For many years geologists and oil companies have published estimates of the total amount of crude oil that will ultimately be recovered from the earth over all time. Remarkably, these assessments of Estimated Ultimately Recoverable (EUR) oil have varied little over the past half century.

Estimates of ultimate oil resources lists 16 such recent estimates dating from 1979. For the past 25 years, with only two exceptions, estimates have ranged from around 1800 billion barrels to around 2400 billion barrels.

David Woodward, General Manager of the Abu Dhabi Company for Onshore Oil Operations, also analyzed 40 estimates of ultimately recoverable oil, all published between 1975 and 1993. According to Woodward, "there is a fair degree of consistency among the estimates, with the average value being 2000 billion bbl [barrels] and most [70 percent] falling in the range of 2000 to 2400 billion bbl." (See Distribution of estimates of ultimately recoverable world crude oil.)[1]

One widely cited assessment of EUR oil is the estimate (1994) of the U.S. Geological Survey (USGS), 2300 billion barrels.[2] In its analysis, the USGS provides very optimistic estimates for recoverable oil for both the former Soviet Union (FSU) and China, two countries with potentially large oil reserves.

• For the FSU, the Survey estimates ultimately recoverable oil at 344 billion barrels (about 15 percent of USGS's world total). Of this, 225 billion (two thirds) remain to be produced and 100 billion are still to be found.



• China's estimated ultimately recoverable oil is given as 84 billion barrels, of which 67 billion (80 percent) remain to be produced and 30 billion to be found.

In short, the USGS believes that both countries possess considerable amounts of still undiscovered recoverable oil.

At the other end of the spectrum are far more modest estimates for the EUR oil in these two nations.

Geologist Colin Campbell, formerly of Petroconsultants, a Geneva-based consulting firm specializing in global oil and gas data, believes that:

• EUR oil in the FSU totals only two thirds as much as the USGS estimates.



• China's EUR oil is only 60 percent of the USGS estimate.[3]

Regardless of which estimate ultimately proves correct, there is considerable debate as to whether the crude-oil reserves of these two countries can be converted into high levels of production.

• According to a recent review of global energy resources by the World Energy Council (WEC), more than 85 percent of the FSU's oil is in Russia, where production has been declining since 1990 for financial and other reasons and may recover only slowly. WEC estimates that to stabilize production at 1992 levels by 2000 would require an investment of $25 billion.



• In China, despite significant exploration efforts, especially in the Tarim Basin, reported proved oil reserves remain unchanged year after year. Production in China is expected to grow by a modest 1.4 percent per year through 2000.[4]

The majority of independent assessments of global oil have reached estimates roughly comparable to those displayed in Estimates of ultimate oil resources. Nehring (Rand Corporation) concluded that EUR oil lies between 1600 and 2000 billion barrels.[5]

"With improvements in oil recovery technology, ultimate resources could increase to as much as 2400 billion barrels. This range corresponds to the consensus of estimates of conventional world oil resources developed since 1970."[6]

OPEC itself estimates ultimately recoverable oil at 2138 billion barrels.[7] Riva concludes that EUR oil is about 2330 billion barrels.[8] Employing a geological model, Campbell and Laherrere (Petroconsultants, Geneva) calculate that EUR resources are no more than 1800 billion barrels.[9]

Why are these estimates so similar?

Great strides have been made during the 20th century in the science of identifying promising areas for exploration. Such technological advances as analog reflection seismic (1935), mud logging (1940), digital reflection seismic (1965), and 3-D digital reflection seismic (1978)[10], combined with basic scientific progress in understanding plate tectonics and oil formation, greatly expanded the chances of finding new oil deposits.

According to petroleum-geologist Campbell, "large tracts could now be confidently written off as non-prospective" if they failed to meet the now understood and essential criteria for successful oil discovery.[11] Petroleum consultant L.F. Ivanhoe argues that world petroleum exploration is now mature. The oil industry's years of hindsight and disappointing new-field discovery record during the great drilling surge between 1978-86, combine to yield sobering results, he concludes.

