Future
world oil supplies:
There IS a finite limit
Unscientific reserve claims for political reasons
may obscure the fact that most large, economic oil fields have been found,
and permanent oil shock is inevitable early in the next century
L. F. lVANHOE
Novum Corp., Ojai, California
WORLD OIL, October 1995
The question is not whether, but when, world crude productivity will start
to decline, ushering in the permanent oil shock era. While global information
for predicting this "event" is not so straightforward as the data
M. King Hubbert used in creating his famous curve that predicted the U.S.
oil production peak, there are indications that most of the large exploration
targets have been found, at the same time that the world's population is
exploding.
This theme and a discussion of "reserve" and "resource"
definitions and use, or abuse, are the subjects of this article. Discussions
and illustrations give one indication of where the world is in crude production
and reserves, and where it is headed.
EXPLORATION MILESTONES: AN OVERVIEW
Petroleum exploration is an efficient technical procedure. Shooting of a
modern seismic net of lines across any basin will delineate virtually all
significant prospects, thus outlining where to lease for further test dulling.
However, it is a fact that the largest oil and gas fields in any basin or
oil province are also the biggest targets and the easiest to find with any
given technology; thus they are normally found early in any exploration
phase.
Dates when past exploration techniques were routinely used by large oil
companies include: surface geology (1900), refraction seismic (1925), electric
well logs (1930), analog reflection seismic (1935), mud logging (1940),
digital reflection seismic (1965), and 3-D digital reflection seismic (1978).
Significant drilling developments include: rotary drilling (1920), offshore
drilling barges (1950), deepwater drillships (1956), semi-submersible rigs
(1964) and horizontal drilling (1985).
All of these were significant steps in the improvement of land and marine
exploration. There are today virtually no areas where petroleum exploration
cannot be successfully carried out if preliminary geological studies indicate
a good chance of finding major petroleum fields.
OIL FIELD DISCOVERY TIMING
H. D. Klemme made exhaustive studies of oil field discovery patterns in
different types of basins, e.g., cratonic, deltas.1 His analyses showed that in all types of basins, 100%
of the reserves in the five largest fields were, on average during 1970-80,
made within six years after the first field was found. Of course, the area
had to be politically accessible, i.e., leasable, or no exploration could
be conducted. The average figure noted decreased steadily to the 6-yr level,
from 37 years pre-1930, as geophysical techniques improved.
We should be reminded that some of our grandfathers were excellent oil finders
even though they worked with the crudest of tools. For example, the peak
year for discoveries of world-class oil field giants, i.e, ultimate recovery
of 500 million bbl oil, in the U.S. was 1930 - in the world, 1962.
The present phase of petroleum exploration began with introduction of 3-D
digital seismic methods in the late 1970s. This technical refinement coincided
with the Iran-Iraq war and the accompanying 1980 oil price surge to $40/bbl,
which produced a global public energy panic. A worldwide exploration boom
followed immediately to find oil anywhere outside the Persian Gulf. Unfortunately,
despite intense efforts by all of the world's oil companies, only a few
of the new major fields, i.e., ultimate recovery of 100 million bbl promised
by their geologists, were actually found.
The world's accessible oil provinces had all been previously recognized
and most of their major fields found earlier. No new major oil provinces,
i.e., ultimate recovery 7.5-25 Bbbl, were found-the world is finite.2 The 1,311 known major and
giant oil fields contain 94% of the world's known oil, and are, accordingly,
the most critical for future global oil supplies.3
We must "think to scale" on global problems, as the following
table shows.
U.S. vs World Statistics
Area (time period)
|
Discovered
|
Extracted
|
Consumed
|
| U.S. (15 yr.1977-91) |
5 Bbo |
45 Bbo |
92 Bbo |
| World(10yr.1982-91) |
91 Bbo |
221 Bbo |
221 Bbo |
| Bbo = Billion bbl crude oil |
|
|
Fig. 1 summarizes when and where the known global
oil fields were discovered. The peak global finding year was 1962. Since
then, the global discovery rate has dropped sharply in all regions.4
3-D seismic and horizontal drilling techniques improved oil recovery in
known fields, but made no substantial change in global discoveries of major
fields. When the world oil price collapsed in 1986, exploration funds and
efforts were cut back drastically everywhere; and by 1989, all major companies
were consolidating and eliminating most of their geological/geophysical
staffs. The minimum 6-yr period needed to discover the five largest fields
in any basin had passed without making enough discoveries to whet top managements'
enthusiasm - so the money dried up except for prime prospects and farm-ins.
