POLICY FORUM

S C I E N C E A N D I N D U S T RY

Oil: Never Cry Wolf—Why the Petroleum Age Is Far from over
Leonardo Maugeri
4 fter World War I, the Peak production United States was (or “midpoint depletion” shaken by predictions of the exhaustion of domestic 3 oil. Even the head of the U.S. Geological Survey (USGS)— among many others—delivered a verdict of gloom in 2 1919: The country would run out of oil within 9 years! (1) Facing mounting hysteria, 1 President Coolidge set up the Cumulative production or Federal Oil Conservation ultimate recoverable resources Board in 1924, to draft legis(URR) lation to preserve national re0 sources. After the conversion 1850 1875 1900 1925 1950 1975 2000 of Great Britain’s naval fleet Years from coal to oil in 1914, the 9 UK also feared that it would The Hubbert curve (United States). Bbl, billion (10 ) barrels. be vulnerable to oil shortages and moved to to follow a normal distribution and assumes secure its grip on the Persian Gulf. These a bell-shaped curve (see figure above). cycles of hysteria followed by new bonanStarting from zero, production grows zas have continued to the present. Thus, it over time until it peaks when half of the reis not surprising that a new wave of “oil coverable resources have been extracted doomsters” predicting imminent petroleum (“midpoint depletion”). Then, production scarcity has gained momentum (2–4). irreversibly declines at the same rate at The worst effect of this recurring oil which it grew. The area under the curve panic is that it has driven Western political shows the cumulative production of an oil circles toward oil imperialism and attempts field or the “ultimate recoverable reto assert direct or indirect control over oil- sources” (URR) it holds and their life-span. producing regions. Yet the world is not Accordingly, to forecast Earth’s URR, running out of oil, and catastrophic views one needs to process worldwide production fail to take into account the complex reali- and discovery trends and geological data. ty that will allow reliance on abundant sup- In 1956, Hubbert accurately predicted the plies for years to come. peak oil production point of the U.S. lower The current model of oil doomsters is 48 states. derived from K. M. Hubbert (5). The model The Hubbert curves do not delineate the is conceptually simple, but based on several complex and dynamic nature of oil producassumptions. The first is that the geological tion and reserves in the world, because they structure of our planet is well known and are the product of a static model that puts thoroughly explored, so that discovery of an unjustifiable faith in geology and does unknown oil fields is highly improbable. not consider technology and cost/price Second, to resolve problems connected with functions. The model’s success in predicterratic distribution and production from ing U.S. peak production merely reflected thousands of oil fields and uncertainty of the peculiar nature of this area, which is the future discoveries, production is assumed to most intensively explored and exploited in follow the “Central Limit Theorem” from the world. Elsewhere, the pattern of prostatistics. This theorem states that the sum duction is not rendered by a bell curve but of a large number of erratic variables tends is marked by large discontinuities (see figure on next page). Using different versions of the Hubbert The author is group senior vice president, Corporate Strategies, Eni Spa, Rome, Italy. model, several geologists have made pre-

