First in a series of six special reports on Future Energy Supply.

The debate over the possibility of a near-term peak in global oil production has boiled over. The dispute centers on whetherthe world faces a permanent peak in oil production in the near term and with. it a precipitous decline thereafter. Some of the main proponents of this view hold that the peak will come this decade and even speculate that the onset of the peak may already have occurred.

bate over peak-oil issue boiling over. ith major implications for industry. society
Bob Williams Executive Editor The issue has enormous implications, not just for the oil and gas industry but for all of humanity. Indeed, some proponents of the imminent-peak view offer up apocalyptic visions of a postpeak world-even speculating on the extinction of the human species. While the debate has been around

Readers are invited to participate in Oil & Gas Journal's online forum on the pesk-oi! controversy at wwwogjonline.com (General Interest)

for decades, there is a new urgency among the imminent- peak theorists. In their view, that urgency is.warranted because the day of reckoning is almost at hand, leading to, in the view of a leading proponent, "an historic discontinuity" in the world. The current dispute has echoes of the "limits to growth" debate of the 1970s, with its emphasis on severe resource conservation and reordering of global priorities away from a strong growth path. As then, questions over a rapidly depleting oil resource are being taken up by social. political, and envi-

ronmental activists to advance their own agendas. But this time the debate is framed againsrthe backdrop of growing international pressure to adopt measures to combat purported catastrophic climate change. 1t also comes at a time when heightened concerns about oil supply, geopolitical tensions, and fears of terrorism are intermingled daily. Because the global economy depends so heavily on access to low-cost oil, the prospect of an imminent peak in oil production suggests oil prices spiking to levels untenable for any economy. WhiJ.e that would strengthen the case for draconian conservation measures and an accelerated shift to other forms of energy, such solutions themselves would cause a massive economic dislocation as well. Governments mus t start ,taking such measures now, imminent-peak proponents say, to avert an even worse societal catastrophe. But those who disagree contend that the statistical models supporting an imminent peak and sharp decline for global oil output-and the reasoning behind them-are flawed and refuted by actual industry performance. The imminent-peak advocates respond that their opponents rely on badly flawed data on reserves and production and place too much emphasis on market forces and technology improvements at the expense of geological science, The debate-largely between geologists and energy economists-has become increasingly rancorous (see· opposing views presented by two leading advocates of their respective stances in articles that begin on p. 38). Bringing the dispute to a head recently was a workshop on oil depletion held by the Association for the Study of Peak Oil & Gas (ASPO) May 26-27 in Paris. (The presentations given at that workshop are are posted at www.peakoil.net.) Some of the scenarios outlined in the ASPO presentations are grim. And yet other analysts that have taken similar modeling approaches suggest that while there Illay be cause for eventual concern about peak oil production and decline, the problem could be at least several decades away, not within this decade
Oil & Cas Journal! July 74, 2003

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has extended the peak -oil modeling approach to populations and economies. So for oil and gas companies. the question is: When? and the steepness of the decline slope thereafter. Some see signs of imminent peak swipes at the US fOTits aggressive consumption of oil (while already being on the downside of the production curve).0 3. finding 19 .o c 0 >2 Hubbert's peak The controversy over oil depletion has its roots in a bell curve developed by a Shell Oil Co.5 2. often in crisis tones. who used it to model annual production and ultimate recovery of oil and gas in the US. 1 ill >l\ 3 ~ . and a global production peak and decline will eventually come.Apr 7.June 4. (Fig. King Hubbert. which means that the producers with the greatest reserves oflow-cost oil will exert even greater dominance over oil markets in the latter years to come. groups. with the subsequent.Lf on Interior and InsularAffairs'. often with HUBBERT'S BELL CURVE ON US OIL PRODUCTION. the downside will be so steep as to create unprecedented energy price spikes.n c 0 m 1. Some say Hubbert's curve was validated when he correctly predicted the peak of US lower 48 oil production in 1970 (Figs. 28. International and Douglas-Westwood Ltd. PRODUCTIUN 40 35 30 25 20 15 10 4." Whether the projection is off by a few years. the date when global production of oil and gas will peak. Oil & Gas Journal! July 74. 1860-1970 47 billion bbl. and the London-based Oil Depletion Analysis Center have emerged in recent years to promote the message of imminent depletion. Since then. 1-2). such as the North Sea. ultimately a high-oil price regime awaits everyone: Again. Dec. And the case for peak oil has gone beyond the province of academics to be taken up by investment banking and commercial consulting groups such as Simmons & Co. 5)_ And some of the ASPO presentations took on a political flavor.0 2. and deepwater areas and found imminent peaks there as well.5 1. his detractors contend that he consistently understated resource potential for both oil and gas in the Lower 48 because of methodology flaws COG]. He subsequently attempted the same exercise for Lower 48 natural gas.0 05 . 1971-1990 27 billion bbl. retired deputy exploration manager for Total SA.0 5 _Q _Q Q) _Q c 0 _Q . statement before tile subcommittee on the environmsnt. 