I doubt that one can trust BP for accurate data on reserves. The following is from the first issue of the Hubbert Center Newsletter http://hubbert.mines.edu
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OIL RESERVES AND SEMANTICS
by
L.F. Ivanhoe
The prestigious British newsmagazine “The Economist” stated in its 10/07/95 feature article ‘The Future of
Energy’:
“Fossil fuels supply over three-quarters of the world’s energy needs...In the energy needed to
move transport, oil is still king, supplying 97% of the fuel used...Truly modern renewables such
as solar and wind power provide less than 1% of world electricity...Proven reserves of oil are
now enough to supply the world for 43 years at current rates of production, compared with 35
years during the 1970s, according to BP, one of the oil giants...But even given the growth in
demand, the proven reserve figures probably underestimate the longevity of fossil fuels... ‘I
don’t believe that we will be out of oil in 40 years’, says Sean O’Dell, chief economist of the
International Energy Agency.”
Such optimistic statements are typical of the views of most economists in financial newspapers and magazines.
Unfortunately, their opinions are often based on research quoting questionable data. For example, the much-quoted
annual ‘BP Statistical Review of World Energy’s’ tables and graphs on ‘Distribution of oil reserves in 1994’ contains a
fine-print footnote:
“...(reserve) estimates contained in this table are those published by the Oil and Gas Journal
(O&GJ) in its issue of 26 Dec. 1994, plus an estimate of natural gas liquids (NGL) for North
America.”
O&GJ RESERVES
One must go back to the O&GJ annual year-end reports to check each of the oil producing nation’s oil and gas
reserves / production. On close examination, one soon runs into problems with the O&GJ numbers. The O&GJ merely
compiles the RESERVE information provided annually by each country’s government source. There is no way for the
O&GJ to check on the accuracy of foreign reports. To many foreign ministries, the O&GJ requests for reserve data was
either a sensitive state secret or a nuisance chore that no one was critically concerned about. Due to lake of guidance or
ignorance, a common answer was apparently “same as last year”. (52% of the 67 nations listed in O&GJ’s 25/12/95
report gave the identical oil reserve numbers as on 26/12/94; many for several years.)
Some nations’ numbers are obviously gross approximations. IRAQ doubled its reported reserves from 47 Bbo to
100 Bbo (Billion barrels of oil) in 1987, the number that IRAQ still lists for its reserves. Who could prove IRAQ wrong?
And what difference did it make to IRAQ if the world’s economists and planners were misled? By 1989 all of the OPEC
nations had raised their reported reserves to maintain everybody in line for their “oil quotas”. All of this increase was
creative bookkeeping “political reserves” rather than new oil discovered. These are the figures that bolster the apparent
change as reported by The Economist, that the world potential of reserves / production (R/P) increased from 35 years in
the 1970’s to 43 years in 1995.
Operating oil companies pay only limited attention to details of the O&GJ reserve numbers which are the domain
of academic planners. It is simply impossible to check foreign reports. Caveat Emptor! If the USA / UN will not trust
IRAQ’s Saddam Hussein to correctly report details of his military might - how can they trust his report on IRAQ’s OIL
RESERVES (his economic might)? The same question might be raised for all nations who get foreign government and
World Bank grants and loans based on large reported RESERVES. In summary - don’t trust the O&GJ (or BP’s) reserve
numbers implicitly - some 300 Bbo of political reserves may need to be subtracted therefrom.
In short - OPEC nations’ claimed reserves are intended to increase their “OPEC PRODUCTION QUOTAS” -
not to evaluate their oil as in other countries. Consequently, relating OPEC’s with other nations’ oil reserves is like
comparing apples with oranges (see Figure 1).
USGS OIL RESOURCES
The possible exaggerations in the O&GJ reserve numbers don’t bother me nearly as much as the economists’
treatment of the U.S. Geological Survey (USGS) “RESOURCE” numbers. These are commonly added to the O&GJ
RESERVES to produce a grand total of each nation’s “OIL ENDOWMENT”. The sum of two (unknown) values gives
huge numbers which are routinely and incorrectly called “RESERVES” - rather than “undiscovered RESOURCES”. The
equation should be:
(known) RESERVES + (undiscovered) resources = (unknown) resources.
The two technical terms (known) RESERVES and (unknown) RESOURCES are virtually synonymous to the
public - but not to the oil industry. Known RESERVES are calculated by the petroleum reservoir engineers and
conservative bankers will lend money on such RESERVES. RESOURCES, however, are estimates by scientific
geological committees, of the total amount of oil they feel may be present but still undiscovered in any area. Conservative
bankers will not lend money on undiscovered RESOURCES.
USGS geologists now prepare RESOURCE numbers for all nations, based on elaborate computer programs and
global data bases. Nobody else could do a better job. Unfortunately, the basic problem - like earthquake predictions - is
beyond the ability of any scientific committee to solve. The USGS uses a statistical formula that gives estimates of the
PERCENTAGE PROBABILITY OF NEW DISCOVERIES (oil volumes) and their reports have lots of guesses,
assumptions and fine print qualifying their methodology. Their final computer printouts are very impressive. However,
few operating oil companies concern themselves much with the USGS RESOURCE numbers, which are designed for
global planners/economists rather than working oil people who have different problems. Government and academic
scientists are always much more optimistic about the chances of new discoveries than are their oil company colleagues
who are regularly humbled by dry holes drilled on the very best of data.
The 1994 USGS undiscovered world oil RESOURCE numbers were:
95% probable (sure things) = 292 Billion barrels oil
50% probable (likely) = 582 Billion barrels oil
5% probable (unlikely) = 1005 Billion barrels oil
But the actual oil discovered in new global fields discovered during the 1982-1991 decade was only 91 Bbo, at
the declining end of a global finding curve (see Figure 2). A straight extrapolation of the 1982-1991 finding rate would be
180 Bbo during the next 20 years...far less than the USGS 95% (sure thing) numbers! This USGS discrepancy may be the
result of errors in their basic computer model assumptions - or the lack of any TIME limits in their computations. Oil to
be found more than 20 years in the future- is effectively worthless today.
If “Reserves” are “apples”, and OPEC “quota reserves” are “oranges”, then USGS “Resources” might be
“olives.” Combining them results in “fruit salad” - not “apples.”
SUMMARY
Unfortunately, planners who trust the O&GJ and USGS numbers base their economic projections on overly
optimistic data. It is now a question of WHEN-not WHETHER the foreseeable world oil supply shortage will confront us
sometime between 2000-2010 AD when the global demand will exceed the world’s oil production...to the surprise and
dismay of those who believed the superoptimistic economists.
L.F.Ivanhoe #HC96/1-2
7/18/96