This is a guest post by Dennis Coyne.
The views expressed in this post are those of Dennis Coyne and do not necessarily represent those of Ron Patterson.
How much oil can be extracted from known oil resources profitably? This depends on many factors, the price of oil and technological progress in oil extraction methods are the chief factors, but improved knowledge gained through the development wells drilled and the corresponding output and geological data as known reserves are developed is important as well. Oil reserves do not grow, they deplete as the oil is produced. With increasing knowledge, oil price, and improved technology and production methods, the estimate of oil reserves changes over time and on average these estimates tend to increase, this is what we mean by reserve growth.
The United States Energy Information Administration (EIA) has detailed data on proven (1P) reserves and proven discoveries from 1977 to 2013, but Jean Laherrere has taught us that it is proved plus probable (2P) reserves that we should focus on.
In order to estimate US 2P reserves, I looked at data from the United Kingdom where the government publishes both 1P and 2P reserves for crude plus condensate plus NGL (C+C+NGL). Data is at link below:
Data shown in graphic below.
An Excel file with some of the oil reserve data is at link below:
The chart above plots 1P reserves on the horizontal axis vs 2P reserves on the vertical axis for data from 1977 to 2013. The ratio of 2P to 1P reserves is about 1.68 by this method. We can also sum all 1P reserves (29.8 Gb) and 2P reserves(50.8 Gb) from 1977 to 2013 and we get a ratio of 1.7 for the 2P/1P reserves. The ratio ranges from 1.3 to 2.6 over this 36 year period, but mostly stays between 1.4 and 2.0, with the 7 year period after the Piper Alpha disaster (1988) being an exception with a higher ratio over 2 during this period. I use the 1.7 ratio to estimate US 2P reserves and to look at US reserve growth, but also consider cases of 1.4 and 2.0 for a 2P/1P reserve ratio.
The US reserve data from the EIA can be downloaded at the link below:
The data in the excel file above was used to produce the Excel file below:
The file above has crude output, discoveries, 1P and 2P reserves, and cumulative output, discovery, and reserve growth. It also includes an estimate of 2P reserves if we assume no reserve growth from 1980 to 2009. This is done by taking 2P reserves (R1) at the end of 1979 and deducting 1980 output(O) and adding 1980 discoveries(D), so if R2 is reserves at the end of 1980 assuming no reserve growth, then
The blue dashed line in the chart below shows 2P reserves with no reserve growth, the yellow line shows estimated 2P reserves=1P reserves times 1.7 (from the UK estimate).
Due to the rise of LTO reserves after 2005 I use the 1980 to 2005 period to assess 2P reserve growth in the US. The chart above is the case where a 1.7 ratio of 2P to 1P reserves is assumed, 2Preserves grow by 32 Gb or 63% of 1980 reserves (51 Gb) from 1980 to 2005. If a lower ratio of 1.4 for 2P to 1P reserves is assumed, then reserve growth increases to 90% (38/42), and a higher 2P to 1P ratio of 2.0 reduces reserve growth to 44% (26/60).
Given the maturity of US reserves relative to the rest of the World, I would expect at least a 40% reserve growth for C+C less extra heavy 2P reserves. Jean Laherrere estimates about 850 Gb of 2P reserves at the end of 2010 with 1150 Gb of cumulative production and 200 Gb of future oil discovery (URR of 2200 Gb for C+C-XH), he assumes no reserve growth. If my guess of 40% reserve growth is correct that would add 340 Gb of 2P reserves after 2010, which would lead to a 2500 Gb URR for C+C-XH, this is consistent with a Hubbert Linearization for C+C-XH World data from 1993 to 2014. Chart below.
Two dispersive discovery models matched to data estimated from the charts published by Jean Laherrere are presented below. If there is no reserve growth then the 2200 Gb model will be correct, I expect there will be a minimum of 250 Gb of reserve growth with about 250 Gb of oil discovery minimum through 2100.
Increases in estimated oil reserves are a reality as shown by the US reserve data, those who ignore reserve growth are likely to underestimate future oil output. If the future is brighter than I imagine and the dreams of Tony Seba become a reality, then it is possible that reserve growth will never occur due to a lack of demand for oil and a crash in oil prices, I am not that optimistic, change will be quite difficult and will not happen quickly.