33). ::l -0 a. 2003 rn _ 96 billion bbl. Jean Laherrere. rate of global additions to oil reserves via discovery-especially when plotted against rising production rates (Fig. p.0 3. Nevertheless. Petroleum science groups such as ASPO. 1998.2 .1974 170 billion bbl (80% In 57 years) House Cornmittee LOWER 48 CRUDE OIL RESERVES. there is a range of predictions about the world's ultimately recoverable resources (URR) . 4). 1997. But most of the depletionists seem to settle on that peak occurring no later than the turn of this decade.C 0 0. it is twofold: 1. Hubbert modelers have modified and adapted his bell curve to various regions of the world. 2) Supplies of low-cost oil are generally declining. One of the leading peak-oil theorists. ::: 5 1945 1950 1955 1960 1965 1970 '1975 1980 1985 1990 1995 2000 Source US Energy lnfnrmatio« Adminlstratioll falloff does occur. they nevertheless insist that when the in the current gas supply problems in the US and in the recent downturn in the. Even within these. and to share their findings.If there is any consensus within the debate. a number of petroleum scientists have taken up Hubbert's banner and sought to improve on his models and correct errors in his methodology while extrapolating them to the world at large (Fig. the crux of the matter is this: Even as oil price cycle volatility persists in the near term. 1991-2060 lIB ~ D -------- EquivalenttD Q= 20 billion bbl Source: M King Hubbert. based in Uppsala. the question lies in the timing.) Oil is a finite resource. former Soviet Union.5 Fig. 43. decline slope described as "falling off a cliff. geoscientist. p. M. however. 1860-2060 Fig. Sweden. 3).

told OG] that he accepts that the world oil production peak is "imminent.. and others have published. managing director. as Hubbert. because" after that date.. head of Honolulu-based FACTSInc." she told OGl " . 3 World World outside Persian Cull PersieriIlult US and Canada Former'Soviet Union Prod uction peak 2004 ~ . now Iraq. Fereidun Fesharaki. "Is there an imminent oil peak? The 20 short answer is no. And peak-oil critics also noted the surge in discoveries in areas deemed critical for future supply. and nonconvenrional oil can delay the peak to the 2020s. world energy project chief with the US Geological Survey in Denver. although generally not recognized by (Colin) Campbell. 4 1930 1950 1970 19902010 20302050 Source: Douqlas-Westwood Ltd more relevance with energy per capita data. we think the world's crude oil output can continue to grow at the rate at which oil demand is likely to grow (1 % per annum) until at least Oil s Cas Journal/July 14/ 2003 . Fig._. "The symmetric rise and fall of oil production is not technically supportable.0 . Ahlbrandt and others point to even mature areas such as the UK North Sea.~~.. 6-7). with the total of all petroleum liquids production peaking at 90 million bid around 2010.0 20 - UK and Norwav £ 15 '" Q) c . which in the past 20 years has repeatedly defied forecasts ora bellcurve-style decline (Figs.·:. 8). is one of many energy economists who contend that the Hubbert modelers disregard the roles of oil supply. A list of the countries who have opened up to foreign investment is an impressive who's who of producers: Russia. The CGES models stopped at 1973. Laherrere's models projected that ultimate oil recovery will total 3 trillion bbl. Why is there no accountability for these failed forecasts either by Hubbert or disciples such as Campbell. Last year. Wakefield..lv~17o~ .. Sarah Emerson. For example.Q i:O 10 0~~~~~L. Energy Security Analysis Inc." but he expects it to occur "sometime in the next decade.. "This pick applies only to conventional oil. etc. The geologists who present the resource scarcity argument tend to ignore changes ill the economic con- text.?" Instead. Venezuela.. Laherrere." said CGES Deputy Executive Director and Senior Economist Leo Drollas. "Because of shut-in crude oil production (almost all of which is ill the Middle East). and prices as well political and regulatory impacts. Laherrere.. Thomas Ahlbrandt. constantly changing as it responds to regulation and innovation. 25 . economists. and others who hav been making draconian end-of-civilization claims since 1989 and every year since . however. (Kenneth) Deffeyes." he said. foreign investment laws can change in countries with large reserves and limited access to capital or technology This means places where we never expected development (or expected slow development) suddenly open up. New-found access to capital and technology requires a total reappraisal of resource development. objects to the concept underlying the Hubbert curve. Imminent-peak detractors A number of prominent energy consultants. Azerbaijan. "1 do not believe the peak in global oil production is imminent.." She contends that the global oil industry and market is "incredibly dynamic.- - -- " u. it should be one input into a broader. "I believe in the plateau concept. Kazakhstan. and petroleum scientist have taken issue with the notion that the world awaits an imminent peak in oil production.~=L~~~~=C=±~ 1930 1950 1970 1990 Source: US Energy Information Administration 2010 2030 2050 DOUGLAS-WESTWOOD PEAK Fig." The Centre for Global Energy Studies. which reconciles the need for additional resources within the constraints of infrastructure and capital investment. oil production was not amenable to Hubbert-style analysis due to (Organization of Petroleum Exporting Countries) policies" CGES's latest modeling effort finds glo bal oil production tracking oil demand growth to 2020 and declining along a moderate slope thereafter. more comprehensive market analysis. not this decade. "The Hubbert curve analysis is far too static to stand as a gUiding assessment of the future of global oil supply As with any 'model' results. demand.. has" done quite a lot of Hubbert-type work over the years with respect to crude oil.~~~_. and maybe even someday Kuwait and Saudi Arabia. CAMPBELL-LAHERRERE WORLD OIL PRODUCTION ESTIMATES 30 ~--~--~--~----~--~--~----~--~----------------. such as the deepwater Gulf of Mexico (Fig. London." Other consultants acknowledge some value in Hubbert-style modeling but arrive at different results. Mass .

