Global Reserves and Production

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Although reserves are finite, a shortage of fossil fuels is not to be expected in the foreseeable future. Accumulations ofhydrocarbons occur in almost every part of the world, from conveniently located, easily accessible sites, to very hostile and remote environments such as the Polar Regions or offshore locations in deep water. Fossil fuel resources are usually subdivided into several categories. The well-explored shares of total resources that can be extracted with available technology at acceptable costs are referred to as reserves. This category may be divided into "proven reserves," and "probable reserves," based on exploration results and the degree of confidence in those results. The term "proven reserves" is thus used for the amount of oil, gas or coal that can be recovered economically under current market conditions. Advances in exploration and extraction techniques constantly transfer fossil fuels from the resource category to the proven reserves pool. Innovations such as horizontal drilling extended the extractable share, as they allowed production from many previously inaccessible reservoirs. The distribution of global proven oil, gas and coal reserves in 2002 is depicted in Figure 3.2 and Table 3.2. An additional distinction is made between conventional and nonconventional resources. The term "nonconventional" is used for reservoirs that cannot be produced at economic flow rates or that do not produce economic volumes of oil and gas without assistance from massive stimulation treatments or special recovery processes and technologies [9].

At the end of 2002, global proven oil reserves were estimated to be about 1.43 x 1011 tonnes. Two thirds of these reserves are located in the Middle East. Saudi-Arabia holds 25 % of the global proven reserves, followed by Iraq with 10.7 %, Kuwait and the United Arab Emirates with 9.3 and 9.2 %, respectively and Iran with 8.6 % [3]. As oil production in the North Sea and the USA shows signs of declining, the dependence of the industrialized world on the immense oil reserves in the Middle East and other politically sensitive regions will increase over time [5]. At present, however, the influence of the Middle Eastern countries and other OPEC members is not as strong as one might assume. In 2002, annual global oil production reached 3.56 x 109 tonnes. Of this amount, only 38.4% was produced in OPEC-countries. Major non-OPEC oil producing countries include the Russian Federation, the United States, Mexico, China, Norway, the United Kingdom and Canada. In total, oil is produced in approximately 90 countries worldwide.

How long are the reserves going to last? This crucial question is as old as the oil industry itself. Warnings of an imminent physical shortage of global oil resources were issued as early as in the 1920s, when the US Geological Survey warned that the nation was running out of crude oil [2]. The subject of oil depletion has always been discussed very controversially [4, 10-12]. In the 1960s, oil geologist Marion King Hubbert proposed the Hubbert curve, which became the best known model of oil production. It implied that the discovery and production of oil over time would follow a single-peaked, symmetric bell-shaped curve with a peak in production when 50 % of the total oil in place had been extracted. Based on this

Table 3.2 Oil, gas and coal reserves 2002.

Coal

Oil in 109 tonnes in 1012 m3 in 109 tonnes

North America

Central and South America

Europe and Eurasia

Middle East

Africa

Asia Pacific

257.8

55.3

292.5

21.8

12.6

11.8

13.3

model, Hubbert predicted that the US oil production would peak some time in the late 1960s. His forecast was quite accurate, as the actual peak occurred in 1970.

The Hubbert curve was used by other authors to extrapolate future oil production on a global scale [4, 10, 12]. Most recently, Colin J. Campbell forecast the peak in conventional oil production to occur around 2010 [10]. The difficulty of these projections lies in the fact that, in reality, production curves are not likely to be symmetrical. The shape of the trailing leg of the Hubbert curve is a function of many variables including supply, price, access to environmentally sensitive areas and technology. Many curve-fitting models only poorly reflect the improvements in oil recovering technology and the - hardly predictable - influence of fluctuating oil prices. Interestingly, most recent results of curve-fitting methods show a consistent tendency to predict a peak within a few years, followed by a decline, no matter when the predictions were made [4]. This finding indicates the great amount of uncertainty that is associated with all estimates of oil reserves and future production.

The official statistics generally do not rely on curve-fitting methods. Instead, they use a very straightforward term, the proven reserves to production (R/P) ratio. The R/P ratio is based on present conditions and does not account for future changes in exploration and production technology, price and demand. In 2003, an R/P ratio of 40.6 years was reported for conventional oil reserves [3]. Interestingly, this ratio has altered very little during the last forty years. In fact, the R/P ratios of all fossil fuels were substantially higher in 2003 than a century earlier.

