have discovered $50.000 of reserves in addition to the first $100.000 – giving a cumulative reserve of $150.000. My point is not that your graph is “wrong”, but one should be very careful to compare “snapshots” with a cumulative growth curve.
It is hard to believe that anyone would expect the proven reserves (the snapshot at one specific time) to be the real future reserves – as one has continually explored and expanded the projections. A better benchmark would be comparing individually accepted papers written on the subject at different times during the 19-hundreds – which would better show the mockery of future projections.

thingadonta

And people also worry about there not being enough copper (amongst many others) left, and you can kick a rock in the backyard and it is pretty likely it will have at least some copper in it. It is simply a function of technology, energy, and the demand to extract it.
As for oil and gas, then there is also the methane clathrates……which I’ve heard are bigger in size than all the world’s oil and gas resources combined…..

Lew Skannen

Thingadonta
“It is simply a function of technology, energy, and the demand to extract it.”
I have a theory that the price of ANYTHING is a pretty good measure of the energy that has gone into producing it.

rokshox

I invest in oil & gas. I own stock in a company operating in the North Sea that has spent two years developing a field with 40 million barrels of recoverable oil.
That is 1/2 of the world’s *daily* demand. An entire field, drilling, floating production platform, licensing, 2 years of development….all for 12 hours worth of oil.
It is NOT sustainable.

Thorsten

@HLx: Willis’ graph shows exactly what it was intended to show, and very clearly so. If the alarmist proposition at the very start of the post were true, one would expect the reserves to have DIMINISHED, in a curve mirroring that of the extraction, heading for zero, at which point extraction also must drop to zero. The fact that this hasn’t happened, but on the contrary, “proven reserves” are growing in recent times, is quite sufficient to show that the figures reported as “proven reserve” have no value whatever for estimating how long the resource will last. Possible explanations for the discrepance between “proven” and actual reserves have been quoted by previous commenters, but *don’t matter* for the present argument: Those that say we have “proven reserves” of only so-and-so many tons of oil and therefore are doomed to run out of the stuff in the near future either have no idea about the (non-)significance of the term, or are lying in our face.

steveta_uk

HLx, I think most readers would have realised that when the reserves remain almost flat despite continuous extraction, this means that new reserves are being identified at all close to the extraction rate. And in the gas case, where reserves increased despite extraction, clearly new reserves are being found faster than they are being used.
All of which I beleive Willis explained, at least to my satisfaction, with the statement that “the companies tend to explore until they’ve got maybe twenty years in the bank”.
So I think you are either missing the point or just nit-picking.

Dodgy Geezer

@RokShox
…That is 1/2 of the world’s *daily* demand. An entire field, drilling, floating production platform, licensing, 2 years of development….all for 12 hours worth of oil.
It is NOT sustainable.
I have a pencil on my desk. I use it occasionally. Every time I use it, some of the graphite rubs off.
Do you think that this means that humanity will never be able to create documents again?

thingadonta

Lew Skannen says:
“I have a theory that the price of ANYTHING is a pretty good measure of the energy that has gone into producing it”
I might agree, except with a few significant caveats, from e.g. the field of mineral exploration.
Very often a deposit such as a copper deposit might take many years to find, so perhaps a better statement might be the ‘energy which has gone into finding and producing it”. The ‘finding’ is an important component. If it doesn’t get ‘found’, it doesn’t get produced at all, (which may or may not average out in the final ‘price’, not really sure about that).
Then there is the political component, if a government delays a project for whatever reason, or wants an increase in taxes or ownership, this is also a cost, but I’m not sure this has much to do with ‘energy’.
The recent gold price rise is an example of this sort of thing, (and note that Bernanke admits he doesn’t understand the gold price); the cost of producing an ounce of gold went from around $400/ounce in 2005 to around $1100/ounce in 2013. Now this wasn’t because the energy required to produce it increased in price, it was largely a function of 1) market interference, by e.g. the US bond buying program and others, and 2) governments around the world wanting a bigger piece of the gold pie; ie increases in taxes and other factors to appease the never -ending and insatiable need for governments to try and steal private resources, with mining (and also oil and gas) always seeming to be the one to get the raw end of the deal. Not sure if these two factors-monetary policy and government nationalism- have much to do with energy though. Gold is also unusual in that it is both a commodity to be used (industrial use and jewellery), as well as a currency (can, and often does, substitute for money, particularly where people don’t trust government monetary policies).
The whole thing with the gold price though is a different story to that of oil and gas, for another day.

