319 comments on A Different Approach to Calculating Saudi Arabia's Oil Reserves
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319 comments on A Different Approach to Calculating Saudi Arabia's Oil Reserves
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I have no intention to be disrespectful, I'm just criticizing your work not you as a person.
I find this post quite naïve, especially coming from someone who posts at and reads TOD regularly. Both the US and Saudi Arabia are well documented cases of ill reporting practices, under-reporting for the first, over-reporting for the former. How can the evolution of declared reserves from these two countries be compared?
If you're not acquitted with this subject please read this post wrote by Chris (and the attached article by Roger Bentley).
Just as an illustration I leave you one of Jean Laherrère's many priceless graphs:
The case with the Saudis, though, stems from them dramatically raising their reserves in 1990. That's why they have a reputation for over-reporting their reserves. The key question is: Were they suspected of doing this in 1982, when their reserves were more transparent? I haven't been able to find any information on this, but if anyone has some I would like the reference. If they had been suspected of over-reporting the 1982 number, then you have a point. Otherwise, 1982 may be the last "good" number we have from them, which is the reason I tried to estimate today's reserves based on just depleting what was there in 1982.
You also have to consider the lag of almost 40 years between the peak of discovery in the US and that of KSA.
I am traveling, and only time for a quick reply. Based on your comments here, as well as those I got via e-mail over this article, I think people are misunderstanding my point. You wrote "for your argument to stand.."
I have two conclusions. One, is that if Saudi's reserves were accurately reported in 1982, and all one did was subtract out their production since that time, you get a (modestly) higher number than the HL indicates. That's one, and it's accurate as far as I can see. If I tried to argue for a higher number, then you could say that comparing the U.S. to Saudi may be inaccurate. But I am merely saying that unless we have reasons to suspect their reserves were overestimated in 1982, the remaining reserves should be at a minimum of what I calculated them to be.
However, my other point is that one can't really argue that their reserves are higher than that, because as shown when I applied it to the U.S., it gave me an answer that was grossly in error.
The final item was that it was surprising to me how much oil the U.S. has produced in the past 24 years from their reserves there. No implications toward Saudi there; I just thought the U.S. statistic was interesting.
NOTE: For readers who may wonder why there are comments prior to the publication of this essay, these comments took place while the article was still in the queue.
Note the understatement of US reserves versus actual production.
Then consider that using only data from before the US peak that Khebab accurately predicted US production up to the present within 99%.
Who was wrong here? The reports of US reserves were wrong and the HL method predicted more production that we would have expected from the reserve reports. And the HL method was right.
Note again that Russia fits the plot for production early 1980s to present from data that terminates in the early 1980s. Yet that HL prediction is 95% on the mark.
The known HL plots against KSA do not suggest there are 150 billion barrels left. In fact those plots indicate 70 billion barrels. Your 95 billion barrel would be above the HL plot for KSA.
Now, you can try to construct some other view and you are certainly free to do so but you cannot ignore that HL plots of US and Russia were so accurate. You must explain why KSA is an exception to the rule and you haven't done that. Instead you suggest a similarity to the US so therefore we should expect something similar. Yet the HL plots don't suggest that at all. Stuart covered the HL plot for KSA here. This is why we argue there are 70 billion barrels left in KSA. Because the HL plot says so and the HL plot has been correct about US and Russian production post-peak to such an extraordinary degree that it is incumbent on anyone disputing this number to demonstrate why the HL plot is wrong.
Isn't that EXACTLY what WT has been stating all along? That KSA will follow the same pattern that Texas, the Lower 48 etc have followed? If we saw US reserves drop 6 Gb after pumping more then 60 Gb, shouldn't the same trend hold true for KSA?
If it doesn't then, you just debunked WTs own argument for RR. Congratulations :)
Surely we all heartily agree with him!
The real numbers from 1982 to 2005 is that the US was pumping 8.6 million barrels a day in 82 and in 2005 is now pumping 5.1 million, that's a decline of 40%. It doesn't matter how much reserves the Sauds say they have, what matters is production numbers and even those are debatable right now.