I Worltlpeak Siberia. Oil prices need not be susannual production and reserves data tained at high levels until 2020.4 58 31 18 65 6. 4. "Beyond this. when in fact 1996 92 4. and remaining surplus productive capacity in Fig. this will imply prostep in.3 167 25 top 10 international major the OPEC decision to decide 1988 92 4. 5 the Middle East in 12 claiming that they see " no immediate threat to conven10 tional supply. "so most of 1991 95 92 .4 51 production glut looms. National Iranian Source: OGJ now in decline. DISCOVERY VS. Samsam more than replaced by inBakhtiari.4 48 44 90 169 26 1987 31 1..9 that.~ How 22 Oil & Gas Journal! July 14.0 259 63 ects and plans for record their reserves by 50% to get 1994 4. we see production from fields in production or which are likely to be developed in the medium term GAP BETWEEN WORLD OIL CONSUMPTION.1 163 eas but instead concluded OPEC quota. 1981 1. noted the "spurious" or "arbitrary" reviOPEC OIL RESERVES SPIKED Table 1 slowdown in discovery rates sions dictated by the need to Abu Neutral Saudi in traditional (including inflate reserves numbers in orDhabi Dubai Iran Iraq Kuwait Zone Arabia Venezuela deepwater) exploration arder to secure a more-favorable 1980 28 1. in fact." WoodMac consultants Derek Butter and Martin Purvis told OGJ.0 93 113 94 5. which will delay this.4 57 30 165 20 65 5.0 258 59 258 1992 92 4.5 169 26 WoodMac contends that the second half of 1980s is due to 5.0 90 113 94 5.0 93 100 94 5.0 259 78 "While production from than 10 billion bbl. (Table 1).4 58 30 66 29 6.7 22 162 1.4 1986 30 1. questioned the creases from deepwater areas in West ration efforts lead to the opening up of methodology by which reserves in Africa and the Gulf of Mexico and the new provinces. this is being Oil CO. If disproducers in the 198 Os stirred up conventional hydrocarbon liquids to covery rates in these areas remain at much controversy.D C _. 1984 30 43 64 166 25 5.0.0 259 40 90 113 73 an average 2.0 259 78 some areas such as the UK Another prominent peak2002 92 4.. reaching falling. allowing unbe replaced by new discoveries. conventional crude pro- serves.S%/year..0 tory of development proj63 the OPEC members increased 1993 92 4. Peak-oil defenders denounce "It is. however. but afduction from these sources peaking have been at the center of the storm ter that date it is more than likely that somewhere in the 201 0 to 20 15 range.0 93 100 92 5.0 165 18 1982 31 1. "Thereafter.'sA. the ramp-up of nonconventional oil output in Canada and Venezuela.. ery in the Middle East was less 1999 92 4." the huge jumps in reserves for these Edinburgh-based Wood countries surveyed by OGJ as Mackenzie Ltd. 2003 ." But the WoodMac consultants also cited surging production in Russia. a near-term "The 300 billion bbl added 1983 31 1. " 0 8 6 0 0 ~ e ro o One of the major areas of con0 a 4 tention in the o z peak-Oil debate is the lingering ques-20 2 tion of how much oil remains in the -40 0 Middle East.0 170 58 1990 92 4. 0 1J 20 reserves' OPEC's 'hidden en . Oil & Gas Journal present low levels. possible that explooil prices will trend upwards.0 88 100 94 5. Given 1960 1970 1980 1990 2000 the opacity of lU1Source: Jean laherroro derlying data.0 89 100 94 5. peaking at around 81 million b/ d (compared with around 68 million bid in 2003) under the 2 trillion bbl (URR) case.4 49 45 90 1985 5. 2020.4 49 47 92 5." 200i 92 4..0 93 100 92 5.0 93 100 1989 92 92 5.0 90 113 94 5.0 92 259 65 capital spending-will hike higher quotas. 259 78 and the US Lower 48 are oil defender.0 90 113 94 5. the dramatic revisions duction will decline gradually.0 259 92 65 1995 4.0 93 100 5.0 259 65 output during 2002-07 by during this period the discov1997 92 4.0 93 112 94 5. for example the Offsome key Middle East countries are calcontinuing development of Caspian reshore Arctic or Offshore Northern culated.4 55 41 64 5.0 93 100 94 5." 4. but some of this shortfall will to reserves among the key Middle East 33 million bid by 2040.0 90 113 94 5.0 258 59 with a current strong invenLaherrere told OGJ.0 259 72 1998 92 94 5.M.0 261 73 2000 92 4.6 (in the Middle East) during the 31 1.2 167 56 oil companies it tracksthe quotas from the reserves. WILDCATS 80 60 40 :0 .