Proved reserves have a very specific definition. In the US, publicly traded companies are required to book and report reserves according to SEC rules.
In order to be proved, the reserves have to be penetrated by a wellbore and unequivocal, with at least a 90% probability of recovery under existing economic and political conditions, using reliable technology. Proved reserves have to be identified in a wellbore and/or supported by production data.
Here’s a very simplistic example…
In this scenario, a well is drilled up-dip to a dry hole with an oil show. The entire volume can be booked as proved because the down-dip well has an oil-water contact…
http://i90.photobucket.com/albums/k247/dhm1353/Proved.png
In this scenario, the down-dip well has no oil show, just wet sandstone. If the oil well was drilled on the basis of a seismic hydrocarbon indicator, the volume down-dip of the lowest known oil has to be booked as probable…
http://i90.photobucket.com/albums/k247/dhm1353/Probable.png
When the production from the well exceeds the original booked volume, the operator can increase the proved reserves on the basis of cumulative oil production vs. water cut or pressure decline, depending on the drive mechanism. __________________

Exposing the 2 percent oil reserves myth
Posted March 13, 2012
“The United States holds only 2% of the planet’s proven oil reserves,” President Barack Obama.”
According to President Obama, the United States contains only 2 percent of the planet’s proven oil reserves, Of course, he’s right — to a point. In classic fashion, he’s using a technicality to skirt the facts and keep the myth of energy scarcity alive. The reality is that the U.S. has enough recoverable oil for the next 200 years, despite only having 2 percent of the world’s current proven oil reserves
Proven oil reserves are not all of our oil resources—not even close. In fact, proved reserves represent a tiny portion of our total oil resources. Proven (or proved) oil reserves are reserves that have already been discovered, typically through actual exploration or drilling, and which can be recovered economically. That estimate does not include oil that we know about, yet are unable to access because of regulatory barriers. For example, the billions of barrels of oil in ANWR are not included in our proved oil reserves. So let’s look at the facts.
Currently, the United States has 1,442 billion barrels of technically recoverable oil, but only about 20 billion barrels are considered proven oil reserves…
[…]
Proved Oil Reserves Are Not Static
Let’s take a look at history. In 1944, U.S. proven oil reserves were 20 billion barrels — about the same as they are today. Yet, between 1945 and 2010, the United States produced 167 billion barrels of oil. In other words, the United States produced over 8 times more oil than the amount of proven oil reserves it had in 1944. How can that be? The answer is that proven oil reserves are not stagnant because people keep looking for oil. Proven oil reserves keep changing, are officially recorded every year, tallied country by country, and published in the Oil and Gas Journal, among other publications. And due to U.S. entrepreneurship and ingenuity, more reserves are found and proven each year.
[…]
http://www.instituteforenergyresearch.org/2012/03/13/exposing-the-2-percent-oil-reserves-myth/

Suggestions that the oil industry willfully under-reports proved reserves in order to drive up prices are bizarre, to say the least. Each and every year, most of us have to “do battle” with our independent auditers in order to book reserves. Proved reserves (bbl) translate to proved value ($). The only thing worse than under-booking is over-booking because taking value off the books is not a “good thing” and no one enjoys the attention of the SEC. The purpose of reserve rules is to enable investors to accurately value oil & gas companies.

AP

To some degree, companies would drill to prove up the resource to a sufficient size and confidence level to obtain financing. 20 years is quite a normal order of magnitude for the amount of reserve that is “proved up” – this is really due to the effects of discounting in NPV calculations, which make cash flows beyond 20 years small – or even immaterial to project value, depending on discount rate used. However as another reader pointed out, proved reserves is only one of the various subsets of the total resource estimate. Future “proved” reserves may sometimes have been recategorised up from a lower confidence category, through drilling or some other exploration technique; or as technology, or price improves, without any additional “discovery”. Rarely, the reverse will occur (e.g. http://www.energy-pedia.com/news/general/hell-re-categorizes-proved-reserves-that-wipes-£8bn-from-company-value-). It would be useful to do the same analysis including down to the “contingent resource” estimate.