So time will tell if they can ramp up, keep up, or start going down. But I think to explain to people how reserves numbers work or don't this post is somewhat irresponsible.
So the intelligent thing to do is to shift transportation from oil to coal? Cool! Let the mountaintop removals accelerate!
No, not the practice. The amount. That was the surprise.
What some of you are forgetting is that during my career I have been a Downstream guy and an R&D guy. I am learning some new things just like some of the people who e-mailed and told me that this was news to them. I am not an expert on Upstream operations, but this is the area I will be in when I go to Scotland. So, that is part of my motivation for getting involved in these upstream discussions. But don't expect me to be an expert in upstream. Others on this board know far more about upstream than I do. For now. :-)
I continue to be baffled by responses like this. First, I never "played" an expert. I am trying to learn about Saudi reserves, and tried to do a different calculation to verify the HL. It didn't work, but I found out the surprising information about U.S. production and reserves. Again, the "discovery" was not about how reserves work. It was that we had produced 10 times what we have drawn down over 24 years. That may not be news to you, but it was news to a lot of people, including me.
As far as the editors "allowing" this, one of the site owners specifically asked me to post this information here. Take into consideration that others may value the information more than you do, and your opinion is not particularly relevant to me when others got something from the information.
please
I am truly baffled.
Please indeed. Instead of the over the top personal attacks, why don't you build your case that I have presented myself as an upstream expert? Downstream? Sure, I know my stuff quite well there. I don't know everything, but I am quite knowledgeable. Ditto biofuels.
I am truly baffled.
Consider the fact that your opinion may simply be in error. It is not my intention, nor is it possible to please everyone all the time. In fact, the very fact that I work for an oil company means that it is impossible to ever please some people. Based on some of your historical comments and hostility toward me, I tend to think you belong in that latter category.
Now, you put up on a post information that anyone who has looked into a limited about how reserve numbers are kept knows it not to be any surprise at all. So why don't you try fessing up instead of people saying they're attacking you personally.
I've learned a lot of things on this site and its a very important issue, people deserve to be able get the best information possible and not "listen to me I'm oil company employee," and you do that all the time.
The oil industry has a lot of different areas. Most Upstream types won't know too much about refining, and vice-versa. I am a refining guy about to transition into an upstream job. So, part of what I am doing right now is trying to learn as much as I can about Upstream operations. The way I view this site, and the reason I started posting here in the first place, is that it is a place to share knowledge and to learn. However, you took the opportunity not to say "I disagree", but instead to belittle me personally. Why you felt the need to do that from your anonymous perch is something I simply can't know.
I agreed with your numbers on ethanol and took, and still do vehement exception to how you say oil "markets," which you continually argued not with public facts, but saying you had inside information
What I was doing was a favor to you. You would probably acknowledge that I do know some things that a layman would not know about the oil industry. Yet when I tried to help you answer a question - and I did have first hand information on some of this - you simply chose to disregard it and blow me off. That's your problem, but I won't ever try to answer another of your inquiries.
Now, you put up on a post information that anyone who has looked into a limited about how reserve numbers are kept knows it not to be any surprise at all. So why don't you try fessing up instead of people saying they're attacking you personally.
Why then, do you think some people even in this thread are saying "Those numbers can't be right." For me, the numbers were surprising. Just like an upstream guy might be surprised at how much energy it takes to refine a barrel of oil. However, if he did express surprise, I certainly would not feel the need to belittle him or suggest that this is common knowledge. The fact is, those numbers surprised quite a few people. You can see that someone expressed surprise in my blog. You can see surprise expressed in this thread. Surprise has been expressed in e-mails. So, your comments about this being pretty common knowledge ring pretty hollow with me. The thread has also generated a pretty good discussion, which sad to say you have not contributed substantively to.
I've learned a lot of things on this site and its a very important issue, people deserve to be able get the best information possible and not "listen to me I'm oil company employee," and you do that all the time.
