Wednesday, June 18, 2008

Oil shortage a myth, says industry insider.

Proven oil reserves are likely to be far larger than reported because of the way the capacity of oilfields is estimated and how those estimates are added to form the proven reserves of a company or a country. Companies add the estimated capacity of oil fields in a simple arithmetic manner to get proven oil reserves. This gives a deliberately conservative total deemed suitable for shareholders who do not want proven reserves hyped, Dr Pike said.

However, mathematically it is more accurate to add the proven oil capacity of individual fields in a probabilistic manner based on the bell-shaped statistical curve used to estimate the proven, probable and possible reserves of each field. This way, the final capacity is typically more than twice that of simple, arithmetic addition, Dr Pike said. "The same also goes for natural gas because these fields are being estimated in much the same way. The world is understating the environmental challenge and appears unprepared for the difficult compromises that will have to be made."

1 comment:

Elizabeth said...

The problem with proven reserves in the US is a huge chunk of them are in South Texas where ExxonMobil, Chevron, Shell and some other major own large old leases that allow for one well to hold the acreage. The SEC allows for an accounting strategy to book "proven reserves" as capital assets. So, those leases aren't getting developed. Exxon owns 600,000 acre lease called the King Ranch that sits there. I live on a 38,000 ranch with huge proven reserves, and ExxonMobil and Chevron do the bare minimum. If a company has "proven reserves" booked as an asset, it makes no sense to develop them because every dollar in sales is actually a loss on the books. Also, many of these wells have been shut in since 1996, and that can make them harder to produce, should the SEC rules ever change.