| 'Oil Reserves Exaggerated By One Third' Says Former Chief Scientist And Oxford University Team - Source D Telegraph 23/3/10

23rd Mar '10 by Cuthbert C

2 comments 1162 reads

Excellent report on front page of today's Telegraph business section.

headline - "Oil Reserves Exaggerated by one third"

...official figures are inflated because member countries of ...OPEC, over-reported reserves in the 1980s when competing for global market share.

...conventional reserves should be downgraded from 1,150bn to 1,350bn barrels to between 850bn and 900bn barrels ...demand may outstrip supply as early as 2014....

...concerns that public statistics have started to incorporate non-conventional reserves such as the Canadian tar sands... (which) may never be economically attractive to develop....

...Western governments were not taking ..."peak oil" ...seriously ... while China is ...grabbing as many ...resources as possible....

..."The belief that alternative ...such as biofuels could mitigate oil ...shortages and eventually replace fossil fuels is pie in the sky...."

source www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7500669/Oil-reserves-exaggerated-by-one-third.html

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Cuthbert C

23rd Mar '10

There is perhaps a certain schadenfreude that the arguments put forward by Sir David and his colleagues have all been discussed many times on the more intelligent internet bulletin boards. The falsification of OPEC's reserves has been common knowledge for years - indeed it is obvious after only ten minutes scrutiny of the numbers - and I can remember discussing it what ten?? years ago?

This is perhaps one of the best examples of an informed minority being many years ahead of the herd in their understanding of basic principles. It is salutary to recognise though that being an early adopter of new ideas does not automatically translate into success as an investor. For most of the past 10 years the influence of the harsh reality exposed in the Telegraph has been incidental at best.

For those of us who prefer long term investment strategy rather than short term trading/market timing it is encouraging to see signs of a wider acceptance of facts that we have long regarded as self evident, but which have escaped general notice.

ManSiarad

Tournesol,

I largely agree with you.

I would, however, make a point I made elsewhere a couple of years ago or more - I can't be bothered to go back and look for the old post.

Looking at my own patch, the UAE, the figures for reserves have remained more or less constant. According to the 2009 BP Statistical Review,

http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review_2008/STAGING/local_assets/2009_downloads/statistical_review_of_world_energy_full_report_2009.pdf

'Proved reserves' for 1988 were 98.1 billion barrels, 97.8 billion barrels at the end of 1998 and the same at the end of 2007 (including condensate and NGLs). These are the official figures released by the UAE/OPEC, of course.

I don't have production figures to hand (and they're no longer published anyway), but the UAE must have averaged 2 mbpd over that 19 year period (if not more). 730 million barrels a year, or 13.87 billion barrels over the nineteen year period., if my maths are right. And yet stated proven reserves have gone down by a mere 300 million barrels. Grounds for suspicion, of course.

And yet, over the same period, although there hasn't been much in the way of new discoveries, a number of fields that had been previously discovered, (often on the basis of one or two wells) but not fully appraised, have now been appraised and brought into full production or are in the process of being developed - e.g. Dabb'iya (now on stream) and Qusaihwira (for which a major contract was due to be signed today). Older fields, like Bab, which first came into production in 1963, have been further assessed. The delineation and appraisal of these fields - and others - has certainly added to proven reserves. There's also been a significant upgrading - or so I understand - of proven reserves at the offshore Upper Zakum field (operated by ADNOC and ExxonMobil), adding multiple billion barrels (although you're not going to get any statement about that from either major partner). And that's before one gets into the positive impact of technological advances - horizontal drilling, for example, quite apart from EOR in its various forms. CO2 injection, it appears, could significantly raise recovery rates (and, therefore, 'proven reserves'). Thus, a study for one Abu Dhabi company has suggested: "CO2 EOR will increase the long-term recovery of oil by over several billion barrels." (Sorry, no link).

It looks a bit odd - to say the least - that the UAE is effectively claiming in its figures that produced barrels are more or less offset by new proven reserves, but that doesn't mean that there have NOT been major additions to proven reserves.

I haven't a clue about the situation in other Arabian Gulf states (let alone elsewhere), and it would certainly be useful if major producers displayed a bit more transparency so that one could place more reliance on the published statistical data (though there are government interests at stake here, in various ways). We're not going to get that transparency, though. (Let's see what revised reserves OPEC states claim when they try to integrate Iraq back into the quota system).

Some of the figures for the OPEC states are, in my view, more suspect than others. (Can Iran REALLY have gone up from 92.9 billion barrels in 1988 to 138.2 billion barrels at the end of 2007? Or Libya from 22.8 to 43.7 ? I doubt it).

In the absence of transparent, public data, we don't really have a clue as to how serious the situation is in terms of future supplies. Those who WILL have a better idea, in some areas at least, are, of course, the majors who are in JVs in the key producing states. BP, Shell, Total and ExxonMobil, for example, will certainly know the current state of proven reserves in Abu Dhabi's onshore fields, and how they have changed over the last twenty years. But they ain't saying (and one can't really blame them when they are trying to negotiate an extension of the existing concession, which expires in 2014).

Are OPEC's stated reserve figures dodgy? Yes - but some more so than others and we simply don't know the full details of what has been added over the last twenty years. In some countries, effectively no details at all.

Is there a looming crisis? Probably yes - but when is another matter

So what one needs to do, I suspect, is to take a close look at who is doing what in terms of trying to acquire reserves, not just for now but for the long term. Which is why I find the eagerness of governments like those of China, India, Japan and South Korea to gain access to reserves in the Gulf so interesting. But then perhaps their planners are just better equipped/managed in terms of taking a long-term view. As more of the world's reserves are controlled by (if not necessarily wholly-owned by) such major importers as well as the producers' NOCs, perhaps what we are heading for is not so much a rapidly-looming global shortage, but a looming crisis for countries/companies other than these of not being able to compete effectively for access.

That's all a bit 'macro' for me, though

'Oil Reserves Exaggerated by one third' says former Chief Scientist and Oxford University team - source D Telegraph 23/3/10

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Cuthbert C

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