Prepare For A Dramatic Decline In Oil Reserves

02 January 2016
Author :   FARSA Energy Jonoob
An oil field with a large number of pumping jacks operating in the Central Valley of California is seen on June 24, 2015. MARK RALSTON/AFP/Getty Images.

According to the 2015 BP Statistical Review of World Energy, in the past 10 years global proved oil reserves grew by 334 billion barrels to reach a global total of 1.7 trillion barrels.To put that in perspective, Saudi Arabia’s proved oil reserves stood at 267 billion barrels at the end of 2014. That means that the global proved oil reserves added to the books in the past decade were equal to one and a quarter Saudi Arabias.Was that much new oil actually discovered over that time frame?

No. Further, we can anticipate that a big fraction of the proved oil reserves that were added in the past decade will have to be removed from the books at the end of this year. To understand why, it’s important to understand a few things about oil reserves.

An oil resource describes the total amount of oil in place in a formation, a country or even the world. Most of the resource typically can’t be technically and/or economically recovered. For example, it is estimated that the Bakken Shale centered under North Dakota may contain several hundred billion barrels of oil (the resource). However, what is technically and economically recoverable in the Bakken has been estimated at less than 10 billion barrels (<10% of the resource). The portion that is technically AND economically recoverable at prevailing oil prices may be classified as proved oil reserves.


Because of the requirement that the oil be economically recoverable, proved reserves are a function of oil prices and available technology. This is an important qualifier. Thus, as oil prices rise, oil resources that may have been discovered decades ago can be shifted from the category of resources into the category of proved reserves.

Venezuela provides a perfect case study. Venezuela has a huge heavy oil resource in the Orinoco region of the country. But this oil is very expensive to extract. Western companies invested billions to produce this oil. A decade ago project economics were marginal. But then oil prices started to rise and the projects began to pay dividends, which resulted in the late Hugo Chavez expropriating these assets


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