I am starting to think you don't have an honest bone in your body. Show me a single example of where I have done that. Please link to the discussion, or admit that you are being dishonest. I went out of my way once to try to find out some information for you, and this is the thanks I get. But just know that you will never get even the most basic information from me ever again.
Since I believe you understand math pretty well, let me present a thought experiment based on a fairly simple premise.
The premise is that, say starting from right now, i.e. Time=0, we will find a growth in reserves that goes like 1/(Time+k), where "k" is some small number to keep the starting number finite. Let's say that this reserve growth falls in the provable category to indicate that we can extract it.
Three interesting results spring from this premise.
- The amount of reserve left from now until eternity is infinite. This is a property of integrating a hyperbola (1/Time) over all time. Essentially we get a URR of infinity.
- If production is rate proportional to the current reserves (the classic "greed is good" assumption which explains man's and the free market's capitalistic instincts), the position of peak won't change too much. This has everything to do with rate considerations. The rate of reserve growth cannot match consumption rates, and new discoveries are clearly dwindling.
And most importantly, the one thing that explains your puzzlement.3. The draw-down from reserves can become vanishingly small in this scenario. Taking finite production from an infinite pool leads to the conundrum that we are extracting an infinitesimal fraction of that eventually available.
This argument is subtle, but if interpreted incorrectly, it gives ammunition to the cornucopians, who can assert that huge reserves lay in wait. However, in reality, since rate extraction is proportional to current reserves, all we see is the classic effect of "diminishing returns". Of course this has real ramifications for a continuously growing energy-based global GDP economy, but the cornucupians will not spin it that way. They instead point to a continuously finite reserve that doesn't get drawn down by as much as one's expectations can intuit.
Having to face and account for this argument, a cornucopian would have to propose a reserve growth rate that will keep pushing the peak into the future. Unfortunately, this would have to be a growth even more aggresive that the 1/Time variant, which already has an infinite URR ! Fortunately, anyone actually proposing such a growth rate puts themselves in a situation that they can be endlessly mocked.
We have to continue to do question the numbers because otherwise we fall into the logical conundrum B.S. traps that politicians and corporations and scam artists have historically used to try to separate us from our money. Simple thought experiments like I have shown here remain one of the few options that we have to eliminate the rhetorical arguments from the public discourse.
As a recent and complementary example of where people have gotten hoodwinked in this fashion, google the "infinite horizon" argument to escalating Social Security costs. Bush's people have actually suggested huge future costs of S.S. based solely on a hidden assumption of an "infinite horizon". It takes time for the economists to dig this stuff out of the rhetorical arguments, but by that time the damage is done and people get a completely misleading impression. I remember hearing Al Franken debunk this argument quite effectively by saying that, "yes we may have a huge SS deficit, but will have infinite time to pay it off, so it looks like our current funding is no problem". Touche.
This was a first rate response, encompassing much of the peak oil debate. It also neatly points a spotlight on the Global warming and finite resources debates intertwinned with Peak oil.
If you don't mind I think I will "borrow" this example the next time I have a discussion with people who are overly optomistic about resource availability.
But lets get it on.
Isn't that EXACTLY what WT has been stating all along? That KSA will follow the same pattern that Texas, the Lower 48 etc have followed? If we saw US reserves drop 6 Gb after pumping more then 60 Gb, shouldn't the same trend hold true for KSA?
Westexas has been saying that based on the HL method the KSA should peak at the same point as the lower 48. In the lower 48 you had the Texas Railroad commission, in KSA you have OPEC.
The argument being debated here is that Rapier says that the reserve growth in the US might be mirrored in the KSA. Other counter the argument by saying that in the US reserves were intentionally underestimated, but that the opposite holds true for OPEC.
That misunderstanding has led to a lot of the comments in this thread. That was not my argument. I just checked US reserves growth to see how applicable such a method might be. As I said, it wasn't very accurate. However, it is possible that Saudi has had some reserves growth. We just can't know, and as I said we can't afford to risk that.
