Wednesday, June 11, 2008

Proven World Oil Reserves:1,238 Billion Barrels

That's 1.238 trillion barrels of known oil reserves, or 1,238,00,000,000 barrels. And reserves have actually been growing, by 107.8 billion barrels since 2001, and 168.5 billion barrels, or 14%, over the last decade. Global reserves have risen by 36% since 1987 (map/chart above shows how the 1.23 trillion barrels of oil reserves are distributed globally).

These stats are from the "Statistical Review of World Energy 2008," released today by BP, and reported by The Economist:

"We're not running out of hydrocarbons,” insists Tony Hayward, the boss of BP, one of the world’s biggest oil firms. To back up this view, he cites various comforting figures from the latest edition of the firm’s “Statistical Review of World Energy," released today.

Enough oil has already been discovered around the world, Hayward says, to maintain consumption at current levels for another 42 years. As he put it, humanity has guzzled through 1 trillion barrels, but has its next trillion already lined up, and could probably unearth a third trillion if it really applied itself.

Why then, are oil prices hovering over $130 a barrel?

Mr. Hayward blames poor policy-making or, in his florid phrase, “the madness of men." Some 80% of the world’s oil reserves, he says, are in the hands of state-owned oil firms, which tend to allow firms like his only limited access. He believes that if these riches were fully exploited, the world could easily produce 100m barrels a day or more, a big increase on last year’s figure of 82m barrels per day.

MP: What about all of the attention on rising demand for energy in China and India, and how that contributes to rising oil prices? Well, according to the report's statistical tables, India's share of global oil consumption in 2007 was only 3.3%, not much more than Canada's 2.6% share or Mexico's 2.3% share, and India's oil consumption has grown less than 3% annually during this decade. And India and China's 12.6% combined share of world consumption is still only about half of America's 24%.

In fact, total global oil demand increased by only 1.1% in both 2006 and 2007, roughly the same rate as the increase in world population, and about half the 2.03% average annual growth in oil demand during the 2002-2005 period.

What's going on? Increasing world oil reserves, and relatively weak growth in world oil demand, and oil prices have now doubled in the last year? Is this an oil bubble?

17 Comments:

At 6/11/2008 3:18 PM, Blogger spencer said...

Using the same data, in 2007 China, Hong Kong and India accounted for 84.3% of the increase in world oil consumption.

 
At 6/11/2008 4:40 PM, Anonymous E. Harokopos said...

"What's going on? Increasing world oil reserves, and relatively weak growth in world oil demand, and oil prices have now doubled in the last year? Is this an oil bubble? "

That is not the proper qustion to ask IMO. The proper question is:

If oil reserves are increasing and there is a relatively weak growth in world oil demand, what is the real cause of the doubling of oil price in the last year?

Possible answer: although initial conditions present very small perturbation of demand and supply, there is a possibility that the current worldwide energy dynamics are chaotic. If the system is chaotic, the fast rise of price can be justified even in face of small changes in initial conditions.

So, IMO, the fundamental question is whether current energy trading conditions are chaotic and what should be done to linearize the system in the short term in terms of policy.

Beware, if the system is chaotic, increase of supply will not drive prices down. Something else muct be done.

 
At 6/11/2008 5:22 PM, Anonymous diz said...

Reserves not equal production.

You put a numbnutz like Hugo Chavez on top of a pile of reserves, you get less produciton than if you put Exxon or BP on it.

Private oil company R/P (reserve to production ratios) tend to cluster around 10 years. Private oil comapnies are sensitive to the time value of money and don't like to leave their reserves in the ground.

Demand is about 30 billion barrels per year now. That 1,200 billion barrel number suggests a world R/P of 40 years.

 
At 6/11/2008 6:29 PM, Blogger Biebs said...

Production went down 0.2% from 2006 and demand went up 1.1% from 2006. Supply down + demand up = prices up. Is a doubling in prices justified? Perhaps not but an increase is to expected.

 
At 6/11/2008 6:52 PM, Blogger Jeb Bleckley said...