In the Gulf of Mexico, they are reaching out to deeper & deeper waters…and still finding oil reserves. They have currently reached water depths nearly 10,000 ft deep and area able to drill thousands of feet into the sea floor beyond that! In the South Atlantic off Brazil, they are finding and doing the same. One has to wonder, are there unknown oil/gas deposits that reach out across the Atlantic & Pacific oceans just waiting to be recovered?

SideShowBob

That’s fine… but why don’t you talk about the exponentially escalating cost of oil production, http://www.smartplanet.com/blog/the-energy-futurist/the-cost-of-new-oil-supply/
cheap oil ?? it’s gone sorry, maybe the saudi’s have some left, but their demand will soon eat into exports… take away tax payers money that subsidizes exploration costs ect.. and future oil will not be able to compete with renewables sorry that’s the way it is

M Courtney

SideShowBob says,

and future oil will not be able to compete with renewables sorry that’s the way it is,

I appreciate the argument that renewables don’t need subsidy but it is not certian that the rise in oil price that coincides with the increase in demand from China will continue.
http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp
It may be that the new extraction techniques which are working in the US will push down the prices in the rest of the world too (when they are exported).
Or that may not be the case… yet extrapolating the rise in crude oil prices without any limit is still folly. At some point a new technology will be economical and the oil price will settle there. About where coal-to-oil becomes profitable at most. Are renewables cheaper than that? Remember, oil is used in transportation so we have to develop batteries as well to make renewables competitive.

richardscourtney

SideShowBob:
Your assertions of renewables replacing fossil fuels is plain daft.
With the exception hydro (which is energy intensive and available on demand), renewables were abandoned when the invention of the steam engine enabled the greater energy intensity of fossil fuels to be available to do work.
This freed humans from the limitations of wind power, tidal power and the muscle power of animals and slaves.
The most efficient use of wind power is sails for powering ships: there are no mechanical losses in converting the wind power to motive force. But normal winds provide little power and only provide it intermittently. So, wind is not used to power ships or any other industrial or commercial activity which requires much and continuous and reliable power.
If your assertions were true then oil tankers would be sailing ships.
Richard

First we completely used up every drop of the proved reserves. Then we used them all up again. Then we used them all up for a third time … and the proved reserves are still about where they started. Go figure.
and
Now, please don’t bother patiently explaining to me all of the reasons for this curious phenomenon, because I’ve heard them all.“, followed by a list of the reasons behind the reserves phenomenon.
w, I don’t think that you have been very smart. Perhaps disingenuous is the right word. You tell people to go figure, like you’ve just exploded a myth, but there isn’t anything to go figure because, as you explain, the reasons are all well known.
For those who still don’t get it, let me help: “known reserves” do not in any shape size or form represent the sum total of available oil on the planet. They used to be just the bits of oil that the oil companies had prepared or were preparing for production, or had examined in some detail – something they tended not to do if they had no near(ish) term plans for its production. Unfortunately, oil data has become increasingly politicised, and thus increasingly opaque, but there’s still some useful data out there. A quick search for some relevant data ….. OK ….. in 2007 BHP had stated proven ‘petroleum reserve’ of 1.35bn boe, but their total resource was 4.95bn boe. ie, they had only bothered to ‘prove’ just over a quarter of their total resource. So starting in 2007, BHP could produce all of their proven reserve three times, and still have nearly that amount left over, without having to find a single new drop.
http://www.bhpbilliton.com/home/investors/reports/Documents/petroleumSaIrPresentation.pdf
That’s the sort of thing you find when you ‘go figure’.