Why not ?
The region is well explored they have large reserves no real reason to assume any reserve growth came from fresh discoveries instead of better estimates for current fields.
Or probably more realistic different estimates of URR for current fields.
KSA has not announced large new discoveries.
And URR growth in existing developed fields has to my knowledge never lead to increased production rates ever.
Your argument holds no water, and WTs own arguments are undermining your position.
His argument is not RR's argument at all. WT's argument is that because KSA resembles the lower 48 IN THE HL PLOT that KSA is now set for irreversible declines.
Your ignorance is either astounding or deliberate. Which is it, Hothgor? Are you ignorant beyond belief or a deliberate troll? No other option fits after all these months of telling you the same thing over and over and over again.
One more time, Hothgor...
- The HL method correctly predicted US production from 1970 to 2006 using only data up to 1970!!!!
- Applying the same HL method to KSA says they are on the verge of irreversible declines.
Do you understand this yet? This is the heart of WT's argument. This is what I just explained to RR.http://www.econbrowser.com/archives/2006/07/saudi_prod_rigs.jpg
Unfortunatly, production in KSA now starts to decline, alltough being presented as production cuts, cause "the market is over-supplied"
Right.., hense the low prices these days.
Red Ferret says we have 29 years:
So nothing to worry about! </sarcasm off>
Is there any similar KSA chart like the US chart posted above?
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
No one has debated the 1982 number of KSA reserves. Mainly because of the almost obvious political boost later.
But how good is the 1982 number ?I know that in the recent past major oil companies have had to do major write downs of their reserves.
Can we really trust this number ?
I don't know either way but as far as I know its never been discussed either way.
I think its worth looking into.
I'm sure glad I'm not being held to account for my comments when I was in my 20's! The I Ching, my favorite spiritual book says that prisons are meant to be temporary dwelling places only. Let's put him on parole!
THIS is what I envision/wish/pray for in whatever community/local governemnt evolves around me as time goes by.
If you step back and look at it all (TOD), it's pretty amazing. Sorry for getting gushy...perhaps it's the holidays. Anyways, oilmanbob's comments got me thinking about it all.
I have trademark, copyright and trade secret rights in the concept. </fooling around>
That said, I have a question for the Grapholigists here at TOD (i.e. Kehab, westexas, RR, etc.) I posted the question in a nearby thread. Here is the link to my whole post.
Here is the question alone:
For sa, there has been no sec to worry about since sa bought out the wstern companies. The reserves they reported prior to that time might have been conservative, but there is no reason to think that any reserve number put out by sa since then means anything.
0. Falsifiability (can your argument be falsified in theory? If not, revise until it can)
1. Arguments in standard argument format:
- Since premise (1)
.
.
.
- since premise (n)
- and rebuttal premise,
- Therefor, conclusion
This makes it so much easier to understand what the person is REALLY trying to argument.
2. Fallibility (we may ALL be wrong on a particular argument)
3. Truth (search for the truth, not evidence to your position)
4. Clarity (use simple, plain language, preferably in standard argumentation form as in 1.)
5. Proof (if you state a claim, back it up with proof)
6. Charity (try to argument against the strongest version of somebody else's argument, not against a straw man or against a single typo or other mistake. If you don't understand the argument, ask for clarification)
7. Relevancy (let's stick to the arguments, NO ad hominems)
8. Acceptable (use acceptable logic shared by all)
9. Rebuttal (try to rebut your own premises)
10. Resolution (if one position is defended with accepted premises/logic, that is then accepted, otherwise judgement is suspended, until new data/reasoning is found. No need to rehash same old stuff over and over again. No need to name call, just because we disagree on an argument)
I think it would make our shared understanding here develop MUCH faster and hopefully lead to less misunderstanding and useless flamefests :)
Naive? Come on. There have been only 18 posts so far, but no one has questioned his accuracy that US reserves have been reduced by 6 Billion barrels since 1982, yet production was 57 billion barrels.
