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By Andrew Holland on Aug 16, 2012 with 17 responses

Will the U.S. Run Out of Oil in 8 Years?

I want to post a quick rant on the uselessness of statistics about a country’s oil reserves. I was preparing this afternoon to write a blog post about the revolution in oil production in the US, caused by the adoption of new technologies of fracking and horizontal drilling in areas like the Bakken Shale and the Eagle Ford Shale.

The USGS reports that, with perspective additions, the U.S. holds 32 billion barrels (bb) of oil, 291 trillion cubic feet (tcf) of natural gas, and 10 billion barrels of natural gas liquids in mean potential undiscovered reserves. This is a substantial upwards revision from last year’s estimate – showing how the new technologies are revolutionizing America’s energy outlook.

Then I started doing the math. The U.S. uses about 18.7 million barrels of crude oil equivalent per day (mbd), according to the EIA. Of that consumption, we’re importing about 8.7 mbd, and producing about 10 mbd. That works out to a total annual consumption of about 6.875 bb of oil, of which about 3.65 bb is from domestic production. At those rates, America would completely exhaust its total reserves, as estimated by the USGS at 32 bb of oil in eight years, nine months. So, by April or May of 2021, the United States would no longer have any oil – if these reserve estimates went unchanged.

Clearly, the markets do not believe that the United States, the world’s third largest oil producer, is going to run out of oil by 2021. If people expected the U.S. to stop producing oil in 2021, there would be a significant run on the oil markets.

Now, this may simply be a difference between the specific, geologist-driven language in which you only state that which you absolutely know, but this needs to be clearer. The oil market, and the amount of U.S. production in particular, is at the center of this year’s election debate. Something is lost in translation.

This leads to statements from our politicians like this one from President Obama: “The United States consumes more than 20 percent of the world’s oil, but we only have 2 percent of the world’s oil reserves.”  While that is true, it is irrelevant. The truth is that those 2% of world oil reserves are constantly being updated by new oil finds and by new technology that makes previously uneconomic reserves useable.

The problem, I think, lies in how the geologist’s language is translated by the political mind. A politician hears a statement like the USGS’ saying that we have 32 bb of oil in reserves, and thinks of it like a glass of milk with a straw in it. You can drink the milk at whatever rate you like, but when you reach the bottom, you’re out of milk (and presumably will have to import it from your crazy neighbors).

Of course, we know it’s not that simple: reserves are a measure of oil fields that have been discovered, confirmed and are economically recoverable. There is a great deal of undiscovered reserves still remaining, as well as reserves that are not economically recoverable, at this time. Future increases in prices or advances in technology that reduce the price of extraction could bring more reserves as well.

We need a new language for politicians to use when they talk about oil; something that gives an idea of how much oil the U.S. has, and at what price level it would make economic sense for an oil company to extract it. I’m not sure how we translate it, but we should do better.

For more on U.S. and global oil reserves, Robert Rapier did a nice job of sifting through and charting the data in How Much Oil is Left in the World?

  1. By edward on August 16, 2012 at 9:48 pm

    The USGS assessment explicitly doesn’t include unconventional oil plays which is where most of the growth in oil supply is coming from.  Additionally, the measurement period ended in 2006, again well before the current oil boom.  The changes from the prior USGS assessments are really just due to a change in measurement methodology.

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    • By Andrew Holland on August 17, 2012 at 10:26 am

      Exactly my point – isn’t that crazy? Shouldn’t the USGS be releasing numbers that are actually relevant to something?

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  2. By Chris Nelder on August 16, 2012 at 9:57 pm

    Andrew, 

    The terminology here is key. Your calculations are mixing natural gas liquids, biofuels, and other stuff in with crude oil. You are correct that reserves are a measure of oil that has been discovered and considered to be economically recoverable, but then you confuse the terminology by saying “There is a great deal of undiscovered reserves still remaining, as well as reserves that are not economically recoverable, at this time.” By the definition you correctly offered, if it’s undiscovered and not economically recoverable, it’s not countable as reserves. There is no such thing as “uneconomic reserves.” Those are resources. 

    For an apples-to-apples comparison on oil, one needs to look at just crude+condensate reserves vs. crude+condensate consumption. Of the 10 mbpd in domestic “oil” production, actual crude plus condensate production on an annual basis (2011) was 5.7 mbpd, or 2.14 billion barrels (Gb) per year. (On a monthly basis, we’re now producing 6.3 mbpd.) Only around 6.85 of the 10 mbpd total liquids (not oil) production should be counted as actual potential vehicular fuel (actually even less, if you remove the refined products that aren’t vehicular fuels). I broke down those numbers in detail here: Fuel to Byrne 

    Proved US crude oil reserves (discovered oil that is considered economically recoverable) are currently 25.2 Gb, not 32.

    So on an annual basis, the simple calculation would be 25.2 divided by 2.14, or just under a 12-year supply, not eight. But as you correctly note, that’s  the wrong way to look at it. In reality, we will draw down the last part of our recoverable oil at progressively lower rates over a long period of time.