5 1.0 1." "Either these umpteen barrels had been 'forgotten: or they were newly 'found.0." Bakhtiari said. FORECASTS Fig.0 1996 20 1965 1975 1985 1995 1984 Source: Institute Francais de Petr61e 2005 2015 Source: Wood Mackenzie historical data.." Ahlbrandt.0 0. "Now.0 c 0 2.0 0.' UK NORTH SEA OIL PRODUCTION VS. after US Minerals Management Service ian oil reservoirs. experts at the four US oil companies in (Saudi) 24 stroke of the pen-to catch up with its main OPEC partners. the Saudi revision came on the heels of similar 'spurious' revisions by other major OPEC members in 1987-88. but it is coming and is adding Significant volumes already.----------------------. Mad Dog. not smaller.5 ~ . and there are increasing decline rates in some countries. it would seem that Saudi Arabia was trying-at a DEEPWATER GULF OF MEXICO RESERVES DISCOVERY 2. acknowledged that "the motives of every country in the Middle East certainly can be questioned.II.5 :!2. Ali Muhammad Saidi" (retired from NIOC in 1980) of 3 7 billion bbI.0 1. comparing the consulting group's own database that incorporates "technical" reserve numbers for undeveloped fields along with its proved reserves numbers.0 Fig. citing his experience in the Middle East. 2003 . "While in most countries this is usually because the fields are uncommercial." Drollas dismisses the depletionists' argument about OPEC reserves as a "red herring" because "the Hubbert methodology does not rely on recoverable reserves as such. I see larger. and with new technology and more effort it will be discovered. I also do believe some of these data are exaggerated. The world's crude oil production history from 19 J 8 to 1973 does not help us distinguish between URRs of 2 and 3 trillion bbl. So.000 I--------------------------~ ~ ~ en 0 . Most of the world hasn't had to worry about reserve growth much. which is a pity. in OPEC nations. "However." Bakhtiari questioned OGJ's proved reserves estimate of 90 billion bbl for Iran. He also questioned the roughly 90 billion bbl jump recorded for Saudi Arabia" after a rather poor 198 Os. 8 undeveloped Produoing !4._ • 1980 1988 1992 • A Real production 1982 forecast 1987 forecast 1990 fo recast ~ 0. "And the methods used are usually far from scientific. I also do believe there is much undiscovered oil and there is room for increasing recovery rates in a substantial way. "On top of that. resources there than already stated.5 1.rce Chevron Texaco Corp. and I was myself privy to the fact that in most cases no new oil was actually discovered. and Holstein 1. -0 :0 c 0 2. no real oil was discovered.2 billion boe total 2.000 500 Sot. "However.7 3.8 bilflon boe) Or under development 15.4 billion bool 10. when I look at the data. as we have documented in a number of international studies" Fesharaki accepts the claim of "spurious" revisions but with a caveat: "I believe this claim is correct. Hence. ..c c 1. it is because the Oil & Cas [ournel / }july 14. And there were no major discoveries of supergiant fields in Saudi Arabia during the lare 19805 to justify any such addition to reserves.500 • • Fig. as the basic knowledge for such a complex exercise is not at hand.500 70% of 1999 reserves are from 3 discoveries: Crazy Horse. Dr." "The Hubbert scheme is based 011 two key driving forces-the amount of ultimately recoverable oil reserves and the historical record of depletion. UK OIL PRODUCTION 3. Deutsche Bank AG "I know from experience how 'reserves' are estimated in major Middle Eastern (and OPEC) countries. citing instead the estimate of "one of the most prominent experts on Iran- Aramco could not have overlooked a couple of Ghawars or so. as some have done. 6 HUBBERT CURVE VS. yes. but we believe it is there." WoodMac analysts Butter and Purvis concurred." he told OGJ.

