The State of the Global E&P Industry: Is the World Running Out of Oil?
Authors: Iledare O.O. , Pulsipher Allan 
Published: June 2014

This paper (SPE 58947) was revised for publication from paper 56456, originally presented at the 1999 SPE Annual Technical Conference and Exhibition held in Houston, 3–6 October. Original manuscript received 15 June 1999. This paper has not been peer reviewed.

This paper examines trends in recoverable oil reserves and performance measures in the global upstream petroleum industry for evidence to support or reject the view that the world is running out of oil. The performance measures discussed include the appreciation ratio of recoverable reserves; the replacement rate of produced reserves; reserves to production (R/P) ratios; and the equitable-depletion index. Empirical analysis of these indicators suggests a growing world abundance of crude oil and no strong evidence to support the imminent worldwide petroleum-exhaustion theory. The analysis shows that the global oil supply market is well positioned to support even a modest growth in world petroleum demand despite institutional and regulatory barriers on resource development in some of the more intensely explored and developed regions of the world. In fact, the current estimate of worldwide remaining recoverable reserves can sustain the current worldwide production rate for at least the next 2 to 3 decades, with all other factors remaining constant and assuming a tolerable reserve-life index of 20 years.

Introduction

Crude oil can aptly be described as the engine that drives the economic development of most economies in the world. It is the most significant and highly traded primary commodity in the international market. Since replacing coal early in this century, crude oil has remained the world&apos;s primary source of energy. Thus, the need for a clear understanding of the quantities of available oil worldwide and the supply outlook cannot be overemphasized. In the past 2 years, articles have appeared that suggest that the question is not whether world oil production will decline, but when the decline will usher in a permanent oil-shock era.1–4 On the other hand, there is also the optimistic view among energy analysts that the world is not running out of oil but into it.5–10

The objectives in this paper are two-fold. The first is to examine and review trends in the key components of recoverable reserves (proved reserves, cumulative extraction, reserve additions, and production) to determine whether there is a "wolf at the door, if not in the house already." 10 The second is to develop and use empirical indicators of operational performance in the global upstream petroleum industry to determine whether to accept or reject the hypothesis of imminent exhaustion of world petroleum resources.

The empirical indicators developed for this analysis include recoverable-reserve appreciation (an indicator of observed growth of estimated recoverable reserves); R/P ratio [equivalence in years (EY) of production with reference to the 1998-base-year production rate]; and replacement rate of produced reserves (a simplistic measure of success in oil and gas E&P that assumes that the basic operational objective of an oil producing firm is to produce and replace reserves to maximize profits and that of a nation is to maximize wealth. Also presented is a depletion index defined as a measure of the degree of long-term reserve-market equitableness and production reasonableness or fairness within the context of remaining recoverable reserves among the competing producing areas of the world. Underlying all measures proposed in the paper is the assumption that all other factors remain constant.

Refs. 11 through 13 are the primary sources of the data used in this analysis. Data for 1970 through 1998 were aggregated for non-OPEC, OPEC, and world producing sources. Limitations of the data were differences in definitions in various countries and poor quality of data on petroleum reserves outside the U.S. and Canada.

The State of Global Oil Resources, Reserves, and Extraction

The U.S. Geological Survey (USGS) estimated the world&apos;s ultimate oil resource base as of 1 January 1993 to be in the range of 2.1 to 2.8 trillion bbl at the 5 and 95% probability levels.14 The statistical mean and mode of the world&apos;s ultimate oil resources were estimated as 2.4 and 2.3 trillion bbl, respectively. Over the past 50 decades, however, USGS&apos;s estimates of the recoverable oil resource base has nearly quadrupled. For example, the world oil resource base in 1948 was estimated at 600 billion bbl compared with the current estimated mean value of approximately 2.4 trillion bbl.

The Middle East accounts for nearly 40% of the mean estimates of the world&apos;s ultimate resource base (Figs. 1 and 2). The estimated expected value in that region is more than twice that of North America, which currently ranks second in world oil resource distribution. North America&apos;s share in world oil resources is less than 18% of the statistical mean of the world&apos;s ultimate oil resources. The former Soviet Union was third in the ranking, accounting for approximately 15%. Although OPEC member nations&apos; share in undiscovered oil is less than 33%, more than 60% of proved oil reserves are located in OPEC member countries.