No new major oil provinces have been found or developed for several decades.

Indeed, according to the USGS, global discovery of new oil fields peaked in 1962 and has been declining since.[12] To date, many lightly drilled basins were found to be barren or only marginally commercial, and, according to Ivanhoe, new giant field discoveries are most likely to be found where large fields are already known -- in the Persian Gulf and Venezuela. Few giant discoveries are expected in the critical non-OPEC oil exporting countries.[13]

Campbell draws similar conclusions: "By now, the whole world had been thoroughly explored so it has become clear that no new provinces comparable with the North Sea and Alaska await discovery..."[14] The net result of lagging discoveries is the inevitable decline in producible oil: while world crude oil demand is about 22 billion barrels per year and rising, the amount found in new fields per year is less than 10 billion barrels and falling.

Evaluating these conclusions, some might argue that there are insufficient financial incentives to explore for new oil fields because world proved reserves are already quite ample. In a world awash in oil, they ask, why go looking for more? This viewpoint was recently implied in an article in the Economist:

"Proven reserves of oil are now enough to supply the world for 43 years at current rates of production..."[15]

Unfortunately, there are two holes in this argument. First, for political reasons, today's reported global proved reserves may be substantially overstated. Second, even though reserves may equal 43 times annual production (that is, a Reserves-to-Production ratio of 43 to 1) there is no basis for believing that production can be held constant for 43 years.

First, consider politics. Although the Oil & Gas Journal reports 1999 proved reserves at about 1000 billion (10⁹) barrels (of which two thirds are reportedly in the Middle East), this estimate -- the product of reports from the various oil-producing countries -- may be artificially high. In the early and mid 1980s, world proved crude oil reserves ranged between 650 and 700 billion barrels.

Beginning in 1985, OPEC members reported huge increases in their reserves, virtually overnight.[16] (See Proved crude oil reserves in several OPEC countries.)

• In January 1985, Kuwait reported an increase of 41 percent.



• In January 1988, Abu Dhabi and Dubai each reported a tripling in their reserves; and Iran, Iraq, and Venezuela, a doubling each.



• In January 1990, Saudi Arabia reported a 50-percent increase.

According to Campbell, these "huge unsubstantiated increases" are "political reserves" and are more related to OPEC quota negotiations than to technical re-evaluations.[17] To muddy matters further, these "political reserves" -- amounting to about 300 billion barrels and accounting for a third of world proved reserves -- have remained virtually the same year after year despite substantial oil production from them. Clearly, the large increases (300 billion barrels) in OPEC reserves reported in the late 1980s should be questioned.

As for R/P ratios, oil does not flow freely from a large container marked "proved reserves." Rather, each field has an optimal range of production (depending on the size of the oil field and other considerations) which, if continuously exceeded, will jeopardize the field's long-term productivity. In short, maintaining production at a constant annual rate would require continual additions to reserves.

This truism is clearly illustrated in the history of the lower-48 states.

• In 1970, when crude oil production hit its peak, reserves stood at 29 billion barrels and the reserves-to-production ratio was 8.4 years.



• In 1978, eight years later, reserves had plummeted by 35 percent from their 1970 value and production had declined by 20 percent.

In no sense was a reserves-to-production ratio of 8.4 years in 1970 sufficient to maintain production constant at the 1970 rate.

But is this rather obvious fact the whole story?

Economists argue that as oil scarcity takes hold, prices will rise, creating greater incentives to find new oil fields and increase recovery factors.

This is certainly true. But, the record of both U.S. and global oil exploration shows only marginal results.

• From the early 1970s to the mid 1980s, when world oil prices were very high -- $30 to $58 per barrel, in 1993 dollars -- exploratory and development wells in the United States increased dramatically, from 28 thousand in 1973 to a peak of 90 thousand in 1981.