In our opinion. Laherrere criticized OGJ for what he claimed was an uneveri approach to re- than is Canadian oil sands mining. "For me. and the most economically viable resources are those in porting reserves and production.896 3.fields are not yet required. Conversely.12 trillion bbl and an ultimate mean global URR of 3 trillion bbl. . p. extra-heavy oil production. When combined. "In a simple analog.248 3." Such a view would track with the recent trend in the world's oil reservesto-production ratio.0 00 1.2003 bbl-of which half has been produced These numbers were the basis for the US Energy Information Administration projecting. there is little common ground for agreement.0 3. most recently. Middle East..0 0. as OG] found out with its last Worldwide Report. these figures provide an indication of remaining recoverable reserves . Laherrere said. pessimists. But some depletionists dismiss R-P ratios as meaningless in the context of ultimate recovery and peak production. BP PLC. which generally has been at a plateau for more than a decade now (Fig. Some readers objected to the inclusion of Canada's oil sands reserves figures in the totals.838 64. 'Tnis study. a surprising drop in Mexican reserves in that same reportby 53%. Ahlbrandt claimed that technological innovations in the oil and gas industry "are manifested in increased success rates-in spite of less drilling-and the enormous contribution from reserve growth..0 . using the USGS mean estimate. proved reserves does not mean much and has no interest.0 1.. registering an average growth rate of 2%/year.011 24.. they all become very uncomfortable with adding so-called 25 ." Alhbrandt took issue with that view.846 67 95 117 133 67 113 146 173 67 134 178 213 Mean (expected value) 5% • According to US Geological Survey World Petroleum Assessment 2000 Source US Energy Information Administration fields already discovered.003 3. That assessment pegged the amount of future technically recoverable oil outside the US at 2. including cumulative production to date.0 2.248 2.. Laherrere noted. excludes oil sands from its reserves numbers but not from its production figures. Ahlbrandt contends that reserve growth is important because it underpins the plateau concept he cites for future oil production: " . if the oil from the tar sands is included in the oil production .0 2.296 24. 9) and peak ill 2037. 2002. 23.896 3.. or 14 billion bbl. Fig. You add reserves as needed. presented reserve growth studies for the North Sea. When the point is made that' OGJ reports only proved reserves.328 53. 34]) "But adding the tar sands produced mainly by mining obliges (OGJ) to add also the Orinoco .1995. Dec.248 2. that step alone boosted Canada's total by 175 billion bbl. to 28 billion bbl-stemmed from that country's use of SEC definitions.0 2. that world oil production will top 40 bi1lion bbl/year by 2020 (Fig.. " (In its annual Worldwide Report. [see story.896 3. and. It was the biggest jump in reserves estimates since the OPEC-inspired increases of the 1980 s..248 2. On this score as well. But it is ridiculous to put 10 Significant digits in this total. . OGJ oil production figures are limited to conventional crude oil and condensate. 'Petroconsultants.794 48. the Volga-Urals. Source: US Geological Survey 1996. Using the USGS high-case resource estimate of 3..on bbl/vearl 24. the remaining reserve potential of the main OPEC member states is not being overestimated." Reserves growth The issue of reserves growth in general is controversial. That compares with some peak-oil advocates' estimates of the entire global conventional oil endowment.580 41. that peak is pushed out to 2047 (Table 3. "When I talk to the Malthusians.0 3.862 77.896 Annual production growth rate (%1 0.580 34.. due mainly to the quota system." which he contends is actually closer to the definition of conventional Table2 " USGS Oil Gas NGL WORLD PETROLEUM ASSESSMENT 2000* Mean undiscovered conventional resources' ----------649 778 207 Commodity Me. technologically advanced province .580 48. 10).600% increase in a year and a No. " That view resonates in the picture the USGS painted of potential world petroleum resources in 2000 (Table 2).0 Estimated peak year 2045 2033 2026 2021 2075 2050 2037 2030 2112 2067 2047 2037 Estimated peak (!roduction rate (Million b/dl (Milli. "We have documented detailed reserve growth in the world and have published detailed reserve growth studies in the West Siberian basin. 62). at 2 trillion Oil & Gas Journal I July 14. Hubbertians.Q03 3...2 slot on the world's list oflargest reserve holders.209 63. 'NRG ASSOCiates. doomsters.003 3.an conventional Mean remaining reserve growth' reserves'" Billion boe ---' --------612 551 42 859 Mean cumulative production539 150 770 68 7 Note ·'·ExcludesUS.0 1. when it reported a 18 1 billion bbl net increase in global oil reserves (OGJ. By contrast. WORLD OIL PRODUCTION SCENARIOS Probability of ultimate recoverv" 95% Table3 Ultimate recovery lBiliion bbl) 2.003 3. "OG] was right to add the 175 billion bbl of Canada tar sands.820 42. 11).9 trillion bbl URR. or whatever term you like to use for them. you don't carry more inventory than you can sell Within your economically viable targets. in its annual statistical energy review.3. when the difference with BP is more than 100 billion bbl. The North Sea example demonstrates the phenomena in a significant. depletionists.. p. a 3.