This is unfortunate because the huge remaining resources postulated by scientists
will never be converted to reserves unless explored for. It is unlikely
that increasing global oil price to the 1980 maximum would make any substantial
improvement in the discovery rate of new major fields, as the golden age
of oil exploration has passed its peak. For one example, much of the current
attraction for Russian oil deals is production - rather than exploration-oriented.
Western petroleum engineers and service companies are needed there to get
additional production out of known pools, rather than explorationists to
find new fields.
RESERVES VS. RESOURCES
Like the mining term ore, oil reserves are by definition economic,
or profitable. Resources, conversely, are less tangible. Two practical definitions
are:
Reserves: Engineers' (conservative) opinions of how much oil is known
to be producible, within a known time, with known techniques, at known costs
and in known fields. Conservative bankers will loan money on reserves.
Resources: Geologists' (optimistic) opinions of all oil theoretically
present in an area. Conservative bankers will not loan money on resources.
Explorationists must first find - and then petroleum engineers convert-theoretical
resources into producible reserves. An example of a resource that will never
become a reserve is gold dissolved in seawater.
Use of either term by any group depends greatly on whose money is involved,
e.g., resources mean your money-reserves mean my money. Differences can
be enormous. Government agencies and academic scientists tend to estimate
resources, whereas industrial/oil companies appraise only reserves. The
public, using its money to buy gasoline, is interested in producible reserves,
not in theoretical resources.
It is known oil that matters for production planning
- not oil yet to be found. Published geological and political estimates
of undiscovered oil resources have no set time limits stated or implied
for the postulated discoveries. Such open-ended estimates effectively imply
that the volume of resources yet to be discovered will lie somewhere between
zero and infinity and will be found sometime between now and eternity. Such
resource appraisals are only considered scientific opinions - regardless
of the competence of the scientific or economic committees that originated
them, or the elegance of the mathematical assumptions or computer programs
involved.
As C. D. Masters, Chief of USGS Petroleum Resource Analysis once acknowledged,5 "Assessing world oil
is only the beginning of the search for oil. Assessment means nothing more
than a judgment on its occurrence. Whether it will be discovered depends
on discovery activity. In that sense, Ivanhoe's method of discovery index
analysis, or finding rate,6
comes closest to predicting exploration success, given that the wells are
drilled." Well intentioned, but irresponsible scientists who continue
to discuss resources instead of reserves may be a significant cause of our
government's lack of realistic energy policies.
ACTIVE VS. INACTIVE RESERVES
Oil companies are in business to make money - not to find oil per se. The
present discounted economic value of oil to be produced more than 20 years
in the future is virtually zero, regardless of its price. Major oil companies
commonly distinguish between:
Active reserves: Those producible within the foreseeable future,
i.e., 20 years or less, and
Inactive reserves: Existence known but not considered producible
within 20 years, i.e, inaccessible or producible only with as-yet non-commercial
methods like enhanced oil recovery, etc. Conservative bankers will not loan
money on inactive reserves.
Some inactive reserves are called "inferred" reserves by USGS
and U.S. Department of Energy scientists.7
Inactive reserves gradually get shifted to the
active category as years go by and the field gets drilled up by infill wells
and stepouts.
U.S. DOE and the Energy Information Administration (EIA) report official
U.S. government reserves as only active.8 But scientific geological committees have recently blurred
the older firm distinction of known reserves by including inactive with
active-thus increasing the U.S. national reserves by modifying critical-term
definitions and creative bookkeeping. Their definitions, while scientifically
acceptable to specialists who read the fine footnote print have little bearing
on planning for next year's production by either oil companies or the nation.
Mature oil fields continue to decline as predicted by the petroleum reservoir
engineers.
