Oil Supplies - What You Should Know
There are varying views on the potential future supply of worldwide oil resources. Certainly there has been debate on the subject ever since M. King Hubbert properly predicted the "peak" in U.S. oil production back in 1956 (production peaked as predicted in 1970). However applying Hubbert's principles to a complex worldwide market has been problematic.
One key reason is that OPEC (the Organization of Petroleum Exporting Countries) and other government run oil companies do not share reserve and production data, and in fact have incentives to inflate reserve figures to ensure adequate quotas. When OPEC meets they decide on production levels for member countries, so reporting higher reserves implies bargaining power for a higher level of production. This lack of data transparency makes predictions difficult.
Several groups and agencies have tried to estimate what future world oil production will look like, with varying outlooks. Below is a list of reputable reports that attempt to predict future oil supplies and markets.
What to Look For
There are three key numbers that must be estimated in order to calculate future world oil production:
- Reserves growth: the growth in oil supplies due to new oil discoveries
- Recovery growth: the growth in supplies due to increased recovery of already discovered (and usually already producing) oil fields
- Decline rates: the rate (as a percentage of production) that an oil field declines after it has passed it's peak production rate
Each of these numbers is important in determining future production. Unfortunately small differences in assumptions when determining these figures can lead to large differences in the estimated future oil supply. Each of these reports handles the situation differently, but here is what to look for:
- Reserves growth: is this number based solely on an estimate of future conventional oil field discoveries, or does it include non-conventional sources like Canadian tar sands and oil shale? Is the level of new discoveries realistic compared to history?
- Recovery growth: How dependent are assumptions on new technology to boost recovery growth, and are these assumptions realistic compared to historical data?
- Decline rates: a key figure - as small differences can lead to daily differences of millions of barrels of oil - but only historical data is available to project future decline rates
