Analysis: Trust technology and market as oil reserves dwindle

By Christopher Johnson and Joe Brock

LONDON (BestGrowthStock) – Reserves of conventional crude oil, the world’s most popular fuel, are dwindling.

No one knows how much is left in the ground or how long it will last, and it is getting harder and more expensive to find.

But most geologists and economists believe higher prices, new technology, different sources of hydrocarbons and other forms of energy will help fill the gap, whenever it comes.

While production of crude oil from traditional onshore oilfields in the Middle East and United States may well have peaked, oil from “unconventional” sources such as gas fields, shale, tar sands and deep offshore wells is increasing.

Extraction rates from oilfields are also improving, leading to a slow but steady re-evaluation of existing fields and pushing the end-point for ample supply further into the future.

So while many oil analysts doubt the reliability of oil reserve data provided by members of the Organization of the Petroleum Exporting Countries and international oil companies, they do not expect a shortage in the next few years.

Higher prices and improving technology are constantly pushing the boundaries of oil exploration and production and leading to further discoveries, they say.

“We don’t know how much is there and for all intents and purposes it could be infinite,” said Leo Drollas, chief economist at the Center for Global Energy Studies (CGES) UK.

“As production goes on we discover more and more about the existing fields, let alone new ones. There are huge fields out there — billions and billions of barrels — which we didn’t have a clue existed 20 years ago,” Drollas added.

INFLATED DATA

A declaration by Venezuela last week that it hopes soon to overtake Saudi Arabia as the country with the biggest oil reserves has stoked debate on the size of oil reserves.

OPEC said last week its proven crude oil reserves rose 4 percent in 2009 to 1.06 trillion barrels, led by an increase in Venezuela. BP (BP.L: ) estimated last month total global oil reserves were over 1.33 trillion barrels — equivalent to more than 40 years of consumption at current rates, although this equation is potentially misleading.

But many industry analysts have cast doubt on these figures, saying data may be inflated for a variety of reasons.

In the past, some oil companies have inflated estimates of reserves or massaged them to impress shareholders. Political pressures may also distort the reporting of OPEC reserves as they may influence the size of production targets.

Some analysts, including those who argue global oil production has already peaked, suggest official figures for oil reserves may inflated by as much as 60 percent.

But most analysts see the debate on the size of reserves as largely academic at a time when demand for oil in some parts of the world is declining and new sources of oil are appearing.

“If push comes to shove reserves will not be a problem,” said Adam Ma’anit, oil analyst at London-based energy research group Platform. “Tar sands are massive.”

“Just between Canada and Venezuela reserves are enormous.”

PEAK DEMAND

The risks and costs involved in producing non-conventional oil were highlighted in April this year when an explosion on the BP-owned (BP.L: ) Deepwater Horizon platform in the Gulf of Mexico killed 11 and led to the biggest oil spill in U.S. history.

As producers push the boundaries of oil production, supplies may be maintained but increased costs and supply uncertainty is likely to increase oil price volatility.

“You’re going to have to go into more difficult areas, deeper offshore which is going to have interesting implications given the spill in the U.S. Gulf,” said Paul Stevens, senior research fellow at London-based think tank Chatham House.

“I think it is reasonable to say that the days of cheap oil are over and oil is going to get more expensive.”

In the future, the pressure to generate greater supplies could be eased by a slip in global demand for crude oil as the world switches its focus to alternative energy supplies.

The International Energy Agency, adviser to 28 developed countries, has said oil demand in the industrialized world has already peaked and “oil intensity” — the amount of oil needed to generate a unit of economic growth — is falling worldwide.

Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt said while the exact size of global oil and gas reserves were unknown, it was clear in the medium term that supplies would be ample to meet demand.

“What is important is to see that in the medium-term, a few years ahead, that production growth keeps up with consumption.”

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(Graphic by Scott Barber; Editing by William Hardy)

Analysis: Trust technology and market as oil reserves dwindle