Part IV
Size Doesn't Matter
Yesterday, a reader wrote, "nobody 'knows' how much oil remains and speculation in this area varies widely." This is exactly what I wanted to cover today.
When the question comes up - "Are we running out of oil?" - the answer is often made confusing (sometimes intentionally) by the fact that there are two kinds of oil supply. Reserves and Production. Reserves are what is in the ground, actually soaked up in rock, like water in a sponge, thousands of feet down. Production is the amount of the reserves that we are able to "withdraw" from the ground every day. Production is oil subtracted from reserves. Reserves only increase in mysterious man-made ways, however. They can be "discovered," or stuff that wasn't considered oil, suddenly is because the price of oil has made it "economically" recoverable. Politics also figure heavily. More on this at a later date.
Saudi oil minister Naimi is perhaps one of the best at speaking of these two types of supply as if they were the same thing. To confuse or to simplify?
The inherent problem with numbers is sharing them with other people in a way that doesn't make their eyes glaze over. Here's my best shot.
Let's take a look at reserves. I'm going to purposely spend as little time as possible on reserve numbers to invite argument. The EIA says in 2006 that the entire globe has 1,295 billion barrels left. Or 1.3 trillion. That is not to say that more won't be discovered, but by their accounting methods that's the number they are showing right now. In 1996 there were 1,007 billion. Most of the increase if I am not mistaken is the Canadian tar sands. Discovering new conventional crude oil resevoirs has clearly not been happening for the last decade.
Now those who disagree with that number usually add figures in the hundreds of billions to trillions of barrels that we will ultimately be able to take advantage of for reasons that are not always clear. Those who think the number might be on the high side usually shave a couple hundred billion off.
I don't really have a graph for today. Reserves numbers are boring. So I am just randomly throwing this one in that I've done recently for drilling-rig activity. It uses Baker Hughes numbers, but they can serve as a proxy for Schlumberger numbers as well.The BH data just goes back further.
Of this 1.3 trillion, Saudi Arabia has 266 billion barrels, up 5 billion barrels from last year. How exactly that happened, I'm not sure. Someone with more patience than I is bound to look it up. Canada has 178. Iran with 132. Iraq with 115. That's 53 percent of the total right there. That's just the top four. Rounding out the top 10 is just more depressing. Looking at how much the rest of the world has will make you cry.
Canada is an interesting story. And very simple. In 2002 it had 5 billion, now it has 178. Someone decided to add tar sands. That comes to 173 billion, I guess. Sometimes you will also hear the number "1 trillion" thrown around, usually in puff-piece stories that sell the tar sands as our salvation. We will be exploring these numbers when we investigate tar sands sometime soon. The key to remember for now is that tar sands are not oil. They need to be turned into oil first.
Something very similar is in the works with Venezuela, but their number is still listed as 79 billion barrels. Regardless, unless you can get them out of the ground in a semi-affordable manner, they are useless barrels. Whether we have 1 trillion or 7 trillion barrels, it doesn't matter.
Luckily, we have already discussed production in Parts IIand III. 85 million barrels per day is what we use - 31 billion per year.
When we do the math dividing 1.3 trillion barrels by 31 billion barrels per year, we get 42 years. At 90 mbpd, that's 39 years, at 95 mbpd with the addition of another 270 billion barrels worth of "heavy oil" being peddled at low prices by Hugo Chavez, we get 45 years.
But the problem is, and this is my point here - to get to 40 years from now, we need to get to 5 years from now first,. And the immediate problem for which we have to find a solution is to continue extracting 85 million barrels per day, increase it to 90, and all the while maintain its secure delivery to market. The question of reserves in my opinion does not become that important until after we've resolved the question of production.
Those who would argue that my numbers and calculations are too simplistic and should be different for this or that reason are missing the point. We can make it more complicated if and when it warrants that. But for now I'm trying to stick to some essentials that we may actually be able to control. We will look at the topic of reserves in the future in more detail, but for now I want to keep the focus elsewhere.
I hope that you have made it to the end. Forgive me if I have bored you to tears. But there were a few numbers we needed as reference points. My goal is to keep these posts short. I'm convinced that to understand oil you need to break it up into very small components.