" he said. by pointing out that there really isn't a supply crisis unless you restrict the argument to the cheapest.. however. . using iHS (Energy) data. geographically most preferable regions and exclude all other supplies." Laherrere claims. or from the Denver basin. Source: US Energy Information Administration "It is dangerous to run around the world saying we are going end civilization (wars. "as the (US Securities and Exchange Commission) refuses the probabilistic approach." EIA WORLD 50 6°r-~==========~------~fR. "It is tough sledding. as Campbell does. "They prefer to argue ." it isn't surprising that there is such broad disagreement over the world's ultimate oil recovery (Figs.0 C 0 ID <tl OJ 60 50 40 3D 20 10 1925 1950 1975 2000 2025 2050 2075 2100 2125 Note: US volumes were added to the USGS foreign volumes to obtain world totals.~~~---~ High economic growth case Low econcmic growth case High oil price case 1$28. The whole concept of proved reserves is "obsolete. when clearly we are not.. 2003 .04/bbl in Oil PRODUCTION PROJECTIONS Fig 9 '" :. economies collapse) because we are running out of oil. as can be seen in the flap over OPEC reserves. and World Petroleum Congresses but applied in a system worldwide to allow understandable terms. American Association of Petroleum Geologists. and he noted that "standardized reporting is good for everyone-except those who exaggerate their reserves sometimes in the hope of getting higher OPEC quotas. When there is so little agreement on the definition what is "recoverable" and what is a "reserve. recoverable). etc. "The only good reserve classification is the Norwegian one. Some of the peak-oil theorists contend that there is little value in the concept of proved reserves in the discus- sion of when global oil production will top out.S! <= iii 20 10 0 1990 1995 2000 International 2005 Energy Outlook 2000 2010 2015 2020 Source: US Energy Information Adminrstration EIA WORLD 80 70 CONVENTIONAL Oil PRODUCTION SCENARIOS fig. Kjell Aleklett. newly elected ASPO president.0 _Q '" 40 30 . "World oil reserves (conventional.90jbbl in 2020) Reference case 1$22.. said the WoodMac consultants." Laherrere noted. you statt excluding offshore oil. 10 ~ s. 12-13) . individual nations are so absorbed that they would rather destroy the rest of the world rather than develop these unconventional resources. increased 15% from 1996 to 2001. because it is too expensive (although I would think it is up to the companies to determine this).. they increased 36%. said he thinks it extremely important that standard definitions be used: "Lax reporting procedures and ambiguous definitions have made it possible for economists to reach fundamentally flawed conclusions that fit economic theory but ignore the rules of nature" Standardized reserves reporting could help inform the debate on depletion if it were to allow oil companies to provide more information on reserves. tar sands of Canada. Ahlbrandt. who is also vice-chairman of the United Nations Committee on Sustainable Energy's Ad Hoc Group of Experts on the Harmonization of Energy Reserves/Resources Terminology. lecture tours. noted that the committee has proposed a classification system based on reserves and resources terminology employed by the Society of Petroleum Engineers." He targeted Russia's reported reserves numbers for special criticism as "grossly exaggerated" and in need a of 30% reduction.04/bbl in 20201 low oil price case [$14.. if you use the Oil & Gas Journal reserve numbers. Too-narrow definitions imposed by the SEC don't Oil & Gas journal/July 14." he said of the effort but adds that "it is critical to get a common international harmonization of terminology" Fesharaki noted improvements in reserves reporting data from China and Russia. That is a major sticking point in the debate.unconventional oil resources to the picture. then you can get a crisis of the cheapest oil sources of the past century "Most consumers aren't too worried about whether their gas tank was filled by oil from Offshore Nigeria. "You don't get invited to the big shrimp dinners. "If.0 ... 26 Reserves standardization Complicating the debate is the fact that there is so much disagreement over the definition of reserves. but no other country has followed them.

Bottom line is that we high prices squelch demand. are setting targets to rein in It is in company's interest Fig 11 liFE EXPECTANCY OF WORLD OIL RESERVES demand or increase taxes. see cult to assess the role of demand in fuUS (oil) reserves support domestic dewhat they refer to as "humpy plateau" ture oil. must consider an inequitable distribution. given that oil prices have tunately. 14). with the important consequence of delaying peak. for a number bl d or less a decade or more sooner. the depletionists claim. more recent forecasts. 2003 27 . And the demand for only 4 years. helping to ly extending it for a few months. but. pletionists underestimate the demand as a consequence of price and demand leads them to disdain energy economists' views that oil supply will grow Signals in the peak -oil transition years." theWoodMac consumer-driven economy. Canada has already moved to. Because there are so many variables in making it a likely cause of conflict and dispelled the notion that energy detension. . Accordingly. ergy crisis years of the 1970 s largely debate is the role of global oil demand. esa way of disrupting the models (Fig. An it's easy to see the basis for their contion. That's especially true since the enTaking a back seat in much of the pecially in the developing world.." Aleklett said." When the depletionist school calls of these companies." Alekfrom the point of view of Source: BP PlC annual statistical terien lett said. and the speed of the decline will Bakhtiari said. taxaunder production-sharing contracts. energy security-the years of surgcern and apocalyptic scenarios. dependwill rise in response to the onset of later. increasing proportion of production is ing growth in demand may be behind us. It means ver will be short -lived because the part of a year now. combination of royalties and i::: It is the US's strong oil deshares of profit oil vs.:. "but they ing on the