As global consumption of fossil fuels is expected to rise further in the coming years, nonconventional oil resources become increasingly more important. These include tar sands, shale oil, heavy oil and deep-water oil, which are more expensive and difficult to extract and process than conventional liquid crude oils. The world's nonconventional oil resources far exceed the proven conventional reserves. The largest accumulations of nonconventional oil are not found in the Middle East, but on the flanks offoreland basins on the American continent. Large oil shale deposits occur in the Western Unites States and Australia. Major tar sand reserves are found in Canada, in Venezuela and to a lesser extent in Madagascar. The Canadian tar sands contain more oil than the entire oil fields of Saudi Arabia. Production of nonconventional oil reserves is associated with considerable costs, technical difficulties and often a high environmental impact. However, the divide between conventional and nonconventional oil reserves is steadily shifting due to technical innovation. For example, oil is nowadays produced from the Athabascan tar sands in Northern Canada on an economical scale. In some statistics, the Athabascan tar sands have therefore been shifted to the proven reserves category, which led to a significant increase in total global oil reserves [13]. With further substantial improvements in technology and increasing oil prices, nonconventional oil reserves are likely to play an increasingly important role in the future.

World reserves of natural gas were about 1.56 x 1014 cubic meters at the end of 2002. 30.5 % of all reserves are located in the Russian Federation, 14.8% in Iran, 9.2 % in Qatar, 4.1 % in Saudi Arabia and 3.9 % in the United Arab Emirates. Global annual production reached 2.53 x 1012 cubic meters in 2002, corresponding to 2.27 x 109 tonnes of oil equivalent. Based on these figures, the reserves to production ratio of the world's conventional gas reserves is estimated to lie around 61 years [3].

In recent years, the gas industry has developed an increasing interest in non-conventional gas reserves, such as coalbed methane, tight-gas sands and methane hydrates. Tight-gas sands and coalbed methane are already economically produced at certain locations, while energy recovery from methane hydrate is still far from being a commercial application. Coalbed methane is formed during the process of coalification and stored in the micropores of solid coal. It can be desorbed from the coal by lowering the pressure. However, only a minority of coalfields are suitable for commercial coalbed methane recovery, because economic production is only possible from coal beds with exceptional permeability [14].

The most extensive nonconventional natural gas reserves occur in the form of solid compounds ofgas and water commonly called gas hydrates. These crystalline structures typically form when small "guest" molecules such as methane or carbon dioxide contact water at low temperatures and moderate to high pressures. The gas concentration in a hydrate is comparable to that of a highly compressed gas. Large methane hydrate resources exist in arctic permafrost undergrounds and in the deep ocean bottom. Estimates of the extent of these deposits vary widely. Some authors suggest that the amount of energy in hydrates is equivalent to twice that of all other fossil fuels combined [15]. However, the potential of these ice-like crystal structures for energy recovery is controversial, as the extraction of methane from the hydrate crystals is expensive and technically challenging. Nevertheless, several countries, including Japan, India and the United States, have set up research programs to examine the possibilities of methane hydrate production. Pilot drilling, characterization and production testing of hydrates have begun in arctic permafrost regions and in ocean drilling programs. Japanese and American programs predict that stand-alone hydrated energy recovery will begin by 2015 [15].

As far as coal is concerned, resource depletion is not an issue. The world's coal reserves will last for generations. At the end of 2002, BP reported global coal reserves of 9.84 x 1011 tonnes and an R/P ratio of more than 200 years. Almost half the world's reserves are located in OECD countries. The largest accumulations of coal are found in the United States (25 % of global proven reserves), the Russian Federation (15.9%), China (11.6%), India (8.6%) and Australia (8.3%). The main producers in 2002 were China (29.5 % of global production) and the United States (24%) [3].

In the end, it becomes clear that resource exhaustion of fossil fuels will not be a matter of actual physical depletion. Or, as the former Saudi Arabian oil minister Sheik Yamani expressed it:

The Oil Age will not end because the world runs out of oil, just as the Stone Age did not end for a lack of stones.

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