LONDON (Reuters) - U.S. crude oil reserves hit record levels at the end of 2017, as annual reserve additions outstripped production for the eighth time in nine years, government data published last week shows.
Reserve growth is the main reason predictions about future oil shortages have been repeatedly proved wrong.
U.S. policymakers have long fretted about the damage to the economy and national security of exhausting domestic oil reserves (“Oil scarcity ideology in U.S. national security policy”, Stern, 2012).
As early as 1909, the U.S. Geological Survey was predicting reserves might be exhausted by 1935 (“Petroleum resources of the United States – Report of the National Conservation Commission”, GPO, 1909).
Scarcity concerns became prominent again in the 1940s, the 1970/80s and the 2000s (“Market madness: a century of oil panics, crises and crashes”, Clayton, 2015).
Policymakers responded by pressing for more conservation, encouraging the development of overseas reserves, reserving domestic supplies for future military needs, or experimenting with alternatives.
But scarcity forecasts have underestimated the impact of improvements in technology, mostly driven by price changes, of which shale extraction has been the most recent and dramatic.
And we will have cooked the planet through global warming long before we run out of fossil fuels.
“No mineral, including oil, will ever be exhausted,” wrote the late Morris Adelman, an economist at the Massachusetts Institute of Technology (“Genie out of the bottle”, 1995).
“If and when the cost of finding and extraction goes above the price consumers are willing to pay, the industry will begin to disappear.”
And as former Saudi oil minister Zaki Yamani observed in 2000:
“Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”
The oil age, too, will end, if and when it is replaced by a superior energy source – just as mainframe computers, buggy whips and typewriters have all been largely superseded. But it won’t end for lack of oil.
Proved oil reserves increased by 6.4 billion barrels (19.5 percent) in 2017 compared with the previous year, according to the U.S. Energy Information Administration (“U.S. crude oil and natural gas proved reserves”, EIA, Nov. 29).
These are estimated volumes of oil that analysis of geologic and engineering data demonstrates with reasonable certainty are recoverable under existing economic and operating conditions.
Estimates change in response to new field discoveries, greater understanding of existing fields, technology and changes in prices and costs, as well as the amount produced.
U.S. reserves in 2017 amounted to 39 billion barrels of oil, surpassing the previous peak set in 1970, and enough to sustain production at current rates for 11 years, even if no new reserves are added.
Texas accounted for half the total increase (+3.3 billion barrels) followed by New Mexico (+1.0 billion), Alaska (+0.4 billion), Colorado (+0.3 billion), California (+0.3 billion) and North Dakota (+0.2 billion).
Tight oil or shale plays accounted for 4.4 billion of extra reserves, with the Permian Basin in western Texas and eastern New Mexico (+3.4 billion) and Eagle Ford in Texas (+0.7 billion barrels) accounting for the lion’s share.
Producers also added almost 0.8 billion barrels of additional proved reserves in the U.S. section of the Gulf of Mexico.
U.S. oil producers added 5.7 billion barrels to their proved reserves last year as a result of new field discoveries and extensions of reserves within existing fields, the EIA says.
They also added another 2.7 billion barrels as a result of changed estimates of what they can produce using existing technology and at current prices and costs, with other adjustments adding 1.8 billion barrels.
Reserve additions from all these sources combined comfortably outstripped the 3.4 billion barrels of oil that were actually produced during the year.
“Nobody finds a reserve, just as nobody finds a factory,” according to Adelman.
Oil reserves are not gifts of nature, they represent the outcome of improvements in technology and heavy investment in exploration and production.
“Reserves are renewable and constantly renewed if - and only if - there is enough inducement to invest in creating them. The inducement depends on price and cost,” Adelman wrote.
Proved reserves have risen and fallen broadly in line with contemporary production as both have responded to the same price signals (tmsnrt.rs/2RA2ncj).
The ratio of proved reserves to contemporary production has been broadly stable at between 9 and 12 years since at least the late 1940s.
Most reserve additions have come from within existing fields as drilling leads to better understanding of the extent of the resource, new oil-bearing strata are discovered, and recovery techniques improve.
For example, California’s Kern River oilfield was thought to contain just 54 million more barrels of oil in 1942, but actually produced 736 million more by 1986 and was then estimated to have another 970 million remaining.
“The field had not changed, but knowledge had: science, technology, and, not least, the detailed geology learned by development”, Adelman wrote.
“At any given moment, reserves are being added everywhere … The reserve increments of any given period are overwhelmingly in existing fields,” he explained.
“The constant search for least-cost prospects takes the industry to the fringes of known reservoirs and beyond. The search process is driven by cost comparison.
“The industry is a great sensing-selection instrument, scanning all deposits, old and new, to develop the cheapest increment or tranche into a reserve.”
In this respect, shale has been no different from earlier technological breakthroughs that have led to enormous reserve growth, mostly within existing fields and plays.
Editing by Alexander Smith