factors discussed. and the host government's share of oil of reasons--environmental controls. supply projections." ing 25% of the world's energy supply. Demand factor 15). it is diffi. The decline will come but can take between 10 to 30 years. which is better reflected by sate for both this decline and the potional Energy Agency. for world oil demand to reach 119 mil.: "I may be asked why the serves on a gross working in25 US is using 100% more (enterest basis "would certainly ergy per capita) than Europe be preferable when trying to 20L---~----~----~--~----~--~----~ although enjoying a comparaassess a company's reserves 1970 1975 1980 1985 1990 1995 2000 2005 ble standard of living. mand substantially and make the reprice rise will come to drastically change that global 'bumpy plateau: onIf anything. The to book less reserves when 45~----------------------------------~ high demand of the 1990s is submitting to a fiscal regime that extracts its rent from a looking mO~. where gasoline often overshoot the mark because due to increases in Africa. in fact. c5 criticism from some of the they noted." But Fesharaki contends that the depletionist school's emphasis on URR for oil supply. medium term." Middle East oil supply will continue to Ql Oil & Cas Journal/July 14. Asia. The depletionists that more is left for us to use now." mand is one of the defining factors. But forecasts of world oil demand produced under these type of contracts "Even in the US. which many other countries. they noted.eand more like 40 an anomaly. factor.~ 30 n. depend on the demand factors as well One peak-oil advocate who requested anonymity contends that oil prices "Whatever we can save we can use as price. This is underlain by the fact that projecting future oil demand. as this excludes reShe contends that while the global for an oil supply peak at 90 million serves produced as royalty payments economy depends on oil. peg oil demand 2P (proved plus probable) numbers. This will result The world may indeed be getting an the "limits to growth" scenarios in the early taste of a long-term high-oil-price in a reduction of demand.retort: "If we were really running out "Reporting reserves on an entitleof oil. "A severe price shock can reduce deHowever. accurately reflect companies' resource vestments will be sufficient to compensuch as those by EIA and the Internapotential. serve last longer. decline. states sultants said. Emerson offers a blunt years (Fig. the price Signals would be there ment basis also distorts the reserve base lion hid in 2025. ing-but not indefinitely." are in decline. the so-called room of maneuthat the demand for oil would increase hovered near $30/bbl for the better by 4%/year during the 19705.growth at 2%/year for the next 20-30 To this view. given the long lead times to create new Club of Rome (the group that produced Near-term outlook energy infrastructures. to turn mud into gasoline. unfor1970s) made the erroneous assumption environment. with little chance that new inSince then. "I don't think that any to meet demand as supply constraints yield price incentives. and the consumption is central to our congeopolitical and economic events have Caspian regions. peak-oil theory advocates. Bakhtiari and Laherrere.mand is inelastic. tential rise of demand. EIA's latest estimate calls ward this standard. rather than a sharp peak. reporting re. imposco 35 > mand that brings the country ing a tax on oil production." they said. The will send a Signal that comes too late. (for) supstave off the day of peak-oil reckonply. "Deglobal production decline. "The US is consumdepletion considerations..

.. lil1eall'lt}1 doesn't seem pO$Sible for oil. 6G :' '~ t~1i~ ~..\SPQ's mtssion.im this rime the wolf r~aUy is t rhere..EU!!'(iPl~~il ComrnTissicofl - J1J.. it will 111i1tkE: ~t[()Ii~ eUb:m to share the pain wi til the..dy to acc:epl: doe new [:l&:r:&tillgm I)n-11 it dearly sees the wolf snapprng at :Hs.rhit:ied JL\'V-ay'! -2000 2(1.ccp~. The "o. ELl(..¥'. '.sruptivt cycles occur. 'l!..J public hinQr H!J..eil' bekyior .. .and n~ullif'y i.ve:..vf.Now most of the: developed countries do l1N ' .ig'(r.l] and O'r'trcapacit}r in A~ia is y. tern way of life wasbased OIl! cheap energy.WII:.Qr!h::-:A~:~ri~iIl ._te l.._esotrategy in recent year::>. as volatiltry ill Mound. Moreover.!'!l'~rlp:'( .ached the concluSiDU th.sicm lIuecOlst.h_ef{~.ve up revenue.." irilli"mllhl htiarieontends ihar <Ii '"linearly plenned pri(:e increase would be J.ln a't:.Voie must dl~ml:1'e: l'~.Le:>_.<lJlgc thetr ant n 'way of hie.ieJcome lh~\'Las a means to help staY(: I:AI' wba¢_ they s. es. / _' .~ o:r OPEC's prlee defe_n.10 2020 2030 While OPl!C'scurrent policy m'ighL seem to support .. rest of OPEC-.)fIl'fli.~~ially wuh strong produ ct markets Cll1tl''ging 0tS fuel specs tighte. to ch."<.prices below the $2.Sserted .'-' Iaherrere <J.:t!. -·"T.re sign!> that sonne oil <mod a :gas expe:r:$ hif\'cff.~inl~.:N.. arid ani)' then.Fe::. It I] :ig. 13m. not take place in an acadernic. "The Ollly..dy yet. "Mankind survived in the pasr in _from of glactanons and other probIemsas they moved and.J•. changed ~'l.. 20 ..nt'.rJ. While he believes oil prices.r.. unform- b detrimental nat.f)' 'l. [(ven for pmduccrs.int~gr<J..haraki warned that '-'OPEC decisionmaking does.ely.f (its) market. it Will have 10 gi.. " . ~jgl1ifh:aru decllne ..:t if ASPO ts right._ ..wOld J. \~il] 'Eumpu<lll oi.Du.l. Ollir-ahrnptly~.-..-.i.. rhe gene. r and the world <IX J3a~ :S'HHL"S VIEW OF wnR lU OIlIE~DOW'MEm 100 large..2l . boon for the nil mdustr.1 (/bbl) floor. Emc:rS(i~~ noted the dH:cd.of~ecJ:oni:nR and applaud OPEC's cftott:S to suscain ell prices in a bmdof~21-'28 /bhJ for crude basket. . [E..... in fict.q."i'i~y_ eo solve the problems of tllergy lhr the UE\_t 3 yearsts to all OPEC have .t:e~. rule! irwon 't be ... heels" Then. share o 1Ip but not a LN. QPEC is willj Ilg to lose market share in the shorr term rather than gi.l "1 tlnnk OPEC carl .~~.'t Sauroij. ]ong-ten:n mode].~.~<'. : o.:. the question of availability will soon take precedence over price.n~lI k'r~... .high 'eneJg}' pl:.'(1. prices. "If'Saudi Arab[i11wants to support prl.e-eas: a dity. I) gerla re_gillldillg qUOI_. ..

