World Oil Reserves Growing, Yet Prices Are Soaring
Kurt Brouwer June 12th, 2008
Source: British Petroleum
Quite an interesting chart and report from British Petroleum. As BP is an energy producer, this report comes essentially direct from the ‘horse’s’ mouth. Despite all the talk about running out of oil, this report indicates that world reserves have grown by 14% over the past 10 years [emphasis added]:
2007 Oil Reserves stand at 1237.9 billion barrels (British Petroleum Statistical Review of World Energy, June 2008)
Reserves have grown 107.8 billion barrels since 2001 and 168.5 billion barrels, or 14%, over the last decade.
MethodologyProved reserves of oil are 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 geological conditions.
The data series for proved oil and gas reserves in this years Review does not necessarily meet the definitions, guidelines and practices used for determining proved reserves at company level, for instance, under accounting rules contained in the Statement of Recommended Practice. ‘Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities’ (UK SORP) or as published by the US Securities and Exchange Commission nor does it necessarily represent BP’s view of proved reserves by country. Rather the data series has been compiled using a combination of primary official sources and third-party data.
Canadian proved reserves include an official estimate of oil sands ‘under active development’. Reserves include gas condensate and natural gas liquids (NGLs) as well as crude oil.
We have provided a detailed explanatory note on reserves clarifying current definitions and terminology.
Based on the qualifiers above, I believe this would constitute an educated estimate as to proved reserves that are recoverable using current technology. That seems like a reasonable way to proceed to me. Assuming for the moment, we agree that world reserves have grown, then why is the price of oil skyrocketing? Answer:
- Supply
- Demand
First, we all know that worldwide demand has been growing quite steadily, although I suspect you would be amazed at how moderate the growth has been. Last year, global oil consumption grew only 1.1% for example. The BP report goes on:
…Global oil consumption grew by 1.1% in 2007, or 1 million barrels per day (b/d), slightly below the 10-year average. Consumption in the oil-exporting regions of the Middle East, South and Central America and Africa accounted for two-thirds of the world’s growth. The Asia-Pacific region grew by 2.3%, roughly in line with the historical average even though growth in China and Japan was below average, with strong growth in a number of emerging economies. OECD consumption fell by 0.9%, or nearly 400,000 b/d. The global growth rate for light distillates matched that of middle distillates for the first time since 2002 due to strong petrochemicals demand.
In other words, global demand for oil grew a bit, but what about supply? Production of oil actually fell rather than grew:
Global oil production fell by 0.2%, or 130,000 b/d, the first decline since 2002. OPEC production dropped by 350,000 b/d due to the cumulative impact of production cuts implemented in November 2006 and February 2007. Among the 10 members participating in production cuts, crude oil output fell by 900,000 b/d. Saudi Arabia’s output dropped by 440,000 b/d, the largest decline in the world last year. Increased output in Angola and Iraq, and growing supply of condensates/natural gas liquids (NGLs),partially offset that decline. Oil production growth outside OPEC remained weak, rising by 230,000b/d in 2007. OECD output declines moderated, but nonetheless fell for a fifth consecutive year. Production in both Norway and Mexico declined by more than 200,000 b/d.
Former Soviet Union output rose by nearly 500,000 b/d,with Azerbaijan and Russia each growing by more than 200,000 b/d. International trade in crude oil and refined products rose despite OPEC production cuts and rising domestic consumption in oil-exporting countries. Much of this growth was in refined products, a reflection of imbalances and constraints in the world’s refining system…
We have had growing worldwide demand and yet the oil-producing countries decided to cut production. So, prices went up. Now, I suspect everyone involved has been shocked at how high prices have soared, but that’s another story. The Economist [emphasis added below] interviewed the authors of the BP report to gain further insights into the high price of oil.
Oil Reserves: Plenty in the Tank (Economist, June 11, 2008)
“WE’RE not running out of hydrocarbons,” insists Tony Hayward, the boss of BP, one of the world’s biggest listed oil firms. To back up this view, he cites various comforting figures from the latest edition of the firm’s “Statistical Review of World Energy”, released on Wednesday June 11th. Enough oil has already been discovered around the world, Mr Hayward says, to maintain consumption at current levels for another 42 years. As he recently put it, humanity has guzzled through 1 trillion barrels, but has its next trillion already lined up, and could probably unearth a third trillion if it really applied itself. Why then, are oil prices hovering over $130 a barrel?
Mr Hayward blames poor policy-making or, in his florid phrase, “the madness of men”. Some 80% of the world’s oil reserves, he says, are in the hands of state-owned oil firms, which tend to allow firms like his only limited access. He believes that if these riches were fully exploited, the world could easily produce 100m barrels a day (b/d) or more. That’s a big increase on last year’s figure of 82m b/d…
Not everyone agrees with Mr. Hayward that a production level of 100 million barrels a day is achievable, but it certainly is clear that significant reserves of oil are not being tapped at present. For example, the Canadian tar sands deposits or the U.S. shale oil deposits, not to mention ANWR or the plentiful oil offshore in the U.S. We may have reasons for not developing those regions, but failure to do so has certainly crimped the world’s supply of oil. And, as we pointed out earlier, a number of oil-exporting countries cut back on production last year:
…Early last year OPEC was worried about rising stocks and falling prices. It resolved to trim its output, and Saudi Arabia did most of the trimming.
In addition, demand has grown in part because a number of countries — China, India, Iran — subsidize the price of oil to such an extent that until recently consumers in those countries did not feel the sting of higher prices.
…Demand for oil in rich countries fell by almost 1% last year—the biggest decline since 1983. But in poorer ones, it grew by over 4%, partly because developing economies are growing faster than those of the rich world. But subsidies for fuel consumption also play a big part. According to Mr Rühl [Christof Ruhl, one of the BP report’s authors], consumption is falling in countries with heavy taxes and rising only sluggishly where taxes are moderate. But in countries with subsidies, it is rising faster than normal, and fastest of all in the countries with the highest subsidies.
High prices have reduced demand in many countries, but those that subsidize the price has seen demand grow. No surprise there. Now, we have heard reports of riots and protests in Asian countries that reduced or dropped their subsidies. Assuming they hold the line on those policies, we should see demand fall in those countries as well.
Before long, we should see significant declines in demand and we should see increases in supply as producers rush to take advantage of current high prices. Assuming the laws of supply and demand are still in place (see Regulators Step Up Probes of Trading In Oil), prices should fall when that happens.
via: Carpe Diem
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