stanb999

Willis, muddies the water again. For instance the “natural gas” reserves haven’t actually changed. The price structure has, so natural gas will never be as cheap as it was in the past. I doubt this is a good thing. The Marcellus was well known for more than 60 years.
FYI, the first natural gas discovered was on the Delaware river right here in NEPA. I will see if I can find the story… It involves an Indian, a doctor, an outhouse, old pipes and and explosion.

stanb999
fritz

The USA are not the center of the Universe even for what concerns fossil energies ; OK , they were a bit favoured from a geological point of view ; probably that is why the Colonel Drake was the first to drill for oil ; and also why they are currently the first producer in the world ; but don’t forget that they are also the first importer ; so , if the rest of the world doest not follow the USA in what concerns source rock fracking and production , there will rapidly emerge energy problems , even in the USA ; because, I suppose , nobody refuses the decline of conventionnal oil : since 1980 new discoveries do not counterbalance the production
As you said ,the amount of natural resources depends on human ingenuity and not much else. I would say they depend on human ingenuity a little bit , but mainly on the disponibility of energy; don’t confuse resources and energy, magnesium or cadmium and oil

richardscourtney

stanb999:
Your post at January 13, 2014 at 4:54 am claims

Willis, muddies the water again. For instance the “natural gas” reserves haven’t actually changed. The price structure has, so natural gas will never be as cheap as it was in the past. I doubt this is a good thing. The Marcellus was well known for more than 60 years.

NO! Willis has clarified – not muddied – the waters.
If the price structure has changed then BY DEFINITION the reserves will have changed.
In his above article Willis says

Now, please don’t bother patiently explaining to me all of the reasons for this curious phenomenon, because I’ve heard them all. I assure you, I understand the difficulties in estimating proved reserves, and the fact that the numbers come from the oil companies, and that technology improves, and that the companies tend to explore until they’ve got maybe twenty years in the bank, and the fact that the reserves numbers are sometimes radically revised, and that economics plays a huge part, and the rest … I know all the reasons for what I showed above.

So, I will not do that here. Instead I point you to a post I made on the other thread which provides a simple explanation of these matters which you proclaim you do not understand: this is a link to it
http://wattsupwiththat.com/2014/01/11/m-king-meets-the-eia/#comment-1534338
Richard

Willis, any story on oil and gas reserves should begin with an explanation of the two totally different reporting standards employed by the oil industry. 1) the security exchange commission (SEC) standard tends to give gross underestimate of what is technically believed to be recoverable 2) the society of petroleum engineers (SPE) tends to give a more realistic estimate. A country like the USA uses SEC – the reason for perennial underestimation. Middle East OPEC countries use a modified version of SPE – so called flat reserves returns. Countries reported by BP are using both of these standards rendering BP reserves estimates as all but meaningless. You should check out the numbers for Kuwait, Saudi Arabia etc – annual production should be deducted from reserves at the beginning of the year.
Also, Hubbert famously forecast that US oil production would peak around 1970. This turned out to be a good forecast, that still stands, but often forgotten is the fact that the quantity forecast by Hubbert was far exceeded. Hubbert was not a doomer, but simply saw scarce oil being replaced by abundant nuclear power – which given time may also prove to be a good forecast.

Leo Morgan

Thanks for this Willis.
My commendations too on your courteous and competent responses to those of us who comment.
I know that the intemperate and irrational responses provided at alarmist blogs by (occasionally contributors, and often) commentators drives me away from them, hard though I try to fulfil my obligations as an honest man to examine both sides of the argument.
I have a question I’ve wanted to ask a North American for some time now. I’m addressing it to anyone who knows the answer, not just Willis. My understanding is that President Carter introduced Federal Oil taxes, (under whatever name) in order to reduce demand, in the expectation that world petroleum reserves would be exhausted by the 1980’s.
My question is, “What happened to those taxes?”
Are you still paying them?
Did Reagan or a Bush, or even a Democratic President abolish them?
If you can also refer me to an article on those taxes, I’d appreciate it. I’ve wondered how much he raised, how much consumption declined, etc.