:::===::.5 million er sectors alternatives are bid by 200"7) and Russia Source Royal Dutch/Shell Gr." 60 . US Geological Survey 2000 mean resource available.. 1. Purvis point to growing proProduced at "Only in the transport secduction outlooks for the maJan. the resurgence of oil dependent on oil-in all othoutput in Iraq (3. Who knows now prices. because the result ultimately will be a greater LNG folks." vere European-style tax in Laherrere.. 2000 tor is the world still entirely jors." ." 120·r. advises the US can delay the decline ~ 80 -" oil companies to return to c by quite a few years. OPEC is likely to be able shoot up..) will be in demand. at sustained oil prices above " How _Q Oil & Gas journal/july 14/ 2003 29 . and "No one wants lower oil prices: not Implications for oil firms The likelihood is that even if oil ExxonMobil Corp. "ExFig 16 FALLING COSTS CONSTRAIN OIL PRICES may be mitigated by the pected non-OPEC output ingrowing diversity of the creases and planned capacity 20~------~~------~--------~------~ world's energy mix. nonconventional production come down to the bottom of the OPEC can compete with OPEC supply (Fig. increases by the OPEC memThe WoodMac consultants ber-countries will see to it noted that the global energy that oil prices stay around infrastructure has become $18-20/bbl (in nominal less dependent on oil since terms) until 2012 or therethe oil price shocks of the o abouts Thereafter. prices '" 1970s-since 1973 the should begin to trend up810~--------~--~---o amount of oil consumed in wards as the oil overhang bethe world for each dollar of gins to peter out. thrive in the postpeak era as prices "Beyond this.15 "Crude supply optimizacy in that framework." they said.. natural resources-and this could be "The oil companies will certainly OPEC oil not returning to 1998 levels achieved by a mixture of direct governuntil 2007 or later. They will deal with lesser vol." Bakhtiari said.oup 2000.8 million bid by 2011). 2 40 "Oil companies need however. Fes• Low IQ rowth scenario haraki contends that "a seIII Hiyh cenario yrowth 1-------consequences. the WoodMac consulting countries. CGES and WoodMac. how to read an old log? How "If anything. not Consummore than ever before. for one." Drollas said. However. modify this risk.ment legislation and taxation measures..::::.-----------. generally at com(11. concentration of oil supply in the across the globe-as every Single barrel hands of the countries with the largest "OPEC is not convinced that the dewill come to pull its full pletion is around the corner weight." do with all that cash flow?" price band or even to $20/bbl or so in "Especially the three superrnajors the next couple of years.. and will not formulate poliOIL OEMAND FORECASTS* Fig. be justified purely on decompensate: Nice profits at the horizon at its desired level as its influence grows. for quite some time.2 the basics of how to find oil."The question will be: What will they $20/bbl. ing governments. and OPEC's quota squabbles "While a price shock may occur due oil reserves and a greater reliance on in their projection for downward price to geopolitical reasons. see near-term more science and less techdownward pressure on oil 20 nology . or alternative energy proproduction will have to be optimized ducers. oil prices are 0 2000 1975 1980 1985 1990 many new geologists know likely to trend downwards '1980 World Petroleum Congress how to recognize a sediment over the next 10 or so years Source: Royal Dutch/Shell Group on an outcrop?" because of the overhang (in Yet any future oil boom Middle East production caresulting from price shocks pacity) . Fesharaki said. the increasing those countries by the net oil importpressure this decade. (BP.::::==." economic output has almost WoodMac's Butter and 51----halved. however. but higher prices wi1l clearly we believe. with the call on duce this risk and serve to conserve improved prospects for oil companies. pletionist arguments. 16). nor existentialists. for all players 100 --Real level in the Oil Game. petitive prices. ence and management skills. tion will have many other On the other hand. these measures would not. diversity of supply sources helps to Accordingly. the longer-term outants claim that OPEC will face continu"low-energy economy" would also relook is for higher oil prices and thus ing pressure to scale back production to maintain prices. to exert more influence in setting prices umes.==. for their experiprices do moderate in the near term. Royal Dutch/Shell Group. Moving towards a So at the least. producing governments.