Reported Oil Reserves versus Technical Analysis

The pessimists use technical data, whereas the optimists use the political data.

— Jean H. Laherrere, renowned oil geologist, ASPO Conference, May 20 0320

Dr. Salameh tackles the thorny question of how accurate are Middle East reserve estimates. His conclusion that these may be overstated by up to 300 bn [billion] barrels, or roughly five North Seas, will certainly give pause for thought. If his assessments are right, the world faces very major challenges in developing and securing the oil supplies it will require.

— Chris Skrebowski, Petroleum Review, Editorial, August 200421

All objective oil geologists agree that global Peak Oil will occur — the real debate centers around exactly when it will happen. One of the great difficulties of predicting Peak Oil is the ambiguous definition of "oil reserves;" another issue is the politically motivated reporting of oil reserve data. Typically, the mass media, government spokespersons, and economists utilize the suspicious political oil reserve figures as if they were facts. At the opposite extreme is the network of oil geologists, scientists, and interested citizens who attend annual conferences sponsored by the Association for the Study of Peak Oil and Gas. Of course various intelligence agencies, such as the CIA, also fall into the latter technical camp whose primary mission is to provide rigorous, unbiased, analytical intelligence.

IHS Energy (formerly Petroconsultants) is regarded as the premier source of technical data on the world's hydrocarbon reserves. The main asset of this Geneva-based company is their proprietary databases containing all significant information on the world's petroleum concessions, companies, exploration, and development wells outside the US and Canada. IHS Energy has proprietary data on virtually all discoveries, production history by country, fields, and company, as well as details pertaining to geophysical surveys. The detailed reports produced by this firm are not inexpensive, as their elite clientele pay approximately $35,000 for these reports. The oil and gas industry recognizes that no other organization has such a comprehensive database on the upstream petroleum industry. According to Kenneth Dreffeyes, a 40-year veteran oil geologist, the CIA was rumored to be one of the largest clients for Petroconsultants.22

The most obvious examples of politically motivated reporting occurred from 1986 to 1990 when OPEC countries revised their oil reserve numbers in quota wars. In essence, OPEC members added about 300 billion barrels of oil to their reported reserves. Without doubt, the sensitive nature of publishing technical oil reserve data is often relegated to opaque ministries within various governments and is typically performed without any type of third-party verification. According to Jean Laherrere, veteran oil geologist and member of ASPO, "oil is so important that publishing reserve (even production) data

All objective oil geologists agree that global Peak Oil will occur — the real debate centers around exactly when it will happen.

has become a political act."23 [emphasis added] For example, Russia's reserves are considered a state secret, and thus disclosure of its official reserve data is subject to a penalty of seven years in jail.24 Nonetheless, the value of Russia's reserves are well known, and trained geologists use past production data to build empirical models of Hubbert's curve to calculate likely oil reserve data in all oil-producing nations.

The temptation for OPEC countries to manipulate their reserve data was based on proposals during the 1980s in which oil production quotas were to be proportional to one's "proven reserves." Consequently, in 1988 Venezuela began listing its heavy oil as part of its proven reserves, thereby more than doubling its reported reserves from 25 billion barrels to 56 billion barrels. Unlike light, sweet crude, heavy oil is not currently suitable for use as transportation fuel, such as gasoline or diesel fuel, but is used instead for various industrial purposes. Unlike mankind, all oil was not "created equally."

The emergence of "political oil" reserve data during the 1980s is easily appreciated in the following chart of reported "proven reserves" by the main OPEC oil producers. OPEC data is likely significantly overstated based on analysis of technical data — before the advent of "political oil." In Figure 3.3, please note the transitions to the shaded areas regarding reserve figures. This suspicious "political" data illustrates why transparency and technical analysis is critical to develop models regarding Peak Oil.

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

UAE

28

29

31

31

30

30

30

31

92

92

92

Iran

58

57

57

55

51

48

48

49

93

93

93

Iraq

31

30

30

41

43

44

44

47

100

100

100

Kuwait

65

66

64

64

64

90

90

92

92

92

92

Saudi Arabia

163

165

165

162

166

169

169

167

167

170

257

Venezuela

18

18

20

21

25

26

26

25

56

58

59

1991

1992

1993

1994

1995

1996

1997

1998

UAE

92

92

92

92

92

92

92

92

Iran

93

93

93

90

88

93

93

90

Iraq

100

100

100

100

100

112

112

112

Kuwait

94

94

94

94

94

94

94

94

Saudi Arabia

257

258

259

259

259

259

259

259

Venezuela

59

63

63

64

65

65

72

73

3.3: OPEC's "Political" Oil Reserve data

Source: Oil and Gas Journal, "Statistical Review of World Energy 2003."25

3.3: OPEC's "Political" Oil Reserve data

Source: Oil and Gas Journal, "Statistical Review of World Energy 2003."25

If OPEC's reported reserves are to be believed, then 1988 was a year in which four OPEC members suddenly "discovered" they had a combined total of 189 billion barrels of extra "proven oil reserves." One reason for these absurdly exaggerated figures was Kuwait's decision in 1985 to increase its "proven reserves" by almost a third, from 64 billion to 90 billion barrels of oil. Even Saudi Arabia engaged in creative accounting in 1990 when it declared its proven reserves went from 170 billion barrels to 257 billion barrels — despite the fact that no giant oil fields had been discovered to justify these huge upward revisions.

From 1985 to 1990, the aggregate "proven" oil reserve data for those six countries went from 379 billion barrels to proven reserves of 693 billion barrels. However, according to retired oil geologist Colin Campbell, the actual oil discoveries during this time period were around 10 billion barrels.26 Despite these reported reserves appearing to be blatant political figures, the US government and most of the media continue to report these fantastic reserve numbers as if they were somehow factual.

Could the world's reported oil reserve data for the six largest OPEC producers — together containing an estimated 65 percent of global figures — be overstated by almost 40 percent, or 300 billion barrels? Many veteran oil geologists have stated this may indeed be the case due to political/economic reasons and an ambiguous definition of proven reserves.

Most recently, Canada engaged in somewhat confusing reporting of its oil deposits by broadening its definition of reserves to include all of its oil sand. In 2003 the oil sands found in Alberta were listed as proven oil reserves, causing Canada's oil reserves to increase in one year from 4.9 billion barrels to an incredible 180 billion barrels.27 As a result, according to the United States Geological Survey (USGS), Canada is now listed as having more "proven oil reserves" than Iraq, second only to Saudi Arabia.

While it is true that Canada does have billions of barrels of oil trapped in sand, separating the sand from this heavy oil requires huge amounts of energy, mainly tremendous volumes of high-pressure water that must be heated, usually by natural gas. This process also produces an enormous amount of wastewater that is environmentally dangerous and reportedly carcinogenic. Unfortunately, considering the fresh-water requirements, environmental damage, and a low Energy Return on Energy Invested (EROEI), oil extraction from Canada's immense deposits of tar sands will never be a panacea for either Canadian or US energy needs.28

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