The same “peak fuel” argument has been used about uranium to fuel power plants. Like magnesium, the supply of uranium in seawater is infinite, but today costs , I believe, about three times as much as conventionally mined uranium. BUT fast reactors can extract 35 to 40 times more energy from uranium than current reactors, making seawater uranium extraction more than just economically viable. And there are reasons to believe that more economical means will be
developed to recover seawater uranium. Seawater extraction also means that uranium-rich countries will not be in a position to create monopolistic cartels.

tty

Jkrob says:
“One has to wonder, are there unknown oil/gas deposits that reach out across the Atlantic & Pacific oceans just waiting to be recovered?”
To some extent yes, but mostly no.
Oil only exists where there are reasonably deep sedimentary layers. The deep ocean floor is mostly relatively young basalt with a thin veneer of largely non-organic sediment on top.
There is a lot of oil in the continental shelves, which is relatively easy to extract (except in the Arctic and Antarctic and where it is politically prohibited (like the US east coast)). There is also a lot of oil in the continental slopes, probably rather more than on the shelves, as the slope was often once one side of a Rift Valley, somewhat like the Red Sea today, a good environment for hydrocarbon accumulation. The deep ”sub-salt” oil off Brazil is of this type. There is also a lot of methane clathrates in the slopes.
Existing rift valley seas, and residual more or less cut-off and silted up seas are also of interest. Examples: the Red Sea, the Mediterranean, the Black Sea and the Caspian (the Tarim Basin in China is further example, though it has long been completely dry)
A third type of sea bottom that is good for oil are large sedimentary cones of old, major river systems. The Mississippi and Niger are the best known examples (some of the oil in the Gulf of Mexico and Nigeria comes from this type of deposits), but there are other possible candidates the Ganges cone for example.
Finally there are “microcontinents”, bits and pieces of continental crust now off by themselves out in the ocean and mostly submerged. Examples are the Rockall Plateau in the Atlantic, Madagascar and the Seychelles Plateau in the Indian Ocean, Zealandia in the Pacific and perhaps the Kerguelen plateau in the Southern Ocean. These all have hydrocarbon potential but have as yet been little explored.
But most of the ocean has no oil or other hydrocarbons.

oMan

Excellent post, as usual! Thanks.

tty

fritz says:
The USA are not the center of the Universe even for what concerns fossil energies
Not for oil, but possibly for natural gas, and definitely for coal.
nobody refuses the decline of conventionnal oil
And what, pray, is “conventional oil”. Oil extracted by fracking (and other EOR techniques) in vertical holes since the 40’s has always been considered conventional, but oil extracted by slickwater fracking in horizontal holes is “unconventional”. Now in the Permian Basin it seems that slickwater fracking in vertical holes may suffice, because of the thickness of the Wolfcamp Shale. Will that count as “unconventional” or “conventional” oil? Will it be “unconventional” just because it happens NOW?

Jeff L

Reserves & resource definitions are far more complicated than being discussed here. If people want to discuss the concept of “peak oil” , it should be discussed in the context of “total resource”, not reserves, which is a small slice of the total resource pie. The Society of Petroleum Engineers (SPE) has defined these in quite precise terms. If you are interested in learning more & understanding these relationships , I highly recommend the following link:
http://www.spe.org/industry/docs/PRMS_guide_non_tech.pdf
For those that want to dig even deeper, see :
http://www.spe.org/industry/reserves.php#redirected_from=/industry/reserves/
These links should give you a much better idea of how reserves are defined and give you a good idea how “resources” become “reserves” and thus keep the “proven resource” curves from declining with time.
I also recommend re-reading David Middleton’s post above which also has good insight into the “reserve process”.

