Global Proven Crude Oil Reserves, Peak Oil Nears
As world commodity prices remain high, attention is being focused on global crude oil reserves and their likely impact on the medium to long term price of oil.
There has been a step-change in the growth rate of energy demand caused by a combination of robust economic development and population growth in the emerging economies.
Serious concerns are being expressed by many leaders in the oil industry that after 2015 the supply of so-called “easy” oil and gas will not keep up with demand.
You can now subscribe to the free Commodity Universe Ezine below, and get the latest articles on the commodity sector . Just your first name and email. It's as easy as 1-2-3! This points to the need to plan ahead for a substantial increase in renewable, nuclear energy and oil sands. The time for talking is over, and action is needed now.
Big Companies see Peak Oil
Just ask yourself why are the big oil companies like Exxon , Conoco Phillips, BP, Royal Dutch Shell and Chevron, for example, retiring so much of their shares every year. Why don’t they invest their revenues into further exploration and development of new fields?
And with crude oil prices hitting a record high of $142 a barrel, a normal signal to start exploration and increase production, the oil majors are not inclined to invest in developing more fields.
Might it be that they can see the “End of Oil” on the horizon and so they just hold onto their current reserves and maximise profits.
Consuming nations are becoming even more dependent on the Middle Eastern OPEC producers, and these countries with the largest reserves will over time hold a greater share of remaining oil.
Bear in that mind that even now Middle Eastern producers hold 61% of proven global crude oil reserves, according to the BP Statistical World Energy Review for 2007.
IEA Warning
The Paris based International Energy Agency (IEA) said in its World Energy Outlook 2007 that “An abrupt escalation of oil prices after 2015 as a result of a global supply crisis cannot be ruled out”
It also adds that “The consequences of unfettered growth in world energy demand are alarming”.
Proven Global Oil Reserves
There has been much debate about the accuracy of figures for crude oil reserves, particularly the re-rating by OPEC producers that occurred in the late 1980’s and early 1990’s.
How reliable are the official reserve figures of the Middle Eastern and other oil producers in OPEC?
The BP Statistical Energy Review shows that world proven crude oil reserves at the end of 2007 were 1,237.9 billion barrels, which represents a growth of 14% over the last decade.
This figure actually includes gas condensate and NGL’s as well as crude oil.
If Canadian oil sands (152.2 m) are included in the total world proven reserves then it rises to 1.39 billion barrels. But what do proven reserves mean?
The BP Report defines proven reserves as those based on geological and engineering analysis that are recoverable under existing economic conditions.
The challenge going forward is that the majority of the OPEC reserves are the heavier sour crude grade for which there is insufficient refining capacity.
In-demand distillate products include gasoline which is more easily derived from light sweet crude oil grades. Assuming these crude oil reserves data are accurate, and at current production levels, the BP Statistical Energy Review also looks at the reserve to production ratio (R/P).
This gives an estimate of the length of time reserves will last on the basis of the previous year’s production rate.
A look at the data reinforces the view that future reserves and influence will shift even further towards the OPEC producers in the Middle East.
Consider the following where the number represents the number of years of supply remaining:
On the basis of this data, over 50% of the world proven crude oil reserves are under the control of just four Middle Eastern states, namely Saudi Arabia, Iran, Iraq and Kuwait.
If we assume that Peak Oil is near then it is very questionable whether there can be any significant increases in output as demanded by world leaders at the June 2008 Saudi Oil summit in Jeddah.
With China and India expanding rapidly, using more natural resources and needing more crude oil for the growing automobile ownership among their aspiring population, the need for alternative energy and fuels is becoming urgent.
From a commodity trading or investment perspective this scenario offers great potential.
Whether you consider trading crude oil futures, holding shares in oil majors or investing in energy ETF’s, it seems that the consensus is for energy related commodities to be a good way of diversifying investment assets.
The attention of the commodity trading world and investment community will remain focused on the latest news on crude oil reserves for the foreseeable future. No surprise really, when this commodity drives the world economy as we know it today.
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