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dictions in the last 20 years of an imminent crisis in oil availability that subsequently had to be revised. The most eminent among them is C. Campbell, who predicted that 1989 was the year of “peak” production (6). The estimates have been increasing steadily (see table, next page). Before looking at the real-world situation in more depth, it is necessary to clear up some points, beginning with the distinction between “resource” and “reserve.” The former indicates the overall stock of a mineral in physical terms, without any associated economic value and/or estimation of its likelihood of being extracted. In other words, there may be large quantities that can never be used because of the high cost or the impossibility of recovery, as in the case of the gold dispersed in the oceans. The concept of “reserves”—like that of “recov2025 2050 erable resources”—involves an economic assessment of the possibility of producing a part of the overall resources. In the oil sector, there are additional definitions—the most important being that of “proven reserves,” which include only those that can be economically produced and marketed at the present time according to existing technologies and demand. Nearly all of the estimates of the world’s oil URR, including those by oil doomsters, do not take into account the so-called “nonconventional oils”—such as Canadian tar-sands and Venezuelan and Russian heavy oils—even though the availability of these resources is huge and the costs of extraction falling. Although hydrocarbon resources are irrefutably finite, no one knows just how finite. Oil is trapped in porous subsurface rocks, which makes it difficult to estimate how much oil there is and how much can be effectively extracted. Some areas are still relatively unexplored or have been poorly analyzed. Moreover, knowledge of in-ground oil resources increases dramatically as an oil reservoir is exploited. For example, the Kern River field was discovered in California in 1899. Calculations in 1942 suggested that 54 million barrels remained. However, in 1942 “…after [43] years of depletion, ‘remaining’ reserves were 54 million barrels. But in the next [44] years, it produced not 54 but 736 million barrels, and it had another 970 million barrels ‘remaining’ in

Production (Bbl/year)

