By John Kemp
LONDON, April 23 New estimates for undiscovered world oil and gas resources underline the growing operational and political challenges facing the industry as the exploration frontier moves into much more difficult countries and environments in Africa, Latin America and the Arctic.
Undiscovered but technically recoverable conventional oil reserves are put at 565 billion barrels, according to a comprehensive estimate published by the U.S. Geological Survey (USGS) on April 18.
In addition, there are 934 billion barrels of oil equivalent (BOE) of natural gas still waiting to be discovered, and 167 billion barrels of natural gas liquids ("An Estimate of Undiscovered Conventional Oil and Gas Resources of the World, 2012").
The assessment, which is considered authoritative, is based on a review of geological data covering 171 priority geologic provinces around the world excluding the United States (which is estimated in a separate programme). Estimates are adjusted for the probability of finding oil and gas in sufficient quantities to justify exploitation within the next 30 years ().
In the case of oil, estimates of undiscovered resources have been cut slightly since the last assessment in 2000, when USGS put them at 649 billion barrels, but otherwise they have been remarkably constant in the three decades since USGS started compiling them. Undiscovered conventional resources have been put at 550 billion barrels (1981), 425 billion barrels (1985), 489 billion barrels (1990) and 471 billion barrels (1993).
The current estimate of 565 billion barrels is in the upper half of this range and therefore fairly comfortable. There is no sign of oil running out.
Moreover the estimate does not include continued reserve growth at already-identified fields, which have proved more productive than first estimated. Nor does it take into account unconventional resources, such as heavy oil, tar sands and tight oil, which could double the existing conventional resource base.
According to USGS, about three-quarters of all undiscovered conventional oil resources are concentrated in four geographic regions: South America and the Caribbean (126 billion barrels); sub-Saharan Africa (115 billion barrels); Middle East and North Africa (111 billion barrels); and the Arctic regions of North America 61 billion barrels).
But the most significant implication of the assessment is how the distribution of undiscovered reserves has changed since 2000.
USGS has more than halved its estimate of undiscovered reserves in the Middle East and North Africa from 230 billion to 111 billion barrels. Of those 65 billion are estimated to be in the Zagros and Mesopotamia regions of Iran and Iraq.
In contrast, USGS has boosted its estimate of undiscovered resources in Central and South America from 105 billion barrels to 125 billion, while undiscovered resources in sub-Saharan Africa have been marked up from 72 billion to 115 billion.
Something similar has happened in gas. USGS boosted its estimate of undiscovered global gas resources from 778 billion BOE in 2000 to 934 billion BOE in 2012.
For non-associated gas, the biggest revisions were in sub-Saharan Africa (up 65 billion BOE to 104 billion), North America outside the United States (up 44 billion BOE to 70 billion) and Asia-Pacific (up 38 billion BOE to 101 billion). But estimates for the Middle East and North Africa were slashed by 95 billion BOE from 228 billion to 133 billion.
For the international oil companies, the USGS assessment confirms an uncomfortable truth: the future of the industry increasingly lies in countries where government is weak or non-existent, prone to populism and expropriation, or deeply hostile, and physical security and the natural operating environment is much tougher.
Oil and gas explorers face years of prospecting in the frigid Arctic regions of North America (61 billion barrels of oil) and off the northern coast of Russia (66 billion barrels of oil, 156 billion BOE of gas). Or braving the political and security risks of Iran and Iraq (65 billion barrels of oil, 95 billion BOE of gas).
Alternatively, they can try to access Brazil's offshore Santos, Campos and Espirito Santo basins (56 billion barrels of oil), or hunting for oil in West Africa (85 billion barrels) and gas in East Africa (more than 65 billion BOE of gas).
None of these countries and regions offers a favourable operating, contractual and political environment. But the major international oil and gas companies have no choice but to embrace some of these risks and accept higher costs if they are to develop new fields rather than just extend the reserves and life of existing provinces.
CHOOSE YOUR POISON
Argentina's seizure of YPF has stoked fears of another wave of "resource nationalism," while international companies are struggling to deal with fragmented political authority in Iraq, and intensifying sanctions on Iran.
Observers have predicted Argentina will struggle to find other companies willing to develop its oil and gas resources, either on an equity basis or as contractor; Spain's Repsol has already threatened legal action against any company that invests in its forcibly nationalised subsidiary or its assets.
Meanwhile, many investors remain wary of the enormous technical challenges of developing oil and gas in the Arctic or in the deepwater off Africa's coasts, often in areas where government is highly unstable and borders and therefore sovereignty are poorly demarcated.
But there is not really a choice. The latest USGS assessments confirm the centre of exploration activity in the global oil and gas industry is shifting away from the Middle East towards the Arctic, Latin America and Africa.
Each poses significant risks: politics in Latin America; security, politics and rampant corruption in Africa; climate in the Arctic; and severe instability in Iraq and Iran.
But given the probable distribution of undiscovered oil and gas resources, the international oil companies must take at least one of them, it is just a choice of which.