That is a huge contribution, and in no way should be ridiculed. I for one am a daily reader, but infrequent poster. I don't post because there are more knowledgeable contributors, such as RR and West Texas.
I for one agree with RR that KSA reserves are the key to when we reach peak oil. In fact, I think it is the most important piece of information in the puzzle of peak oil. It's apparent to me that KSA production is going to determine when our collective lives begin to change. Once we have this number, we can correctly report to the world a timeline for peak oil.
I think the reason people are attacking RR is because they don't believe that KSA reserves can grow the way US reserves have grown. Personally, I don't think KSA reserves have grown, but this correlation should give us pause. If they've had any growth at all in reserves, then they could have one last gasp, and increase production as they have promised.
Is West Texas right about KSA already at Peak? My gut says that he is right. I don't think KSA reserves have grown, and are somewhere around 100 Billion. But, like the rest of you, it is only a hunch.
Thanks RR.
Expecting it to play out the same way for Saudi Arabia is probably not realistic. They aren't subject to U.S. taxes, and they have other reasons to inflate their reported reserves (the OPEC quota).
Another thing Deffeyes wrote (I don't have the book at hand so this is from memory), was that Hubbert noticed that oil companies, for tax reasons, would claim discoveries made in the US in the thirties, when the oil wasn't needed, as new discoveries some twenty years later. And this was giving people the false impression that new oil was being found all the time.
What do you mean false?
Of course new oil is being created all the time. I have it from a solid authoratative source that this whole Peak Oil thing is a scam, a hustle.
Oh ... <sarcasm off>
I believe the estimates were off so far because of 1.advances in recovery technology and 2. higher prices extending the productive life of fields3. advances in the science of engineering reserves and 4. human error.
I can't see that erroneous calculations in the past mean we now have erroneous calculations. Just because Deffyes was right about the result-a lot more oil was produced than was shown in the reserves-doesn't mean he was right with his ex post facto reasoning. I have great respect for him and believe he is generally correct. But he blew it on the taxes reason.
Again, it was not the growth that was a surprise. If we had produced 10 billion barrels and pulled our reserves down by 6 billion barrels, I would not have been surprised. It was the amount that was the surprise.
And, as I said above, I have been a Downstream and R&D guy during my career. Just because I am in the oil business, you should not expect me to be an expert on Upstream operations. I have to become one, because my new position in Scotland will demand it. But I am just beginning. Discussions like this help me to learn, but at the same time I have to put up with many gratuitous insults during the process.
Has this been taken into account in the 1982 estimate?
Cheers,
Davidyson
Doesn't anyone else see a huge red flag here...
6 billion = 57 billion
Come on, that is a factor of almost 10 x. Some thing is very, very wrong with these numbers.
My guess is that it still doesn't matter. We have increased our imports and are still in domestic decline.
Now you are talking. You are displaying the exact same kind of surprise that I displayed when I saw the numbers. That's why I shared them. It didn't seem that they could possibly be correct, but they apparently are.
I guess that I wonder if the debate is worth the effort. More extraction for the US hasn't helped. We import what @60% of our oil vrs @30% with the first oil crisis of the 70's. We are still in decline. If HL fits and was predictive then perhaps it is the best tool available to estimate future oil production.
From what I have read nat. gas shortages may screw us first.
I wish CERA was correct, or any of these other overly optimistic forcasts.
I just found this small pool of oil. Since my company is publicly traded I am subject to SEC regulation. If my mule dies before I can pull all the OIIP out of the ground then I can go to my investors and explain that I bought a dud mule. They will be understanding and I am in the clear with the SEC.
On the other hand, if I pull in investors on the basis of 500 million bbls and for some wacky geologic reason, I only pull 5 million out of the ground, then I can expect my investors to be all over me and the SEC to be investigating me for securities fraud (why should my investors pay huge legal fees when they can file an SEC complaint and get the state to investigate on their behalf?). No oil, big lawsuits, a criminal investigation, and one dead mule. What's a poor wildcatter gonna do?
