Helping America Navigate a New Energy Reality

The Difference Between Oil Reserves and Supply

By on 7 Mar 2011 in commentary

(Note: Commentaries do not necessarily represent the ASPO-USA position.)

In his recent column in the New York Times, Michael C. Lynch shows that he does not grasp the crucial difference between crude oil reserves and supply (“Drilling for an Oil Crisis”, February 24, 2011). Demand and the rising cost of getting oil out of the ground are apparently not important in his “don’t worry be happy” message that the plentiful oil of the past will continue into the indefinite future.

For him, reserves are all that matter. The fact that reserves usually take years of drilling and complex negotiations before they become supply escapes him. Of all the oil discovered in the last decade, less than 3 percent has been produced so far (M.K. Horn and Associates, Giant Fields Database, 2010). I suppose Mr. Lynch thinks that this is good news for the future, but it does nothing to address today’s soaring demand.

Consumption has tripled over the last four decades but supply has stalled over the past seven years, and the rate of reserve replacement has not kept pace with demand since the 1970s.

We are not running out of oil yet. We have, however, reached an apparent limit to the amount of oil that we can produce every day. That is because newly discovered fields are, at best, replacing supply from older declining and depleted fields.

Michael Lynch wants us to feel good about “consensus estimates” that recoverable oil in the world has doubled in recent decades. Really? Consensus by whom? What will these newly created reserves cost to produce and when will they be available to use?

The article mentions recent Wikileaks cables that question Saudi Arabia’s capacity to meet global oil demand. Lynch criticizes peak oil proponents for using these comments to confirm their view that the world is running out of oil. The peak oil community that I work with deals in facts and not opinions, and has made nothing of the Wikileaks which, as he points out, are not new. On this, at least, we agree.

He takes comfort in the fact that Saudi Arabia’s reserves may triple. Again, according to whom and based on what facts?  How long might this take and how much will it cost?  These are the questions that distinguish reserves from supply.

Finally, Mr. Lynch claims that recovery rates have grown from 10 percent a century ago to 35 percent today. That is about as useful as pointing out the the number of automobiles in the world have increased since 1910. During my 33-years in the oil business, the average recovery rate has been 30-35 percent. Nature made some fields that yield higher recoveries but this does not mean that all fields can be made to provide that much.

Peak oil is not a theory, as Lynch claims. It is a body of empirical observations based on the history of oil production decline in major producing areas of the world. These studies show that most of the world’s giant oil fields are declining at increasing rates. New reserves are located in ever deeper, more expensive and harsher drilling environments. Much of what is being found and produced is poor quality oil, and that means higher cost and more time to become available as supply.

We all want to believe things that sound too good to be true and “Drilling for an Oil Crisis” fulfills that human need. While the peak oil message is not as cheerful as Lynch’s, fact-based concerns about the future reflect another human need called responsible behavior.

– Arthur Berman is a consulting petroleum geologist, Director of the Association for the Study of Peak Oil & Gas – USA (ASPO-USA), a member of The Oil Drum editorial board, and an associate editor of the American Association of Petroleum Geologists Bulletin.

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  1. Robert Spoley says:

    The producable reserves of any field are largely a function of the “in place” reserves, natural permeability, reservoir energy and most importantly “relative permeability”. Relative permeability, basically is,(all parameters being considered standardized)the permeability of the “non-wetting” fluid (oil&gas) to the permeability of the wetting fluid (water)in the same medium under the same conditions. On this planet the wetting fluid in oil reservoirs is water. Once water saturations rise to the point that the non-wetting fluid will no longer move through pore throats, all the pumping in the world will not produce a single drop of oil. The key here is to lower the water saturation in the reservoir so that permeability is re-established and additional reserves can be produced. Most producers maintain reservoir energy by injecting water to replace produced oil&gas by which reservoir energy is depleted. However, injecting water raises the water saturation, thus curtailing producable reserves. This is a world wide problem. Reversing this high water saturation problem means pumping out hugh volumes of water, cleaning it up and disposing of it somewhere else. (A salt water disposal problem). Doing that further exacerbates the falling reservoir energy problem. This can also be solved. Welcome to CO2 injection and “de-watering” of oil reservoirs. Saudi Aramco (SA) has recently announced they are injecting CO2 into Gawahr – a depleting major oil field. SA has been pumping about 10 million barrels of water a day into this field for decades. CO2 injection may indicate that pressure maintainence by water flood is coming to and end and they go to de-watering of this field. This wiil greatly enxpand their producable reserves,but it’s gonna be high dollar. Europe can then get rid of it’s CO2, but I’m sure the Saudis will charge a pretty penny for sticking in their rocks.

  2. cameron conacher says:

    THe use of horizontal wells has reduced bypassed oil and given the impression of improved recovery rates for what would have otherwise been uneconomical to produce oil. Additional methods such as water and CO2 injection have also improved recovery. However, all of the above just remove the oil faster, and do not really improve reserviour withdrawels over time. So in theory rather than a bell curve withdrawel you now have a step function ….either max removal or nothing. When nothing comes people won’t be happy.

  3. Daniel Beers says:

    If it were determined that three trillion barrels of oil were discovered on the moon, would that be our Fabious? It’s very highly doubtful since organics are not known to exist there. Therefore my question is hypothetical and meant only to drive the point home that some oil can (could) be extremely expensive to extract and transport.

    Reserves do not necessarily translate into supply.

  4. Bill Simpson near Slidell LA. says:

    ‘Horizontal Drilling an Oil & Gas Game Changer’ by Kevin Shaw. March 8, 2011 http://www.nasdaq.com.us article 61080, you may find quite interesting. Every little bit helps. And shale is more than a little rock type.

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