We’ve talked about the production and consumption of oil, gas, and coal. But we’ve left some important questions unanswered: Where are these hydrocarbons actually coming from? Most importantly, does anyone know how much oil and gas there is left to extract?
Obviously, the answers to these questions will have a major impact on the future of the global economy.
Luckily, geologists and energy industry experts have been hard at work trying to come up with answers. As we’ll now see, the amount of oil and gas that can be profitably extracted hasn’t remained constant through time.
Transcript
Reserves – Jim Ladlee – Penn State
Let’s talk about global reserve estimates of oil and gas.
When people talk about “reserves” of hydrocarbons, what they are referring to is the amount of recoverable oil and gas that we know exists on the earth. It is important to note that word ‘recoverable’ because we’re talking about what we can actually get out of the ground. If you look at oil reserve estimates over time, what you’ll see is a trend in recent years toward increasing reserves.
Natural gas reserves have also been increasing over time. Even though we’ve been extracting these resources this whole time, the amount that is estimated to be recoverable continues to get larger.
How is this possible? If you’re taking it out, how can what’s there be increasing? It isn’t that the Earth is creating new hydrocarbons while we wait…well, it is, but not in our lifetimes. No significant new oil or gas is going to come online while we’re here that wasn’t already there long before we were born. So how are estimate reserves going up?
There have been some new hydrocarbon-bearing formation discoveries, but the estimates are going up primarily because throughout the time that we’ve been extracting resources, the oil and gas industry continued to develop new and better technological solutions for accessing formations that we previously weren’t able to reach (in a way that made economic sense) and we’re getting a larger percentage of the hydrocarbons out when we get there. The biggest technological advancement in this industry in recent years and the biggest contributor to the growing reserve estimates has been the successful use of horizontal drilling and hydraulic fracturing in shales.
We’ve known these shale formations were there for a long time, but since previously no one was willing for financial reasons or able for technological reasons to extract the gas and oil, those large volumes of gas and oil weren’t included in estimates of global reserves. If we have no way of getting it out, we can’t really say that it’s available. Well, now we can get it out.
What’s actually in the ground isn’t changing. What has been growing all this time is the amount we are able to recover.
As you can see, there’s a lot of oil and gas out there waiting to be recovered from proved reserves.
According to the US Energy Information Administration, proved reserves are oil and gas reservoirs “which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.”
Just because a resource is technically recoverable, that doesn’t mean it is a proved reserve. In fact, if technical possibility was all that mattered, the amount of recoverable oil would be much, much higher.
That’s where the phrase under existing economic and operating conditions comes in.
Under Existing Economic and Operating Conditions: This phrase is key to understanding the entire history of oil and gas extraction. Oil and gas operators will always pursue the path that allows them to maximize profits. If that means extracting all the easy-to-reach deposits first, so be it.
Although changes in technology have certainly been a key part of the rise of unconventional oil and gas, it was increasing scarcity and rising prices that made it worthwhile for companies to invest in technology research in the first place.
Images: “Adapted Map of World Oil Reserves According to OPEC, 2014” by Top Energy Training