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Are We Running Out of Oil and Gas?


Topics

 1. Current Situation

 2. Reserve Lifetime

 3. Undiscovered Reserves of Oil and Gas

 4. Where are the Reserves

 5. United States Oil and Gas Reserves

 6. What are Companies Doing to Find More Oil and Gas?

 7. When Will Oil Production Peak?

 8. Classes

 9. References


Crude oil and natural gas, like other natural resources, have a finite supply. Because we are consuming more and more of these fuels each year, there is concern that we may exhaust them in the near future. In this section we review the current supply of crude oil and natural gas and consider when we might run out of these valuable energy supplies.


Current Situation

Crude oil and natural gas are finite resources. We know how much are produced and how have been discovered. The discovered oil and gas which have not bee produced are called reserves. The reserves of oil and gas exist in reservoirs below the earth's surface. Scientists estimate how much are left by trying to judge the reservoir's size and the amount of hydrocarbons that can be recovered.  The reserves are determined based on current economics and technology. The reserves are those that can be economically produced using present technology and current costs and prices. Therefore, this value has a lot of scientific guesswork associated with it and can change with new technology like 3-D seismic and oil and gas prices.

World Oil Reserves



Region
Reserves
(Billion Barrels)
Percent of
World's Oil
Reserves
Reserve
Lifetime
(Years)
North America 70.9 5.6% 14.8
South & Central America 123.2 9.8% 50.3
Europe & Eurasia 142.2 11.3% 22.1
Middle East 754.1 59.9% 78.6
Africa 125.6 10.0% 33.4
Asia Pacific 42.0 3.3% 14.5
World 1258.0 100.0% 42.0
OPEC 955.8 76.0% 71.1

(Source: BP "Statistical Review of World Energy 2009")

As is seen in the table, most of the world's oil reserves are in the Middle East (59.9%) with Europe & Eurasia having 11.3% and Africa with 10.09%.

World Natural Gas Reserves



Region
Reserves
(Trillion Cubic Feet)
Percent of
World's Gas
Reserves
Reserve
Lifetime
(Years)
North America 313.1 4.8% 10.9
South & Central America 258.2 4.0% 46.0
Europe & Eurasia 2220.8 34.0% 57.8
Middle East 2680.9 41.0% 199.9
Africa 517.5 7.9% 68.2
Asia Pacific 543.5 8.3% 37.4
World 6534.0 100.0% 60.4

(Source: BP "Statistical Review of World Energy 2009")

The world's natural gas reserves are found in the Middle East (41%) and Europe & Eurasia (34%). The Russian Federation has 30.5% of the world's gas reserves followed by Iran with 14.8% and Qatar with 9.2%. 


Reserve Lifetime

If we divide the reserves of crude oil in units of billion barrels by the annual production in billion barrels per year we get the number of years of production left at this production rate. This is called the reserve lifetime or R/P ratio. This value can be calculated for the world, a country, a state, and a field. It is an important indicator. We would like this number to be as large as possible because that means we could produce from this field for many years. As we produce a field the R/P ratio (reserve lifetime) will decline. The same situation can be used to describe natural gas except we measure the reserves in trillion cubic feet and the production in trillion cubic feet per year.

Reserve Lifetime

Resource Reserves Production Lifetime
Oil 1258.0 billion barrels 29.946 billion barrels 42.0 years
Natural Gas 6534.0 trillion cubic feet 108.260 trillion cubic feet 60.4 years

(Source: BP "Statistical Review of World Energy 2009")

At the end of 2008 there were 1,258.0 billion barrels of proven oil reserves. In 2008, the world produced 29.946 billion barrels of oil (81,820 thousand barrels per day). That means that we had 42 years of oil left at the current rate of production. 

The reserve lifetime for natural gas is 60.4 years. 

This means that if we keep on using oil and gas at the rate we did in 2008 we will run out of oil in 2050 and natural gas in 2068.

Before we relax too much, there are a couple of problems with this prediction. First, the world keeps on using more and more energy.  Over the past twenty years, oil demand has grown 1.3 % annually and natural gas use has increased 2.5% per year.  Assuming the same growth rates,  we would run out of oil by 2042 and natural gas by 2044.  Before we panic and wonder how fast scientists can develop other energy sources, we need to consider another part of the equation.

Reserves end-of-year = Reserves beginning-of-year - Production + Additions

This equation says that the reserves at the end of the year are equal to the reserves at the beginning of the year less production plus additions. What are these additions? Scientists aren't sitting idly by and waiting for the reserves to run out. As we have learned in earlier sections, they are looking for oil and gas all around the world and using sophisticated technology to find more oil and gas. Let's suppose that these scientists can replace 75% of the production each year. (This may seem like a pretty high number but companies that average this kind of performance would soon be out of business.) On this basis, we would run out of oil in 2097 and gas in 2087.  Natural gas runs out sooner because it has a higher growth rate.

There is of course one little problem with our simple mathematical exercise.  Does the world have enough undiscovered oil and gas?