POLITICAL RESERVES
Government petroleum ministries have an inherent interest in announcing
the "good news" of large national hydrocarbon reserves inasmuch
as large political reserves are useful for national prestige and in negotiations
for OPEC production quotas, World Bank loans and grants, etc.9 Sudden unsubstantiated
reserve increases announced by any government ministry should be viewed
with considerable skepticism. They may be mostly the puffery of political
reserves which will increase a nation's paper reserves, but have no effect
on near-term oil production.10
Natural gas is commonly converted to BOE (at the conversion of some 6 Mcf/BOE)
to increase a company's or nation's BOE reserves. However, gas is not the
economic or social equivalent of crude due to the inherent convenience,
safety and flexibility of oil. Natural gas's main global use is still as
a boiler fuel for electric power plants to which a pipeline or LNG tankers
must provide an umbilical from gas field to generator. Remote gas discoveries
may accordingly be assigned to the inactive reserve category for decades
while the special transportation lines are negotiated, financed and built.
A flattening of total U.S. (50 states) oil production from 1976-85 was due
to Alaska's new supergiant (ultimate recovery of 5.0 Bbbl) Prudhoe Bay field
coming onstream, Fig. 2. However, U.S. (48) onshore core production continued
to decline as M. King Hubbert predicted in 1956, except for a flattening
from 1981-85.
Undue significance has been given to this relatively
minor increase in total U.S. (48) production by committees of resource-calculating
scientists. Such theoreticians now tend to factor in a blanket increase
in the estimated ultimate recoveries (EURS) of all nations' oil fields.
Consequently, hyperinflation of global oil reserves (or resources) occurred
after 1986. Many of these increases are political reserves which tend to
lull public, politicians and stockbrokers into complacency. But the critical
numbers are U.S. and world oil production and new-oilfield discoveries in
recent years, which are not encouraging, see accompanying table.
The basic assumption is unrealistic that all of the world's, non-U.S. (48),
oil fields (mostly discovered since 1962) should have the same reserve increase
pattern as the older U.S. (48) oil fields, most of which date from the 1930s
or are of tiny size. Reservoir engineering technologies improved greatly
from the discovery of the super-giant East Texas field in 1930 (pre-seismic,
pre-E logs, on many small land blocks) to discovery of the Alaskan supergiant
at Prudhoe Bay in 1968, (post digital seismic, post-electronic well logs,
on a single large U.S. government permit to a major oil company). Again,
it is the major and giant oil fields (EUR >100 million bbl) that matter
globally - not the tiny oil fields so common in the U.S.3
HUBBERT'S CURVES
The only truly valid scientific projection of future oil production yet
made was that by M. King Hubbert in 1956,11 when he correctly forecast-on
the basis of statistical projections of past U.S. (48) (onshore and offshore
lower-48 states without Alaska) - that oil production would peak in 1969,
give or take one year. Since then, U.S. (48) oil production has declined
within 5% of Hubbert's 1956 prediction, Fig. 2.
Non-U.S. statistics were too vague for Hubbert to use for a valid projection
of ultimate global crude oil recovery. He did publish several examples for
a hypothetical global EUR of 2,000 Bbbl oil to show how future, virtually
unrestricted global oil production might peak and then decline, Fig. 3A.
Note that the gross EUR of oil has little effect on date of peak production
if unrestricted, e.g., Peak year = 1988 for EUR of 1,500 Bbbl vs. Peak year
= 1996 for EUR of 2,000 Bbbl. Note: Area under the curve must equal EUR
volume at the scale in upper left corner of the figure. This simple "area
under the curve and scale" should be included, as a control, on any
theoretical analyses of potential oil reserves/production.
Fig. 3B shows two alternate Hubbert curves for EUR = 2,000 Bbbl, i.e., area
under both curves = 2,000 Bbbl, for unrestricted and restricted production.
Since 1973, OPEC oil policies and prices have restricted global oil production.
Any additional U.S. oil produced by EOR from inactive/inferred reserves
will modify Hubbert's ideal curve into a horizontal line for some years
after year 2005, Fig. 2. The ex-USSR's oil production since 1950 has closely
followed an unrestricted Hubbert curve and is now declining even faster
than that of the U.S. (48).
Fig. 4 compares the actual restricted global oil
production plotted with the concurrent population explosion in less developed-countries
(LDCs). By year 2000, global population will be 50% greater than in 1975,
with a corresponding increase in LDC demand for crude. The industrializing
LDCs will soon become hard competitors with western nations for world crude
exports.