• A high level of exploratory activity persisted until world oil prices crashed in 1986. Yet, during this entire period, proved reserves in the lower-48 states declined, from 25 billion barrels in 1973 to 20 billion in 1986, and crude oil production declined by 24 percent. Presumably, reserves and production would have declined even faster had oil prices remained low.



• As already indicated, during the 1970s and 1980s, global exploration by national oil companies increased dramatically with few new giant fields found. Indeed, according to Shell International, "Although world reserves have risen by 65 per cent since 1970, nearly all of these giant fields were discovered before that date."[18]

If the geologists cited here are correct and most of the major oil fields containing most of the oil have already been found, then increased exploration will, at best, identify only the few remaining major fields and a larger number of smaller ones. While helpful, these smaller fields will not be able to offset the long-term exhaustion occurring in the relatively small number of very large fields. Increased recovery in older fields will also help slow the decline in production; including higher estimates of ultimately recoverable oil is one way to represent this effect.

For many years geologists and oil companies have published estimates of the total amount of crude oil that will ultimately be recovered from the earth over all time. Remarkably, these assessments of Estimated Ultimately Recoverable (EUR) oil have varied little over the past half century.

Notes

1. David Woodward, "2020 Vision, A Look at the Oil Industry in the 21st Century," Middle East Well Evaluation Review, November 14, 1993.

2. C.D. Masters, et al., "World Petroleum Assessment and Analysis" (presented to the 14th World Petroleum Congress, Pub. by John Wiley & Sons, 1994).

3. C.J. Campbell, "Prophet or Cassandra?" interview, Petroleum Economist, October 1995.

4. The World Energy Council, "Survey of Energy Resources, 1995." See also: David H. Knapp, "Non-OPEC Oil Supply Continues to Grow," Oil & Gas Journal, December 25, 1995.

5. David H. Knapp, "Non-OPEC Oil Supply Continues to Grow," Oil & Gas Journal, December 25, 1995.

6. R. Nehring, "Prospects for Conventional World Oil Resources," Annual Review of Energy, 1982.

7. A. Miremadi and I.A.H. Ismail, OPEC, "Middle East Due Even Greater Role in Worldwide Oil Supply," Oil & Gas Journal, June 21, 1993: 61-71.

8. Joseph P. Riva, Jr., "World Oil Production After Year 2000: Business As Usual Or Crises?" CRS Report for Congress, 95-925 SPR.

9. C.J. Campbell, private communication, October 9, 1995.

10. L.F. Ivanhoe, "Future World Oil Supplies: There is a Finite Limit," World Oil, October 1995: 77-88.

11. Colin J. Campbell, "The Resource Constraints to Oil Production: the Spectre of a Pending Chronic Supply Shortfall," 1995.

12. Masters, Charles D., et al. "World Petroleum Assessment and Analysis," Proceedings of the 14th World Petroleum Congress," 1994, John Wiley & Sons, p. 537; Ivanhoe, L.F. "Future World Oil Supplies: There is a Finite Limit," World Oil, October 1995. pp. 77-88.

13. Ivanhoe, L.F. and G. G. Leckie, "Global Oil, Gas Fields, Sizes Tallied, Analyzed," Oil & Gas Journal, February 15, 1993. pp. 87-91.

14. C.J. Campbell, "The Next Oil Price Shock: The World's Remaining Oil and Its Depletion," in Energy Exploration and Exploitation, Vol. 13, No. 1, 1995, page 36.

15. The Economist, "The Future of Energy," October 7, 1995.

16. The following proven reserves data come from the respective final December issues of the Oil & Gas Journal.

17. C.J. Campbell, "Proving the Unprovable," Petroleum Economist, May 1995; "Prophet or Cassandra?" an interview with C.J. Campbell, Petroleum Economist, October 1995.

18. Shell International Petroleum Company, Ltd., "Upstream Essentials," Shell Briefing Service, Number Four, 1994.