First smart thing is to underplay my hand a bit. What I think I got, and what I tell my investors, are two different things. If I over estimate and over promise, I can be in a world of hurt. If I under estimate and under promise, then nothing bad happens.
This approach has an added advantage. My investors want to see that I know my stuff and see my company constantly growing its reserves, its production, and its income. People pay good money for a positive earnings trendline so that is what I aim to deliver. Every year I can add a bit more OIIP onto the balance sheet. Every year I book more OIIP as proven reserves. Every year production goes up. Remember that this is taking place 40 or 50 years ago when the notion of frontloading the production profile to maximize the IRR (not the URR the IRR) was not a common technique. Financial wizardry had not yet hit the patch.
There is another advantage to this approach. If I tell you folks where my little 500 million bbl pool is situated then under the laws of capture there is nothing to stop oilmanbob from coming along with his rickety rig and his sick mule and bidding up the lease rights. Nothing stops him from trying to drill into my little pool. So shucks, maybe I got some oil then again maybe I got nothing but a lot of expensive dusters and one dead mule. Move along, nothing to see here.
It is hard to prove it with graphs but I think you can sense the existence of a series of systemic biases which promote conservative estimates and under reporting. Note that these systemic biases would be specific to a certain time frame and certain jurisdiction; they would not have application to a foreign jurisdiction such as KSA. However, the OPEC nations may have their own form of systemic bias in that the greater the claimed reserve figure, the higher the production quota they would be assigned.
It may also be useful to note that a proven reserve may be securitized and used as the basis for loans to the state. It would not be surprising if the OPEC nation reserve increases were immediately followed by a significant increase in foreign debt.
Looking at the present situation in KSA it is interesting that a graph presented recently on TOD showed they had paid off foreign debt and were now in surplus. Bankers are not all that dumb and they can read Simmons too.
The other main reason for reserve growth is that Geologists and Petroleum Engineers are very conservative personality types and don't make unsupported assertions very often. I'm not talking about politics, but rather that they are old fashioned conservatives and a great balance to overenthusiastic landmen and speculators. Therefore, they tend to err on the side of conservatism about reserves
In 1971 what did HL say the US reserves were? What geographic region did that encompass? Did it include offshore? Were we pumping oil from the gulf at that point?
HL is a great tool for predicting eventual reserves in a given geographical area.
If we started pumping like crazy just offshore of the West Coast of Florida, the URR for the US would change, right? (I realize not by that much, but it would change the slope of the tail slightly, right?
HOw does the HL look for Saudi Arabia if you calculate only with numbers up to 1982?
And lastly, what is the effect on HL of "throttled back" production?
Garth
Try reading the prior work done by Khebab and Westexas that compares HL predicted oil output versus actual using only data up to the US peak (1970). When a model gives a 99% fit against the US and a 95% fit against Russia, then the model has to be taken seriously.
Is that true? Would an HL through 1982 have predicted those reserves? I don't know. It would be interesting to see. I will look into this when I get back to civilization.
Robert consider this scenario. The 1982 estimates were inflated. And the KSA did experience some reserve growth but again provided inflated numbers. So at no point in time where reasonable realistic reserve estimates available from KSA.
This leaves HL as the best estimate we have of actual reserves. The fact that Kuwait has gone very quite on their real reserve speak I think for itself.
The safest assumption you can make for the ME is to ignore reserve estimate and trust HL.
At best the 1975 estimates which are quite out of date are about the only number we have that might be trustworthy.
http://www.peakoil.ie/newsletters/448
As far at the HL method itself goes. Most of KSA fields have been in production for a long time so we have a good production history. HL is very dependent on production history. What one would do to provide that the HL model is converging would be to take hl plots year by year and show that HL is both converging and its error term is decreasing.
So if your concerned about the stability of the HL analysis this sort of forward propagation would be really useful.
The median if this analysis would then be consider the estimate.