Since both the demand and supply of oil are increadibly inelastic, and at this point all the slack has been wrung out of the system, it makes sense that we are seeing large price increases due to very small demand increases. While investors who believe we have hit peak oil and speculators who seem to believe that all trends will go on forever without end are probably contributing to the high prices, we would probably still be well over $100 per barrel based solely on the inelastic and increasing demand pushing on the equally inelastic supplies.

This does imply that once a serious supply response occurs (the important metric here is extraction and refining, not discovery) we will see prices fall fairly quickly (though not as fast as they rose, because the demand is still higher, and because of general stickyness).

While I am here, permit me to push my blog

 
At 6/11/2008 7:17 PM, Anonymous Anonymous said...

"supply of oil are increadibly inelastic, and at this point all the slack has been wrung out of the system"

The supply is very elastic, if you privatize the major oil companies (Saudia Aramco, PDVSA, etc.) They are the ones with potential production slack, due to a combination of inherent state-run industry inefficiency in addition to their governments short-run profit desire.

Indeed, I think they will price oil out of the predominant energy role if the price stays where it is.

 
At 6/11/2008 7:19 PM, Anonymous Anonymous said...

Kiss of Death to the gasoline crisis?

Soon drivers will be able to get at least double the gas mileage of a Toyota Prius hybrid, thanks to a spate of new aftermarket kits that convert any car into a plug-in electric vehicle.

 
At 6/11/2008 8:25 PM, Blogger juandos said...

I like this answer: "Possible answer: although initial conditions present very small perturbation of demand and supply, there is a possibility that the current worldwide energy dynamics are chaotic. If the system is chaotic, the fast rise of price can be justified even in face of small changes in initial conditions"...

Yet I can't help but wonder if the price is being driven in part due to the politics here in the US?

I mean we have decades of don't go there zones imposed by honesty challenged yet clueless politicos...

 
At 6/12/2008 3:25 AM, Anonymous E. Harokopos said...

Juandos: "Yet I can't help but wonder if the price is being driven in part due to the politics here in the US?"

Maybe not before but now the system is so sensitive to any conditions, economic or political, that action or inaction can affect the price stability to the upside.

If small changes in demand/supply can drive prices from $50 to $140 then imagine what can happen with a major situation.

However, I still believe it is the way energy is traded that contributes most to instability. First step close down NYMEX futures to the benefit of mankind and replace that with Forward Agreements between producers and users only. Thus, remove permanently unessesary hedge fund speculation out of the system.

But I'm afraid there is a think tank out there which has convinced politicians in the US that high oil prices are good in the longer term because they will regulate future consumption and drive research for alternative fuels. While that might be true, I think it is the wrong policy because it has numerous negative side effects in other sectors of the economy and can lead to stagflation.

I further see inability from political side to solve the problem due to many conflicting objectives. I forsee oil going to $250 before something is done. Inflation will hit 10% - 15% by next two years. That can even justify another war... you know what I mean...

 
At 6/12/2008 6:11 AM, Anonymous oilman said...

Said Gartman today: "In its annual Statistical Review, BP said the world's proven oil reserves fell by approximately 0.1% to 1.238 trillion barrels in 2007, down from 1.240 trillion barrels in 2006. It went on to say that average global oil production last year was 81.53 million barrels a day, down 0.2% from 2006, with the bulk of the decline coming from OPEC's production cuts and the far weaker-than-expected output from Mexico and other non-OPEC producers. In all, it was a bullish picture."

 
At 6/12/2008 10:17 AM, Blogger rufus said...

Sure demand increased less rapidly. Price skyrocketed. Also, most of the slowing in demand happened in the U.S. In China, where the price of petroleum products is subsidized Demand is booming. (Also, the Middle East.)

Don't fall for it, folks. We're peaking in "flow rate." We're declining in oil "Exported." (That's what WE care about.)

 
At 6/13/2008 12:43 AM, Blogger Gene said...

Remember the 1.2 trillion barrels is just proven reserves. Many experts believe there are at least 1.2 trillion barrels under mostly public land in the USA alone and some put that at 2 trillion.

