Concerns that the world is running out of oil and has reached its peak production level have been in the headlines frequently of late, but Centre for Global Energy Studies (CGES) Deputy Executive Director and Chief Economist Leo Drollas believes that oil depletion is not a concern yet. He told the recent CGES annual seminar on the theme Oil And The World Economy (MEES , 26 March) that not only had oil producers managed to increase oil reserves at a faster rate than they have produced oil in recent years, but also that peak production is not expected until around 2022 based on reserves discovered to date.
Fortunately for all of us, Dr Drollas said, over the years the global gross additions to reserves have exceeded oil production, leading to reserves expansion and not depletion. We should begin to worry when net depletion sets in. To avoid or more likely delay this, we need to keep investing so that extensions and revisions to oilfields, plus wildcat discoveries, exceed output. However, a deep-seated concern about the oil industrys ability to cope with strong oil demand growth at a time of insufficient spare production capacity seems to have been the key factor behind the recent high price of oil. One of the arguments put forward in support of such a concern is the high rate of depletion experienced by the oil industry.
The pessimistic view of oil depletion is based on a number of perceptions, he continued: The world depends on a few gigantic but geriatric oilfields. The largest 14 fields, with an average age of 44 years, account for over 20% of world oil production and old fields tend to decline rapidly. New discoveries are not as prolific and costs are rising everywhere. The 12 giant oilfields found in the last decade produce only one tenth of the oil produced by 36 giant fields discovered over 40 years ago. Saudi Arabias oilfields are said to have been overworked and are tired; their decline rates are thus higher than the industry has been led to believe. Also, quoted proven reserves for most oil producing countries are said to be overstated: they are either politically motivated, as for a number of OPEC states, or based on untried, expensive technology.
To address these issues, Dr Drollas distinguished between strict and net oil depletion rates: The strict rate of depletion of oil reserves is simply the rate of annual oil production expressed as a percentage of proven oil reserves it is always negative. However, oil reserves are not static over time; they rise if gross additions to reserves exceed production and fall if the opposite holds. Net depletion takes into account changing oil reserves; it can be positive or negative. Gross additions to oil reserves comprise discoveries plus extensions plus revisions, he added, and have outstripped production growth in recent years.
Gross Additions To Oil Reserves
(Bn Barrels/Year)
1990-2000 | 2000-06 | |
OPEC | 14 | 29 |
Non-OPEC* | 8 | 11 |
World | 25 | 43 |
Global Oil Production | 23 | 25 |
* Excluding FSU, China and Eastern Europe.
The high rate of growth of oil consumption and production during the 1960s caused an increase in the strict depletion rate to a high of 3.7% in 1973, he said. Thereafter, the depletion rate declined to a low of 2.2% in the early 1990s, due to a slowdown in demand and large boosts to oil reserves. The rate at present is around 2.3%. For most of this period the worlds net depletion rate has ended up being an expansion rate, once gross additions to reserves have been taken into consideration. Global proven oil reserves grew from 157bn barrels at the end of 1954 to 1,142bn barrels at the end of 2006, enabling at various stages the strict depletion rates to be transformed into rates of expansion.
Dr Drollas argued that we cannot talk about running out of oil, simply because we do not know how much oil the world had to start with: The running out of oil scare has been with us since 1860 and has been trotted out with regularity. Finding oil is a matter of looking for it and the motivation for the search is economic. High prices provide enough of a stimulus, most of the time. Knowledge and technology expand our horizons, and those of oil too. Large oilfields continue to be found. For what it is worth, proven global conventional reserves are higher than they have ever been. Global reserves-to-production ratios have been above 40 years worth since 1987.
Global Oil Reserves At End-2006
(Bn Barrels)
Cumulative Oil Production | 1,038 |
Remaining Oil Reserves | 1,142 |
Reserves Growth | 398 |
Undiscovered Conventional Oil | 422 |
Grand Total | 3,000 |
Global conventional oil production between rises at a rate of 1.4% per annum between 2005 and 2020 according to the CGES base case for oil demand, Dr Drollas continued: Thereafter, having peaked in 2022 at 86.5mn b/d, it declines at a rate that generates a cumulative output figure of 2,888bn barrels which is 98% of the ultimately recoverable reserves by 2100.