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2001 Insights (Organization for Economic Cooperation the recovery rate from world and Development/IEA. “Nuclear energy and the fossil fuels. 2004). After serves largely derive from upward revi.” Global Energy Wire. 2011 . which for 1750 (1995) 2272 (1994) oil. the area was countries nor publicly traded oil compa. oil isted for decades. the world retains more than 3 tril. Paris. and that increases in re. 2001). World Energy Outlook 4 dollars) (9). after four more explo. short1950 (2002) ies (8). France. countries because this area spans over 5500 sq km. p. and six exploration wells are a modest indi.led to bad political decisions. 1991). 4. New York. they were raised crisis in 1986 (when oil prices plummet. However. the second half of the 1990s. This is only the beginning.Historical behavior of oil production in Egypt (16 ). conducted by international oil companies in issue is that neither major producing but coal was neither exhausted nor scarce. 19 January 2004. Second are the demands of world [>0. is about 28 billion barrels (10–13). To “cry 2002. M. Indeed. Money. BP’s Statistical Review of World Energy 2003 (British day. All these factors partly exPetroleum.POLICY FORUM 1986.org on February 18. after completion of only two explo. Adelman. from an Cambridge. the most recently lion barrels of recoverable oil resources Indeed.A. USGS. 11. portunities that would normally be deemed tal elements: technology. The Prize: The Epic Quest for Oil. Aktote. 11. 107 5 (2003). 1995). but they only indicated the mid-1960s).supplies of wood in Great Britain caused Kazakh North Caspian Sea Shelf) have ex. estimates were officially vestments during the last 20 years. Wkly. there are proven reserves of oil) produce petroleum 194. World Oil (August 2003). not of scarcity.” (7). Natural Gas Supply to 2100 (International Gas Union. many studies have proved term financial returns that are inthe phenomenon of “reserve growth”—i. London. Klett. in (Norton.tial exploration campaigns. M. but Nevertheless.gy sources” because of its convenience and the first advanced geological appraisal was sions of existing stock.took the place of coal as “the king of enerpossibility of hydrocarbon deposits. all major sources estimate that economically worthwhile. Eni—World Oil and Gas Review (May 2003). again to 13 Bbl. This is but one of public oil companies have faced PETROLEUM URR ESTIMATES hundreds of cases reported in oil-related two sets of limits to their expanliterature that underscore the inherently dysion in the last 20 years. Moreover.by the “supergiant” Shell Group (15). (boe) has dramatically declined 7. International Energy Agency.org SCIENCE VOL 304 21 MAY 2004 1115 Downloaded from www.sciencemag. for example. Production (Bbl/year) www. This occurs because of four fundamen. The first Petroleum URR (Bbl) (year) namic nature of oil reserves. Deutsche Bank. The Genie Out of the Bottle (MIT Press. price. 61–63. and better knowledge of existing proven world oil reserves exceed 1 trillion pressure partly explains recent proven refields—the last of these being possible on. 3 oil fields has increased from 10. 2000). Yergin.Overall. At the same time. has constantly improved. K. pp. (14). “Hubbert’s pique. Moreover. such as Saudi Arabia or Iraq (which toReferences and Notes 1. 14. DC. This picture has nothKazakhstan. Hubbert. UK. ly through effective and intensive drilling. Oil Price Leap in the Early Nineties 7 (Noroil. MA. 23 October 2003. cator of future potential. (December 2002).session with oil security and control that is raised to 7 to 9 Bbl of producible reserves. Geological estimates eries are only replacing one-fourth of The Age of Coal began when declining about the general area around Kashagan (the what the world consumes every year (fol. that have a geological structure than 50 new fields each. C.capacity such as that which provoked the an obsession that historically has invariably ration wells in the area. the worldwide in most cases. 2 about 22% in 1980 to 35% to12. many other oil fields yet to be explored in only from a few old fields. Denmark. countries closed to foreign investments. AAPG Memoir No.and public needs. As Klett and is inaccessibility to foreign inHubbert Campbell USGS Schmoker have recently demonstrated. T. and have discovered but not developed more 3.sole effect of perpetuating a misguided obKashagan field.gether hold about 35% of the world’s and Power (Simon & Schuster. while yearly consumption serve downgrading by some oil companies. ed to below $10/bbl).lowing a declining trend that began in the its price to climb..). not lost its resources. 1 plain why the life-index of 13. The countries wolf ” over the availability of oil has the ration and two appraisal wells in the richest in oil have minimized their oil in. This has umes are usually greater than subtractions” ing from 20 years in 1948 to 35 years in compelled private operators to reject op(8). Washington. W.5 billion (109) barrels (Bbl) of financial markets.Oil substitution is simply a matter of cost deemed to hold between 2 and 4 Bbl. Hoersholm. June 2003). discovered before 1981] increased years have insisted that compa1800 (1996) 3021 (2000) from 617 to 777 Bbl without new discovernies provide unrealistic. J. World Petroleum Assessment 2000 (USGS. Oil Gas J. DC. this area (including Kairan. 1989). In fact.1972 and reaching about 40 years in 2003.” The Economist.e. C. gantic Kashagan field. Out of Gas—The End of the Age of Oil Kalamkas). “The end of the oil age. pass. to under $6 in 1997–99 (in 2001 9. average of about $21 in 1979–81 8. per barrel of oil equivalent 6. 2002). M. consistent with the long-term nathat “additions to proven recoverable volture of oil investments. main. 78. starting with the amazing cuts announced We anticipate that this trend will contin. June 2003. obsolete. the real its high flexibility in many applications. and its major finding—the giCritics could note that new oil discov. international SELECTED UPWARD REVISIONS IN knowledge had…. Kingston-upon-Thames. This financial decisions. D. similar to that of Kashagan. Schmoker. political Today. Lynch. ue. Intell. New York. 5. the technologies and techniques used are. although they 2. this Anglo-Dutch oil company has discovered oil frontier in the world. In nies are keen to invest money in substan. 1956).ing to do with physical scarcity of oil. Years serves and current production) 16. world reserves (gauged as the 0 Washington.sciencemag. Goodstein.” in and recovery technology. PIW (Petrol.(1012) barrels. Two centuries later. 1960 1967 1972 1977 1982 1987 1992 1997 2002 ratio between proven oil re15.Adelman. ly for fear of creating a permanent excess already rooted in Western public opinion— In February 2004. 6 over the last 20 years. Consider. Drilling and Production Practice series (American finding and development cost Petroleum Institute. Campbell. The field had not changed. R. vestment in the largest and cheap1350 (1969) 1578 (1989) 1796 (1987) from 1981 to 1996 the estimated volume of est reserves—those in the Persian 2000 (1973) 1650 (1990) 2079 (1991) oil in 186 well-known giant fields in the Gulf. Thanks to new exploration. drilling. D. M.