CONCLUSIONS
It is reluctantly concluded that there is strong evidence that the restricted
Hubbert Curve for the world's total EUR of oil may first peak about the
year 2000, Fig. 4, after which it may fluctuate along a horizontal production
line (restricted by Saudi Arabia/OPEC) before inevitable decline towards
a low baseline after year 2050. At an annual global production of 20 Bbbl/yr,
an ultimate difference of global EUR of 300 Bbbl will defer the inevitable
doomsday by only 15 years, i.e., 300/20
Fig. 5 combines past global production with all known reserves plotted per
1989 reserve-to-production ratios (R/Ps), arranged from top to bottom by:
developed, communist and OPEC nations. The heavy dotted line shows a realistic
21st Century world oil production curve. This predicted supply curve will
change only slightly from year to year.
The critical date is the inflection point (peak) after which global public
demand will substantially exceed available supply from the then few oil
exporters. A sudden global crude shortage of 5% could bring back the gasoline
lines of the 1970s - to the American public's surprise and dismay.
Thus, the question is not whether, but when, the foreseeable permanent oil
crunch will occur. This next paralyzing and permanent oil shock will not
be solved by any redistribution patterns or by economic cleverness, because
it will be a consequence of pending and inexorable depletion of the world's
inexpensive conventional crude oil supply.
The global price of oil after 1999 should follow the simplest economic law
of supply vs. demand-resulting in a major increase in crude and all other
fuels' prices, with the accompanying global economic/social problems of
hyperinflation, rationing, etc. After the associated economic implosion,
many of the world's developed societies may look more like today's Russia
than the U.S.
A successful oilman once remarked, "I would never hire an exploration
geologist who is not an optimist, or a petroleum engineer who is not a pessimist."
By this logic, the engineering conclusions offered above are, regrettably,
more conservative than the opinions of the many exploration geologists.
But haven't Hubbert's predictions for the U.S. been proved realistic, with
attendant negative economic ramifications? And decline time for the global
industry is not that far away. The economic and social ramifications of
that event will require serious planning.
_________
LITERATURE CITED
1. Klemme,
H. D., "Field size distribution related to basin characteristics,"
Petroleum resource assessments, Ed. C. D. Masters, International
Union of Geologic Sciences, No. 17, 1984, pp. 95-121.
2. Ivanhoe,
L. F., "Potential of world's significant oil provinces," Oil
and Gas Journal, Nov. 18, 1985, pp. 164-168. Ivanhoe, L. F.
and G. G. Leckie, "Global oil, gas fields, sizes tallied, analyzed,"
Oil and Gas Journal, Feb. 15, 1993, pp. 87-91.
3. Masters,
C. D., E. D. Attansi and D. Root, "World petroleum assessment and analysis,"
Proceedings of 14th World Petroleum Congress, Stavanger, Norway, 1994 ,
John Wiley & Sons.
4. Master,
C. E., "Global oil assessments and the search for non-OPEC oil,"
OPEC Review, Summer 1987, pp. 153-169.
5. Ivanhoe,
L. F., "Oil discovery index rates and projected discoveries of the
free world," Oil & gas assessments: Methods & applications,
Ed. D. R. Rice, AAPG Studies in Geology No. 21, 1986, pp. 77-83.
6. Root,
D. H. and R. F. Mast, "Future growth of oil and gas fields",
AAPG Bulletin, Vol. 72/3. March 1993, pp. 479-484.
7. Anon.,
U.S. DOE/EIA, U.S. crude oil, natural gas, natural gas liquid reserves,
1992 Annual Report, DOE/EIA - 0216(92).
8. Laherrere,
J., "Published figures and political reserves," World Oil,
January 1994, p. 33.
9. Campbell,
C. J., The golden century of oil 1950-2050, Kluwer Academic Press,
1991, p. 345.
10. Hubbert,
M. K, "Nuclear energy and the fossil fuels," American Petroleum
Institute, Drilling and production practices, 1956, pp. 7-25.
L.F. IVANHOE
Coordinator
M. King Hubbert Center for Petroleum Supplies Studies
Petroleum Engineering Dept.
Colorado School of Mines
Golden CO 80401
1-800-446-9488
or at
Novum Energy Corp.
1217 Gregory St.
Ojai, CA 93023
805-646-8620