Steve from Rockwood

3. Deposits. How much oil can we ever hope to access. We do not know.
2. Resources. How much oil do we know about. This is limited by exploration spending.
1. Reserves. How much oil can we economically extract. This is based on the price of oil and has no direct bearing on the amount of oil present.
To claim we will run out of reserves is to claim oil will become too expensive to extract, not that we will run out of oil.

half tide rock

Willis, I grew up in geology with the M. King Hubbert theory it has been falsified particularly as we added the technology to identify huge stratigraphic traps. If you look at the North American Petroleum Reserves by region, there is a Political blank up the entire East coast. http://www.britannica.com/blogs/2010/09/opec-at-50-picture-essay-of-the-day/ Here is a report on the Mesozoic basins http://pubs.usgs.gov/fs/2012/3075/fs2012-3075.pdf.
There is a Basin at the north east end of the Georges Bank in Canadian waters that has produced gas. There is a politically induced blank section of the maps. If you don’t allow exploration what do you expect…. SURPRISES?????!!!! Look here…it is an open secret that the East Coast will provide substantial reserves. http://aeinews.org/wp-content/uploads/2012/03/ocs-seismic.jpg Given the proximity to refineries this will be the location of significant reserves and production …….someday.

stanb999

Steve from Rockwood says:
January 13, 2014 at 5:55 am
To claim we will run out of reserves is to claim oil will become too expensive to extract, not that we will run out of oil.
Ding, ding, ding, we have a winner. The cost of production is the only factor that matters. Of course reserves will climb forever. But so will the cost. Has oil become too expensive that it stifles economic growth? When did oil hit it’s high? When the the “recession” start?
Peak oil isn’t about running out of oil. It’s about running out of cheap oil. We have.

Hubbert could have added 3 words to his predictions, and it would have made them all valid – “Under current technology”. It’s much like the reason Malthus forecast that England was going to run out of food and fuel early in the 19th century – it’s always very difficult for anyone to understand the impacts of technological revolutions that haven’t happened yet, much less to realize that they may have order-of-magnitude level impacts on our resource situation.
Hubble was right, under the technological understanding of his day. But the technology has changed.

richardscourtney

Steve from Rockwood:
At January 13, 2014 at 5:55 am you conclude

To claim we will run out of reserves is to claim oil will become too expensive to extract, not that we will run out of oil.

Yes.
And a substitute for oil would be adopted in the improbable event that oil became “too expensive to extract” prior to the end of a demand for oil.
A consumer does not care whether the crude oil was extracted from the ground or obtained from something else. And since 1994 a technology has existed for making synthetic crude oil (syncrude) from coal at competitive price with crude oil; see
http://wattsupwiththat.com/2014/01/10/natural-gas-switch-from-coal-brings-power-plant-emissions-down/#comment-1532437
So, there cannot be a problem of ‘peak oil’.
In other words, the hypothetical problem you suggest has already been solved by the “ingenuity” which Willis asserts can solve any such problem.
Richard

Steve from Rockwood

stanb999 says:
January 13, 2014 at 6:10 am
——————————————
“cheap” is a relative thing. America has not run out of cheap oil otherwise people would not be driving around in pick-up trucks and SUVs. Parts of Africa have run out of cheap oil simply by the fact they can’t afford to buy it.

The cost of production is the only factor that matters. Of course reserves will climb forever.

The cost of production limits overall reserves only by the price people are willing to pay. So far there hasn’t been much resistance.

Tim Obrien

When your grandchildren are driving around in cars with bio reactors in the trunk that produce fuel and only need to be serviced every couple of years, they’ll look back on articles like this and grin…

richardscourtney

stanb999:
At January 13, 2014 at 6:10 am you mistakenly assert

Peak oil isn’t about running out of oil. It’s about running out of cheap oil. We have.

In reality we have not, and we know we will not for at least 300 years, and there is good reason to suppose we never will.
Please read
http://wattsupwiththat.com/2014/01/10/natural-gas-switch-from-coal-brings-power-plant-emissions-down/#comment-1532437
Richard

stanb999

richardscourtney says:
January 13, 2014 at 6:24 am
stanb999:
At January 13, 2014 at 6:10 am you mistakenly assert
Peak oil isn’t about running out of oil. It’s about running out of cheap oil. We have.
In reality we have not, and we know we will not for at least 300 years, and there is good reason to suppose we never will.
Please read
http://wattsupwiththat.com/2014/01/10/natural-gas-switch-from-coal-brings-power-plant-emissions-down/#comment-1532437
Richard
Richard, the reason nat gas is “cheap” in the article you note has nothing to do with the cost of coal and everything to do with regulation as I’m sure you know.