World has bigger oil worries than size of reserves
By Barbara Lewis and Peg Mackey
Furious debate about how much oil the world has left is matched in intensity by the argument about how much it matters.
For producers, consumers and big oil companies, the holy grail of precise measurement for now is less vital than the speed at which barrels are pumped out of the ground.
"Production capacity over the next few years is more important than reserves," said Sadad Husseini, a former top official at Saudi Arabia's state oil company Saudi Aramco.
Controversy over alleged miscalculation of reserves resurfaced this year after a media report said OPEC producer Kuwait had only about half as much oil as officially stated and Kuwait stopped short of a robust denial.
Husseini put the size of Kuwait's proven reserves at 48 billion barrels, compared with its official estimate of 99 billion, which he assumed also includes unproven reserves.
He said leading producer Saudi Arabia's proven reserves estimate of 262.7 billion barrels was accurate.
The dilemma over how quickly to expend their reserves, regardless of size, is deep for OPEC countries, many of which have failed to diversify their economies.
"If accelerated depletion results in severe and rapid production drops, say within 10 or 15 years, that can't be good for the global economy," said Husseini.
"On the other hand, if reserves are left untapped for 30 or 40 years, the world will have moved on to other fuels and the remaining reserves may become irrelevant."
The International Energy Agency, which represents industrialised countries, says consumers have related concerns.
"For me, the key question is not the reserves, but investment policies in the key producing countries," said Fatih Birol, the IEA's chief economist.
"If countries don't invest, it doesn't matter if they have one billion, or two billion or three billion barrels," he said.
Despite Birol's conviction the reserves' size is not the overriding issue. The IEA is working, together with other institutions, to achieve more transparent data.
He admits the task is extremely difficult.
"This difficulty can't be overcome by geologists or other experts," he said. "The contribution of experts is very important, but it needs political will. I hope the significance of this political will will be understood."
Foreign companies are largely excluded from oilfields in the biggest OPEC countries by government policy and security issues.
The United Nations Economic Commission for Europe is among those striving for an international standard for measurement of energy reserves.
"I think you have to look at both the short term and the long term," said Sigurd Heiberg, chairman of the ad hoc U.N. group of experts on harmonisation of fossil energy and mineral resources terminology.
Heiberg, also an exploration and production executive at Norwegian oil company Statoil (STL.OL: Quote, Profile, Research), said having the best information possible at the outset could protect against premature decline.
"You don't have a second chance to obtain high recovery," said Heiberg.
To date, the closest to an internationally agreed standard has been the U.S. Securities and Exchange Commission (SEC), whose rules were set in the 1970s.
Royal Dutch Shell (RDSa.L: Quote, Profile, Research) famously fell foul of the SEC and was forced to downgrade its reserves in January 2004.
Its share price plunged and Shell incurred fierce criticism, but the SEC was also blamed for rules regarded by many in the industry as overly conservative.
They say SEC strictures can make it hard for companies to get funding from banks for much-needed exploration projects.
Before the Shell debacle, OPEC came under fire after many of its members upgraded reserves estimates in the 1980s when OPEC quotas were decided on the basis of how much oil a country had.
"They all changed in unison. One jumped and the others followed," said Colin Campbell, a geologist who has worked in the Middle East for major oil companies and is a leading exponent of the argument oil production is at or near a peak.
"About 300 billion barrels are involved in this questionable reporting," he said with reference to OPEC's upward revisions.
OPEC countries, nearly all of which are pumping to capacity, are no longer concerned with vying for production allocations.
Even for oil companies, seeking to satisfy shareholders, the size of reserves estimates is not necessarily paramount.
"Historically, the big deal was discovery value," said William Prast, an energy consultant working for British regulator the Financial Services Authority.
But the wider, more subjective context is that reserves do not and will probably never have the same value for everyone.
"A lot of reserves are held by people whose priorities are different," he said.