Some of this oil can only be mined with new and so far undeveloped technology. For example in North Dakota, the estimate is over 400 billion barrels and with new technology developed in the past few years, we are now mining some of this reserve. But if the oil leases are allowed, further technology would be developed but without Congress authorizing the lifting of restrictions, the oil companies will not spend the required millions needed to develop the new needed technology.

Senator Ken Salazar, a Democrat, has stopped and killed a bill that would have ended a moratorium on enacting rules for oil shale development in Utah, Wyoming and Colorado. Many believe the reserves there could be at least 800 billion barrels. Senator Salazar on his web site states that Shell oil has not developed the needed technology but then the Fortune Magazine reporter states that Shell's scientist Harold Vinegar develop methods to efficiently and cleanly covert oil shale into light crude oil and Shell has confirmed it has the technology - so why not lease those lands? We have nothing to lose but a lot to gain. Google "The politics of Oil" to get the full article.

I wrote Senator Salazar to let him know how convoluted his reasoning is and how awful he is not allowing the oil shale to be developed.

We must get angry at Congress and not let our Representatives off the hook. We apparently have the oil and any development will have an immediate downward pressure on gasoline prices. The more we look at the oil price spike, the more bazaar it becomes.

 
At 6/13/2008 12:59 AM, Blogger Gene said...

This comment has been removed by the author.

 
At 6/13/2008 1:03 AM, Blogger Gene said...

To believe that speculation has no effect on the price to me is counter intuitive. I know the price impact of speculation is in dispute but it must have an effect. Any serious attempt to develop our estimated reserves will immediately dampen the speculation and the hording of oil in storage, in tankers stopped at sea, and in the futures. The price of oil should decrease as soon as the speculators believe we are serious about developing our reserves.

Also, there are two main types of speculators. The traditional speculators are price sensitive and obviously with the tanker spot shipping price, they are storing oil in tankers and must then have used up most of the on-land storage that is considerably less expensive.

The other type of speculator is the index traders mostly very large pension funds, investment banks, etc who use oil as a hedge. I don't completely understand the implication but these traders are not price sensitive and now apparently are driving the oil price market. According to Michael Masters in his testimony to the Senate, at the end of 2003 there was $13 billion in commodity index funds (mostly oil and grain). By March of this year, that amount grew to $260 billion and is growing at the rate of about a billion dollars a day. These index speculators have to be a major player in the oil price game.

See Michael Masters, a major long-short hedge fund manager, written testimony to Congress on May 20, 2008 - you will need to google it and in doing so you will also have links to those who disagree with him.

Gene

 
At 6/13/2008 1:26 AM, Blogger OBloodyHell said...

> thanks to a spate of new aftermarket kits that convert any car into a plug-in electric vehicle.

And where were ya planning on getting the electricity from?

In case you didn't notice the brownouts a few years ago, the whole electric grid is running markedly closer to capacity than it rationally ought to, thanks to idiots not allowing new plants to be built.

Even assuming these conversions are effective, just adding that demand onto the local grid is going to create massive brownouts around the nation.

"Smooth move, Ex-Lax."

 
At 7/18/2008 6:15 PM, Blogger james said...

While it is true that there are adequate reserves to satisfy demand, the problem is that the great bulk of the world's reserves are concentrated in a only a few unstable places, and that there is no spare global production capacity due to a lack of investment in the 1990's. This is the environment that creates rampant speculation.

This circumstance is the inevitable consequence of the price collapse of 1998, when oil price hit about $8 a barrel. This devastated the global private energy industry (not just oil and gas), and ensured that only the low cost producers would control the market.

The energy prices that we are experiencing today are the true legacy of the 1990's, and the shortsightedness of the policymakers in energy importing nations, particularly the U.S.

 
At 8/22/2008 1:09 PM, Anonymous Anonymous said...

Just a quick reply to Gene. According to the USGS, 95% sure reserves in the Bakken Formation North Dakota stand at 3.5-4 billion barrels, I was wondering what your source was for the the remaining 396 billion.

 

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