  Go to the Topic Listing


While no one really knows how much crude oil and natural gas remain to be discovered, scientists at the United States Geological Survey (USGS) estimated in 2000 that we have around 649 billion barrels of oil yet to be discovered outside of the United States.  The US estimate from 1995 is for 43.8 billion barrels.

Undiscovered Crude Oil Reserves

Region Billion Barrels

Percent

Former Soviet Union 116 17.9
Middle East & North Africa 230 35.4
Asia-Pacific 30 4.6
Europe 22 3.4
North America* 70 10.9
Central & South America 105 16.2
Sub-Saharan Africa and Antarctica 72 11.0
South Asia 4 0.6
Total 649 100.0

(Notes: * Excludes US)

(Source: USGS Reassesses Potential World Petroleum Resources: Oil Estimates Up, Gas Down)
 

These same scientists compute that there are around 4669 trillion cubic feet of natural gas that have not yet been discovered. The US estimate from 1995 is for 303 trillion cubic feet. 

Undiscovered Natural Gas Reserves

Region Trillion Cubic Feet

Percent

Former Soviet Union 1611 34.5
Middle East & North Africa 1370 29.3
Asia-Pacific 379 8.1
Europe 312 6.7
North America* 154 3.3
Central & South America 487 10.4
Sub-Saharan Africa and Antarctica 235 5.0
South Asia 120 2.6
Total 4669 100.0

(Notes: * Excludes US)

(Source: USGS Reassesses Potential World Petroleum Resources: Oil Estimates Up, Gas Down)

The USGS conducts assessments of basins throughout the world and is continually updating their appraisals.

The USGS has recently announced that the area north of the Arctic Circle has an estimated 90 billion barrels of undiscovered, technically recoverable oil, 1,670 trillion cubic feet of technically recoverable natural gas, and 44 billion barrels of technically recoverable natural gas liquids in 25 geologically defined areas thought to have potential for petroleum.

These calculations always seem to trouble people. How do we know how much oil and gas are waiting to be discovered if we haven't discovered them? Is this a wild guess or is there some science involved in making this estimate? Actually, it's a little of both. Let's call it scientific guesswork. Scientists know where other rock formations may be located that could contain hydrocarbons. They have information on production from wells around the world that helps their assessment. These scientists also consider the latest technological developments that improve our ability to find and recover hydrocarbons. Of course, it is a lot more complicated than this and considerable effort is made in preparing a range of estimates.

Using these estimates of undiscovered oil and gas, we can expect to run out of oil in 2057 and natural gas in 2064.  These calculations are subject to a great deal of uncertainty, however, they do highlight the fact that oil and gas are depletable resources and that we only have a certain amount left.

There are several things to remember about this analysis or any other estimates of when oil and gas resources might run out:

  1. The amount of undiscovered oil and gas is an estimate and that estimate is revised based on new technology, new discoveries and additional information.  Please see National Oil and Assessment for more information.

  2. The USGS assessments are presented as estimates at various levels of probability: 95% probability of at least at certain level, mean and 5% probability of at least at certain level.  The range of these estimates can be significant.

  3. Whatever the amount of undiscovered oil and gas that the world contains, it is a finite resource that has taken millions of years to produce.  Like all of the earth's resources, we need to be good stewards of the oil and gas supply and ensure that they are used most efficiently.

  See the American Petroleum Institute report Strengthening Our Economy: The Untapped US Oil and Gas Resources

Go to the Topic Listing


Where Are the Reserves?

The reserves of crude oil and natural gas are not equally distributed among all continents and all nations. As you might have guessed most of the world's oil reserves are in the Middle East.

Top Ten Holders of Oil Reserves

Rank Country Reserves
(Billion Barrels)
Share of
World's Reserves

Lifetime
(Years)

1 Saudi Arabia 264.1 21.0% 66.5
2 Iran 137.6 10.9% 86.9
3 Iraq 115.0 9.1% > 100
4 Kuwait 101.5 8.1% 99.6
5 United Arab Emirates 97.8 7.8% 89.7
6 Russian Federation 79.0 6.3% 21.8
7 Libya 43.7 3.5% 64.6
8 Kazakhstan 39.8 3.2% 70.0
9 Nigeria 36.2 2.9% 45.6
10 United States 30.5 2.4% 12.4

(Source: BP "Statistical Review of World Energy 2009")

The Middle East has 59.9% of the world's crude oil reserves.  Oil exporting nations who belong to the Organization of Petroleum Exporting Countries (OPEC) control 76.0% of the world's oil. The top ten reserve holders have 75.2% of the world's oil.

Top Ten Holders of Natural Gas Reserves

Rank Country Reserves
(Trillion Cubic Feet)
Share of
World's Reserves

Lifetime
(Years)

1 Russian Federation 1529.2 23.4% 72.0
2 Iran 1045.7 16.0% >100
3 Qatar 899.3 13.8% >100
4 Turkmenistan 280.6 4.3% >100
5 Saudi Arabia 267.3 4.1% 96.9
6 United States 237.7 3.6% 11.6
7 United Arab Emirates 227.1 3.5% >100
8 Nigeria 184.2 2.8% >100
9 Venezuela 170.9 2.6% >100
10 Algeria 159.1 2.4% 52.1

(Source: BP "Statistical Review of World Energy 2009")

Of the world's natural gas reserves, 41% are in Middle East and 34% are located in Europe & Eurasia.  The top ten reserve holders have 76.5% of the world's natural gas.