    According to the EIA AEO2012, in addition to our proved reserves, the US has 33 Gb of “technically recoverable” tight oil resources (e.g., from places like the Bakken Shale). Again, that is technologically recoverable, without regard to whether it can be done profitably. Much of it isn’t economically recoverable at today’s prices.

    Much of the apparent growth in US reserves in recent years owes to prices that have been two to three times higher than in the pre-2005 era. We didn’t discover new oil, we were just able to produce it (and claim it as reserves) at a much higher price. New technologies, like combining hydrofracturing and horizontal drilling (both of which are, separately, fairly old technologies by the way), have added substantially to our “technically recoverable” resources, but it remains to be seen how much of that will be economically recoverable, and therefore classifiable as reserves.

    Hope that helps.

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    • By Andrew Holland on August 17, 2012 at 10:33 am

      Chris – thanks for this long explanation – and you’re right that the terminology is key. 

      Just wanted to clarify something, though – I did not mix-up the consumption of the various types of fuel – just lumped it all under ‘crude oi equivalent’. Admittedly, that’s a broad definition, but trying to simplify something that’s already complicated leads me to shorten it as much as I can.

      But, ultimately both your long reply and my long article show how complicated this matter is. We’re going to lose the public, any non-specialist journalist, and – especially – our politicians if it takes 500 words to explain what ‘oil reserves’ actually means. This needs to be much simpler. And – government agencies shouldn’t put out press releases that are, by their very nature, misleading.

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      • By Chris Nelder on August 17, 2012 at 3:20 pm

        Andrew, 

        I should have looked at the USGS link you provided. The 32 Gb they’re talking about there are not current reserves, but  ”potential undiscovered, conventional reserve additions

        As they explain:

        “Reserve growth is a component of the overall oil and gas endowment, but is distinct from reserves and from undiscovered, technically recoverable resources – all three important but separate measurements used in efforts by industry and government to make energy decisions based on the best available science.”

        So that 32 Gb is not discovered, and therefore does not qualify as reserves. It’s simply an estimate of how much reserves could grow over time, with current technology, irrespective of economic viability. It’s not very useful to anybody outside the oil and gas business, e.g., policymakers.

        Again: US oil reserves are currently 25.2 Gb, or a “12-year supply.” (Shale gas is another area where nearly everyone has been confused about the terminology. We do not have a proved 100-year supply of natural gas in the US, but 12.7 years of proved reserves according to updated EIA data. I am not convinced we even have a 100-year supply of totally speculative gas resources. I ran all those details down here: What the Frack?)

        I agree that it’s very complicated and difficult for non-specialists to grapple with, especially generalist journalists. But that doesn’t mean we can sweep all that complexity under a rug of “oil equivalent,” because as I have explained, NGLs and biofuels and bitumen are not equivalent to conventional crude. Not in heat content, not in EROI, not in flow rates, and not in utility as vehicular fuels. 

        I think the best simplification is to talk about oil, NGLs, and biofuels separately, using accurate numbers for each. Lumping them together as “liquids” (not “oil”) may be acceptable if you’re talking about them at a general, global supply and demand level, but when talking about a given country’s reserves, they really need to be kept separate to avoid obscuring important facts.  

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        • By Andrew Holland on August 23, 2012 at 9:05 am

          Yes – you’re right – it is reserve growth, and I understand that. But, it doesn’t work for policymakers not up on these terms. For example, DoI Secretary Salazar says in the press release:

          “As part of the Obama Administration’s all-of-the-above energy strategy, we are taking aggressive steps to safely and responsibly expand domestic energy production,” said Interior Secretary Ken Salazar. “USGS’s ongoing work to identify and estimate U.S. energy supplies – and to make that information available to everyone – is fundamental to our efforts to continue to grow America’s energy economy.”

          Clearly, he doesn’t get it either…

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  3. By Jeremy Boak on August 17, 2012 at 2:46 pm

    The USGS estimates that the mean potential undiscovered, conventional reserve additions for the United States total 32 billion barrels (bb) of oil, 291 trillion cubic feet (tcf) of natural gas, and 10 bb of natural gas liquids, constituting about 10 percent of the overall U.S. oil and gas endowment.

    This is yet again a different level of complexity.  These numbers represent projections of likely reserve additions to producing oil fields in the future. They are neither the 25 billion barrels of reserves Mr. Nelder mentions, or are they actual reserves.  They represent some attempt to account for the fact that, once a field is brought on production, additional reserves are commonly booked each year as understanding of a field and its possible extensions either vertically or horizontally improve.  Many very old fields continue to add reserves even 70-80 years after discovery.  This is why the peak of discoveries that M. King Hubbert tried to identify is as much of a moving target as the crest of the production curve.

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    • By Chris Nelder on August 17, 2012 at 4:02 pm

      Jeremy: You’re on the right track, but a few points of clarification. The 25 Gb I am talking about are the “actual reserves,” those are not different categories. And the peak of oil discovery is still in the 1960s – it’s not a “moving target.” The growth of reserves in known reservoirs is distinct from discovery of new resources. We’ve known about tight oil formations like the Bakken for a long time. They were discovered decades ago. But much higher prices and the new application of technology have slowly started shifting some of those resources into the “reserves” category.

