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Global oil reserves data is muddled, but does it really matter? Fuel for Thought

Jun. 25 2019 — Proved oil reserves, historically a proxy for geopolitical clout and energy security, may be losing their currency in a world set on ushering in the end of the fossil fuel era.

The growing acceptance of the climate threat from carbon-rich energy is focusing minds on producing cleaner fuels rather than stockpiling sources of old, dirty ones.

But despite growing industry qualms over peak demand and the potential for stranded assets, the issue of who controls the bulk of the world’s recoverable oil continues to pique interest.

Two reports this month gave diverging assessments of who rules the global oil reserves roost and highlights the disconnect between reported oil wealth and the ability to pump the barrels.

BP’s latest Statistical Review of World Energy, the touchstone energy data compendium in its 68th year, continues to support a view that there is no shortage of oil supplies to feed demand.

The world’s remaining proved reserves of 1.73 trillion barrels can cover 50 years of current production rates, BP estimates. That’s little changed from a decade ago and is 35% higher than in 1980, when the oil major began counting. Over the same period, oil production has surged by 50%.

Likewise, the rankings for the top resource holders have shifted little in recent years. Venezuela continues to hold on to the top spot, thanks to its questionable reserve estimates for its super-heavy Orinoco crude, with Saudi Arabia close behind and Iran a distant third.

Resource accounting

But not all reserves are created equal. The data masks large disparity in production costs for the economic recovery of the oil, and a divergence in reserve accounting standards.

According to BP’s review, Saudi Arabia’s proved oil reserves are now 11% higher than previously thought, at close to 300 billion barrels, after the world’s top oil exporter reclassified some of its gas reserves as oil.

BP’s estimate comes five months after state-oil giant Saudi Aramco opened up about its estimated reserves for the first time as part of a reserves audit ahead of a planned future listing of its shares.

A separate report by Norwegian consultancy Rystad Energy, however, takes a more rigorous approach to reserves by applying Society of Petroleum Engineers (SPE) standards.

“We don’t see increases in activity that would justify such a large upgrade [in Saudi Arabia], so this revision could be due to changes in reporting methodology,” said Rystad’s head of analysis Per Magnus Nysveen.

On a strictly SPE proven reserves basis, Saudi oil reserves stood at just 95 billion barrels last year, still well ahead of the US’ 32 billion barrels, Rystad believes. Canada’s massive but costly oil sands deposits suffer a similar fate under the tougher rules, shrinking to 24 billion barrels.

Top global oil resource holders - two diverging accounts

Click to enlarge

Overall, Rystad estimates the world’s proven oil reserves on an SPE basis total only 386 billion barrels, about one-quarter of the officially reported figures in BP’s review.

Using a more a generous measure of recoverable oil based on contingent and prospective resources, however, yields widely different results. On that basis, Rystad pegs the US as holding 293 billion barrels of recoverable oil, 20 billion barrels more than Saudi Arabia and almost 100 billion barrels more than Russia.

Venezuela upended

On the flip side, running SPE proved reserves rules over Venezuela’s mostly hard-to-extract bituminous oil shrinks the country’s top ranking reserves to just 6 billion barrels, according to Rystad, a fraction of the claimed total 303-billion-barrel total.

That’s significant as Venezuela’s self-declared reserves in its giant Orinoco heavy oil belt have been the biggest single contributor to global reserves growth by far over the last decade.

From a complete absence in 2005, Venezuela’s heavy oil currently accounts for more than 260 billion barrels, or 15%, of BP’s global reserves total. By contrast, the US’ shale-led doubling of its oil reserves over the same period has added just 31 billion barrels to the global tally.

The discrepancy over the world’s economically recoverable oil also points to the growing realization by producers that the cost curve for resource development, rather than outright volumes, is now the battleground for growth.

Saudi Arabia has long claimed production costs of just $4/b at its easily accessible conventional oil fields mean Aramco is the most profitable oil producer in the world.

As the future oil demand growth window shrinks, it is the quality, not the quantity, of proved reserves that has become the new mantra for oil company executives.

The question of how much recoverable oil is left in the world and who controls it is increasingly being eclipsed by the transition from fossil fuels to renewable sources of energy. That still leaves major doubts over how much the remaining reserves will be worth in the future and how much may end up left in the ground.