Petroleum’s end game, Part 3
May 09, 2019 by Denis Pombriant
There’s a lot more riding on the climate debate than pollution like provisioning an adequate energy supply for mid-century. That’s why we need to transition from debating the climate problem and begin taking action.
Parts One and Two of this series are also available on this site.
Indonesia was once part of OPEC, the global petroleum cartel, which means it was a net exporter of petroleum. It produced more than it consumed. Actually, the country left OPEC twice. First in 2009 when it became a net oil importer and most recently in late 2016 when it would not go along with mandatory production cuts to help stabilize world oil prices mandated by OPEC, as reported by Reuters.
Indonesia’s story is at the same time typical and revealing. It was never a big oil producer like Saudi Arabia, Russia, or the US producing only about 1.7 million barrels per day (bpd) at its peak in the mid 1990s. But today production is about half that and declining. Worse, there have been no new oil reserves discovered in over a decade. In oil industry parlance, Indonesia’s older fields matured and then started to die.
It happens. Oil is a limited quantity and it runs out in specific locations and eventually the planet will run out but first there will be shortages and the complexity that goes with them. So, what happened in front of our eyes in Indonesia is happening all over the world but it’s very hard to discern because most nations guard their oil reserves estimates as closely as Donald Trump guards his tax returns.
Look at any list of countries sorted by their oil reserves, you’ll discover that several organizations estimate a nation’s reserves but those numbers don’t change very often. This chart shows estimates from three major sourcesincluding the Energy Information Administration (EIA), part of the US Department of Energy, OPEC itself, and the oil giant, BP. Another good source of information is the CIA World Factbook, a compilation of everything the agency knows (and is willing to reveal that it knows) about the nations of the world.
This chart is more instructive. It shows proven reserves by country over the span of 25 years from 1980 to 2004. You might expect that proven reserves would be declining in any country that pumps oil and you see declines in some of the data. But what’s striking is how many times you see increases in reserve estimates. Increases can come from two sources: finding more oil or developing better ways of extracting it.
Proven reserves include oil recoverable under current economic conditions. If the going rate for a barrel of your oil is $50 and your costs to produce it are above that at, say $66, you simply turn off your pumps and wait for the market to turn around. Or perhaps you install new technology that reduces your costs in some way. When many producers do this, we see price swings at the pump.
You can also find ways to push more oil out of the ground. This often happens with older oil fields. As a field matures pressure in the well declines and pumps can only do so much to bring oil to the surface. So, oil field services companies have an assortment to tricks referred to as secondary or even tertiary recovery techniques.
For example, you could flood an oil field by pumping sea water into it. The water will increase the pressure and make it easier to extract a mix of water and oil that must then be separated. Some techniques use solvents or detergents to loosen oil from surrounding rock; this is especially helpful in oil deposits that are thick and tarry. Hydraulic fracturing of oil-bearing rock and manipulating drilling angles aka directional drilling, help place the fracture zone where it will enable extracting an optimal amount of oil.
What’s surprising about the numbers for proven reserves is that they don’t often decline, certainly new discoveries provide additional reserves that can be added to the total but…. Look at Saudi Arabia. Between 1987 and 1988 proven reserves went from 169,585 million barrels to 254,989 million barrels and the total has gradually increased to 266,000 million barrels today. The country pumps just under 10 million barrels per day which, over time, you’d expect to show up in the totals.
Almost every oil producer with significant production has numbers like the Saudis. In 1980 Russia had 63,000 million barrels of reserves but today EIA estimates total Russian reserves at 80,000 million barrels (remember 1,000 million is one billion) and BP estimates their reserves at over 100,000 million barrels.
As a democracy, the US does a better job of reporting its reserves. In 1980 the US had 29,805 million barrels of reserves and that number steadily declined so that by 2004 reserves were 21,891. Today EIA estimates domestic reserves at 35,000 million barrels.
U.S. oil production peaked at 9.9 million bbls/day in December 1970 and began a long decline to less than 4 million bbls/day in September 2008.The situation dramatically reversed, rising to more than 9.4 million bbls/day in September 2015after oil field explorers began using horizontal drilling and hydraulic fracturing (fracking) to find and extract more oil. Today the US produces more than 12 million barrels per day, more than Saudi Arabia and more than Russia. The question is how long will it last?
What we really know
We may not have a good handle on the world’s proven reserves, but we do know a few important things.
- Indonesia is not unique. A country can go from being a net exporter to a net importer. Oil runs out. The US still imports about 57 percent of its oil despite pumping 12+ million barrels per day. The US is a net importer.
- The 2014 BP Annual reportestimated that there was a 53-year supply of oil left in the ground; a total of 1.687 trillion barrels; a lot but far from enough, especially if that’s all there is left.
- We have not found any new oil reserves anywhere since 2003. The peak year for oil discovery, never to be bested, was 1964.
- According to the US EIA, “In 2017, of the approximately 7.3 billion barrels of total U.S. petroleum consumption, 47% was motor gasoline (includes ethanol), 20% was distillate fuel (heating oil and diesel fuel), and 8% was jet fuel.” The last 25 percent was used, “For making the chemicals, plastics, and synthetic materials that are in nearly everything we use.”
We don’t really know how much oil is left but we have a good idea. It’s a lot and not enough. We also know that burning fossil fuels is making the planet uninhabitable. Production declines are one thing but demand also rises consistently with population growth. There will be 10 billion people on the planet by 2050–2.5 billion more than today.
As nations strive and succeed at increasing their gross domestic product more people are able to afford the trappings of middle-class life including transportation, electricity, heat and air conditioning, and importantly, more protein in their diets. All of these things depend directly on cheap sources of energy, currently supplied by declining fossil fuels.
Increasing demand, declining supply, population growth, and rising levels of pollution are each good reason for developing a new energy paradigm. Together they create a deafening demand for action. There’s a lot more riding on the climate debate than pollution that’s why we need to transition from debating the climate problem and begin taking action.