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  4. By Joel B. Brown on August 21, 2012 at 2:08 pm

    A few additional comments from a long time reservoir engineer responsible for estimating reserves for Shell (I left before the “inflation” hit):

    1.  Understand that all reserves estimates are forecasts.  As such they get fuzzier the farther into the future one projects.  In truth, we don’t know what’s going to happen tomorrow, far less in 20 years.  The USGS and EIA rely on oil company projections.  Is it surprising that they have historically shown us “running out” in 10-30 years, depending on the particular application of the numbers?

    2.  Those estimates are burdened with large volumes of corporate politics (see inflationary statement about Shell above), much as a dirty stable is burdened with large volumes of horse dung.  An upstream oil & gas company is what it books to proved reserves, particularly among the independents.  So there is a solid security analyst motivation to make them large.  Not to mention senior management bonuses.  Larger initial reserves bookings slow down tax depletion of various capital costs assigned to the lease, so there is a cash motive to make them small at first.  Pity the poor junior reservoir engineer.

    3.  My experience is that good fields only get better, while poorly performing fields only fade.  The former invariably outweighs the latter, leading to continuous additions to reserves over the years.  That is the performance of the existing production wells, exclusive of extensions.

    4.  Many new fields modify regional paradigms for explorationists, leading to discoveries that could not be anticipated earlier.  Those discoveries are NOT in the reserves estimates you examined.  Surely they will find something, else why do we employ them?

    5.  All economic reserves are estimated against a current forecast of oil prices, also a very dicey proposition.  It is not cogent to discuss economic recovery without asking “At what price?”  This has an impact not only on total crude recovery, but on biofuels in spades.

    6.  The impact of new technology is and will always be an unknown unknown.  Combining two established technologies, as noted above, has lead to a complete reversal in the tone of energy dialogues in just a few years.  Likely more is to come. 

     

     

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    • By Chris Nelder on August 22, 2012 at 6:12 pm

      Good perspective, Joel. Thanks for sharing it. 

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    • By Andrew Holland on August 23, 2012 at 9:06 am

      Good stuff here. I’ve learned a lot from this.

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  5. By R. L. Hails Sr. P. E. on August 21, 2012 at 2:12 pm

    The United States consumes more than 20 percent of the world’s oil, but we only have 2 percent of the world’s oil reserves.”   – President Obama.

    Compare his simplistic statement to the article and colloquy.  Then consider the myriad ways the government lays a heavy thumb on the scales of commerce, which determines the competitive price of energy.  Billions are given to solar panel producers,  while tons of regulations hit fracking. In all energy technologies, truth is now a function of room number, who sleeps in the White House. 

    Mothers, do not let your sons grow up to be engineers, in any energy field.  It they do not know some regulatory lawyer, or lobbyist, your boys may lose their homes.  Whatever marketable capabilities they acquire, over a life time of effort, can, and has been, destroyed by one new insider.  America has entire energy industries, which would vanish today, without dominant government impact, either positive, or negative (e.g. ethanol in gasoline).  Large facilities are shut down within the hour that the subsidy ends; the limited liability corporation ends, and all staff is  terminated.  A project, and livelihood, is canceled due to an obscure new reg in the Code of Federal Regulations.

    When our President discusses energy reserves, he should consider Americans.  In all carbon fuel, and nuclear energy technologies, it is clear, he does not.

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    • By Andrew Holland on August 23, 2012 at 9:12 am

      R.L. – thanks for your comments.

      Billions are given to solar panel producers,  while tons of regulations hit fracking.

      I think fracking is doing just fine for now – and will continue to. Environmental regs are just going to make it stronger for the long term. And, on solar, those billions aren’t even enough in the international market. We’ve basically decided that we don’t want a domestic solar industry – because we’ve decided not to give more subsidies to producers, while China and Germany shower their solar companies with money.

       It they do not know some regulatory lawyer, or lobbyist, your boys may lose their homes. 

      And – from my decade of experience here in DC, I’ll tell you that there’s no more effective lobbyists or lawyers than the ones retained by the oil companies – except those representing coal, of course!

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      • By Optimist on August 30, 2012 at 5:02 pm

        And – from my decade of experience here in DC, I’ll tell you that there’s no more effective lobbyists or lawyers than the ones retained by the oil companies – except those representing coal, of course!

        Hate to nitpick, Andrew, but I think it depends on the yardstick: if the measure is public benefit per tax $ spent, ADM must lead the pack by a comfortable distance…

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  6. By alyssa riles on August 30, 2012 at 12:49 pm

    the worlds going to end in 2012 anyways so who cares……

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    • By Matt Kadrlik on August 30, 2012 at 12:55 pm

      I agree

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    • By god on January 26, 2013 at 3:53 am

      didn’t end, did it.

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