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The only thing certain is that the world’s oil reserves won’t last forever

By Mark S. Lawson - posted Monday, 5 January 2004

Many years ago I had an argument with the environmentalist, the Canadian geneticist Dr David Suzuki, about the state of the world’s oil reserves. I was interviewing him about various issues when he made a comment to the effect that, “we know that the world’s oil reserves will run out by the year 2000”.

At the time (the mid-1980s) one of my jobs was compiling a weekly oil well drilling table for the paper on which I worked, and the statement was news to me:

“They will? Who says this?”

“Every survey we have says reserves will run out by then.”

“But which surveys?”

“Every survey we have.”

“Then you must be able to name one.”

“It's every survey we have…”


I eventually switched topics but was sufficiently intrigued by this discussion to look more closely at the issue of oil producing forecasting and reserve discovery rates, to find that forecasts of that nature had been made back in the 1970s. At the time even the oil companies had believed them sufficiently to start diversifying their investments. Like most forecasts, however, they were proved completely wrong by events.

But Dr Suzuki is by no means alone in clinging to the perverse hope that the world will soon run out of oil. Environmentalists welcome assertions that the world reserves in this or that resource will run out within a decade or two, and dismiss anyone who tries to argue to the contrary as in league with coal companies. This pessimistic mind set has much in common with the people who used to parade around in streets with signs saying “the end is nigh”. Environmentalists believe that the end is nigh in natural resources and that humanity will then be punished for its profligate ways.

I was put in mind of this issue again by the recent news that Southern Pacific Petroleum, which owns most of the considerable shale oil reserves in Queensland, had gone into receivership. SPP’s shale oil interests, likely to pass to Canadian oil sand developers, have long been touted as an alternative to the “normal” oil reserves – that is, oil extracted from naturally occurring underground reserves. The event is a blow to the “end is nigh” mind set, including recent, detailed forecasts suggesting that the age of cheap oil is coming to an end, to be replaced by expensive oil, including oil extracted from Queensland shale.

In the late 1990s two very experienced oil men turned consultants, Colin J. Campbell and Jean H. Laherrere, dived into the mess of statistics, including differences in the way Russian and US authorities count “proven reserves” to emerge with a forecast that traditional oil extraction from underground reservoirs will peak this decade (in fact, about now), and decline thereafter. They argued that the bulk of the world’s oil reserves had already been discovered and that for various reasons, technology would not be able to lift the fraction of oil extracted from underground reservoirs (about half or less of the oil is extracted from naturally occurring reservoirs) at a reasonable cost. The consultants emphasised that this did not mean the end of oil as such but the end of cheap oil from conventional wells with all that implied. That meant oil companies should get to work on shale oil reserves, among other unconventional oil resources.

The consultants are not environmentalists and backed their argument with impressive statistical arguments and discussions of reserve estimation in different regions which is difficult to counter. There are other indications that oil discoveries have been declining since the 1960s. However, reality does not seem to be paying much attention to the forecasts. The collapse of the Queensland venture was in part due to the fact that the major oil companies were not interested in its prospects – just at the time the Campbell-Laherrere forecasts suggest that traditional oil production will begin its long decline. The web sites for OPEC, the Paris-based International Energy Agency and the US Energy Information Agency also do not indicate any concern that traditional oil production has peaked.

The EIA site gives a range of oil prices for 2025. The highest is US$33 per barrel (in 2001 dollars) the lowest is US$19.04, and the likely reference price is US$26.57. At the time of writing a barrel of West Texas Intermediate crude costs around US$32 – a price generally seen to be high due to the war in Iraq and the aftermath, despite an end to the unrest in Venezuela. Prices are expected to fall in 2004.


EIA’s International Energy Outlook 2003 points to increases in world oil consumption but notes that any major increases in prices will encourage substitution, such as using natural gas for oil, and bringing marginal or non-conventional sources of oil into production.

“There are some oil market analysts, however, who find this viewpoint to be overly optimistic, based on what they consider to be significant over estimation of both proved reserves and ultimately recoverable resources,” the outlook says.

Time will tell on this issue but recent developments with the oil sands deposits in Canada illustrate the difficulties of making forecasts – any forecasts. Last December the industry journal, the Oil & Gas Journal, suddenly nominated Canada as having the second highest level of proven oil reserves, below Saudi Arabia but above Iraq. The reason was a Suncor Energy announcement that production costs for one project is now down to US$9 per barrel, and that is cheap enough, the journal says (issue of December 23, 2002) to permit part of the mineral sands reserves to be reclassified as proven oil reserves. Previously they were not counted. Suncor, incidentally, pulled out of the Queensland shale project in 2001 to concentrate on its mineral sands projects.

Campbell and Laherrere were well aware of the mineral sands projects – the deposits in question are different to the Queensland resources but bear similarities to deposits in Venezuela - but discounted the possibility that improvements in techniques would make them economic.

This good news about the Canadian reserves is still not good enough for the “end is nigh” specialists who say that an additional 1.6 trillion barrels or so will only delay the peak by a few years. This seems very pessimistic and, in any case, if oil prices do start to rise then perhaps even the Queensland deposits will start to look good, particularly as by then technology will have moved on. SPP improved its techniques substantially during the many years it owned the project but did not improve them enough. There are other substitutes that may do in a pinch, including LNG, and Australia has plenty of that.

Our free spending attitude to Earth’s resources may catch up with us eventually, but not yet.

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About the Author

Mark Lawson is a senior journalist at the Australian Financial Review. He has written The Zen of Being Grumpy (Connor Court).

Other articles by this Author

All articles by Mark S. Lawson
Related Links
EIA International Energy Outlook 2003
Oil and Gas Journal
Southern Pacific Petroleum
Suncor Energy
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