  Go to the Topic Listing


Unfortunately the United States is not in as good a position as Middle Eastern countries when it comes to crude oil and natural gas reserves. Current estimates indicate that America has 12.4 years of crude oil reserves (30.5 billion barrels of proven reserves and 6,736 thousand barrels per day of production).  Fifty nine percent of US crude oil resources are located in Texas, Alaska and California.  Offshore reserves in Federal and state waters comprise 19.5% of  reserves. Offshore production accounted for 27.1% of production in 2007 and had a lifetime of 9.1 years.

At the end of 2008, the United States had 11.6 years of natural gas reserves remaining (237.7 trillion cubic feet of reserves and 56.2 billion cubic feet per day of production).

According to the Energy Information Administration, United States crude oil reserves in the Lower 48 (excluding Alaska) are expected to increase 1.4% annually from 18.35 billion barrels in 2009 to 24.39 billion barrels in 2030. U.S. oil production will increase from 5.36 million barrels per day in 2009 to 7.14 million barrels per day by 2030.  The life of the remaining Lower 48 reserves will be 10.2 years.

The Energy Information Administration expects Lower 48 natural gas reserves to decrease to 203.35 trillion cubic feet in 2030 from 229.12 trillion cubic feet in 2009 and production to grow to 23.02 trillion cubic feet from 20.61 trillion cubic feet. The reserve lifetime is expected to decline to 9.7 years.

  Go to the Topic Listing


What Are Companies Doing to Find More Oil and Gas?

Oil companies spend billions of dollars searching for new oil fields. Each year companies try to replace the oil that they produce. If a company fails to replace and add to reserves they will not be able to increase production and revenues. According to statistics compiled by Houston investment banking firm, Simmons & Company International, major oil companies have spent about $260 billion over the past decade just to maintain the same level of production. Independent producers spent $16 billion over the same time period and were able to increase production by 6%.

Why are these results so disappointing? First of all oil companies are dealing with resources that are depleted or used up. The reserve lifetimes in the above table indicate how long it will take before the reserves are depleted. In the case of the United States, the oil reserve lifetime is 12.4 years. This means that 8.1% (1/12.4) or 2.46 billion barrels of the oil is produced each year. To replace these US oil reserves companies must find 2.46 billion barrels of oil. If the oil and gas industry wanted to increase production in 2009 to keep up with the increase in U.S. oil consumption, the industry would have to find 3.11 billion barrels (2.46 billion barrels + 19,419 thousand barrels per day x 366 days/year consumed in 2008 x 1.0% growth rate = 2.53 billion barrels).

The cost to achieve this is rather large. In spite of tremendous improvements in exploration technology, based on a finding and development cost of $18.49/B for 2005-2007, it would cost $46.78 billion in 2009. Where does this money come from? It comes from company profits and private investors. When oil prices are low, companies don't have enough profits to look for more oil and gas. The laws of supply and demand tend to balance things out because when supply drops, prices increase to encourage companies to find more oil and gas. So when gasoline prices are low, remember that this means less money to find the crude oil necessary to make gasoline in the future.

  Go to the Topic Listing


When Will Oil Production Peak?

One of the questions hotly debated in oil and gas circles is when will crude oil production peak.   The date an level of this maximum production are considered significant because 1.) supplies of oil will start to decline, 2.) the cost of the remaining production will increase, and 3.) the world better have a contingency plan to move to new fuels or suffer an economic meltdown.   

The milestone is probably less significant than one might first guess.  First of all the date is for conventional oil production and does not include supply from unconventional sources such oil sands and very low gravity crude oil or bitumen.  The forecast also does not consider conversion of coal and natural gas to crude oil.

A study from scientists at the University of Newcastle, suggested that conventional production will peak between 2012 and 2024 ("Mathematical model forecasts year conventional oil will peak," Oil & Gas Journal, May 7, 2007). Forecasters at the Energy Information Administration predict the peak will be between 2033 and 2067.  Analysis performed by PetroStrategies indicates the peak will occur between 2033 and 2047.  The subject is treated in more detail in an excellent article on Wikipedia called Peak Oil

For other articles on peaking oil production, please see the following links:

Hubbert Peak of Oil Production

Peak Oil Primer

  Go to the Topic Listing


Classes  

To learn more about oil and gas exploration and production, please check out the following classes:

A Layman's Guide to the Oil & Gas Industry

The Oil & Gas Industry in Perspective

  Go to the Topic Listing


References

 

For more information about the world's oil and gas resources, check out the following references:

The American Petroleum Institute

"Are We Running Out of Oil?" - International Energy Outlook 1999, Energy Information Administration

BP "Statistical Review of World Energy 2009"

International Association of Drilling Contractors

Independent Petroleum Association of America

USGS Reassesses Potential World Petroleum Resources: Oil Estimates Up, Gas Down
 

  Go to the Topic Listing



 

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