oil stockpiles

Global Oil Reserves Overstated By 50%

May 6th, 2016 by

oil stockpilesA recent scientific paper has calculated actual global oil reserves as being less than 50% of the claimed 1.7 trillion barrels.  A combination of plunging oil prices and overly optimistic accounting means there are a total of 875 billion barrels of “phantom oil” on the books of oil companies world-wide.

Some analysts claim that the report’s conclusion of there being only 825 billion barrels of realistically recoverable global oil reserves has resurrected the phantom of “peak oil.”

Where Did The Oil Go?

While it is common for mining and oil companies to restate the amount of untapped resources depending on market conditions, there seems to be more going on than assuming economic conditions that are better than they are.

oil-man-white-backgroundAccording to former chief economist at Royal Dutch Shell professor Michael Jefferson, actual “proved” oil reserves are grossly overstated. Some of this is changing the rules for determining what counts as proved reserves. In his peer-reviewed scientific paper, Jefferson asserts “[T]he five major Middle East oil exporters altered the basis of their definition of ‘proved’ conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their ‘proved’ conventional oil reserves of some 435 billion barrels.”  That’s over one quarter of total global oil reserves that only exist on paper (especially at currently low prices.)

crude oilAnother factor that is inflating prove global oil reserves is counting the extra-heavy Venezuela crude and Canadian tar sands output as being normal oil. Both are more of a goo. Steam or chemicals (including hydrochloric acid, rubbing alcohol and antifreeze) are injected into the well to extract the oil. It then has to be cut with light crude or chemicals in order to get it into a marketable form. Jefferson notes that this makes Venezuelan heavy crude and Canadian tar sands more difficult and costly to extract (and of poorer quality in general than conventional oil) yet they these 440 billion barrels count the same as higher quality and cheaper light crude when calculating global oil reserves.

Son of Peak Oil

One of the observations Jefferson makes is that, according to several scientific studies, “the evidence suggests that the global production of conventional oil plateaued and may have begun to decline from 2005”.

Before you write his statement off as “oilbug” prognosticating, keep in mind that he spent nearly 20 years at Shell, holding senior positions that included head of planning in Europe and director of oil supply and trading, as well as chief economist. With that in mind, his conclusions are all the more worrying:

Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the ‘peak oil’ issue remains with us.”

The overstatement of reserves (except for changing the metric from a 90% probability of recoverable deposits to 50%) could simply be wishful thinking, or it could be motivated by a fear that funding would dry up if the real amount of proved reserves were known.

The total of stated global oil reserves could be closer to reality if oil prices double. This will take a jump in demand, and/or an extended disruption in production. Let us hope that renewable power resources grow to the point where we never find out if peak oil actually exists or not.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product