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Roger Bentley: Global Oil and Gas Depletion

Posted by Chris Vernon on May 1, 2006 - 3:10pm in The Oil Drum: Europe

I don't recall this article being discussed on The Oil Drum but it raises some interesting points.

Roger Bentley has written Global Oil and Gas Depletion - A Letter to the Energy Modelling Community, published by the Energy Economics Education Foundation (The IAEE's education affiliate) and available to download here (.pdf, page 6).

Bentley addresses this letter to the energy modelling community, it is a brief summary of the various approaches and highlights the problems of the past. A fundamental difficulty surrounds the two different data sets of P50 and proved reserves, the use of proved reserves in the mistaken belief they are a reasonable measure of the remaining oil being chiefly responsible for the difficulties.

‘P50’ designates 50% probable, and is an industry estimate at a given date for the most likely size of a field’s reserves. P50 estimates are often approximated quite well by ‘proved plus probable’ reserves.

[Proved reserves] are quite unusable for calculating future oil production as they exhibit serious errors of under-reporting, over-reporting, and non-reporting. These data problems have not been adequately recognised by much of the energy modelling community, leading to serious errors of analysis.

The problems Bentley identifies have led to the 'Economic View' of oil supply:
  • Price, investment and technology are the main drivers of supply, not resources.
  • Past forecasts failed because they assumed the resource base to be fixed.
  • Should supply difficulties approach, they will be signalled by rising price and falling proved reserves.
  • Any supply difficulties are most efficiently corrected by the market - short-run increases in price will limit demand and bring on adequate new supplies.

It is belief in this view which Bentley believes prevents the IEA from accepting the peaking arguments, instead favouring the position that reserves are abundant given enough capital investment.

The UK government is also of this opinion, the Foreign and Commonwealth Office writing in March 06, in a document titled: Active Diplomacy for a Changing World, The UK's International Priorities Link (pdf):

Existing conventional oil reserves are projected to meet global demand until 2030, but investment of around £10 trillion (US$17 trillion) will be needed to turn resources in the ground into supplies for consumers.

Roger Bentley: Global Oil and Gas Depletion

PDF version

2 comments

Nick Rouse on May 1, 2006 - 9:18pm Permalink | Comments top
The figure of $17 trillion is taken from the IEA's World Energy Outlook 2005

which it uses in its Reference Scenario but it says

A critical uncertainty is whether the substantial investments needed in the upstream hydrocarbons sector in MENA countries will, in fact, be forthcoming.

They then go on to give a Deferred Investment Scenario to examine what would happen if this investment were not forthcoming and investment stays at a constant percentage of GDP.

Lower investment on this scale causes MENA oil production to drop by almost a third by 2030 compared with the Reference Scenario. Production falls further than investment by the end of the projection period because of the cumulative effect over the projection period. In 2030, total MENA output reaches 35 mb/d, compared with 50 mb/d in the Reference Scenario. Saudi Arabia's production, at 14 mb/d in 2030, is more than 4 mb/d lower than in the Reference Scenario. MENA's share of world oil production drops from 35% in 2004 to 33% in 2030 (against a rise to 44% in the Reference Scenario).

As a idea of the size of this investment, $17 trillion is equal to the total value of 8 years of world production of oil at its present production rate at $70/barrel to be invested over 25 years. Since a fair part of this investment will be in the form of energy costs the growth in net energy available after such investment will be substantially curtailed.

It was suggested earlier on TOD (I can't find the reference) that the IEA was hinting that the Reference Scenario was not to be taken seriously and rather than admit that their previous rosy projections had been wildly out had decided to leave these in the Reference Scenario and put the more realistic projection in the alternative scenario. That way they can blame the producers for failing to meet their investment obligations rather than their poor forecasting.

If this is their intention it seems it was too subtle for the UK government.

Chris Vernon on May 2, 2006 - 1:55am Permalink | Parent | Comments top
And I think Bentley's main point is that such belief in 'resources into reserves' is misplaced, an artefact of the economic view which came about after believing proved reserves were a reasonable measure of the quantities of oil that can ultimately be recovered.

Roger Bentley: Global Oil and Gas Depletion

PDF version

2 comments