Oil ‘scarcity’: We should have known better


World oil reserve comparison USGS vs US DOE proven reserves.

By Bill Kovarik

One of the more painful lessons of recent  history involves the way money and  politics can slant  scientific information.

Take the curiously sudden abundance of fossil fuels.  Not long ago we had looming shortages, certain oil scarcity, and the supposed need to go to war to protect the lifeblood of the world’s economy.

But now, seemingly out of the blue, we have an abundance of natural gas from fracking, heavy oil from Venezuela and unconventional oil from Canada’s tar sands. And much more conventional to come from the Dakotas, the Arctic, Latin America and the coasts of Africa.

How do we explain the “sudden” abundance of fossil fuels?

  • “We were wrong on peak oil,” said  George Monbiot of the Guardian in July, 2012.  “There’s enough to fry us all.”   Environmental strategies must change now because “the facts have changed,” he said.
  • The Washington Post reported that the “center of gravity” for  world oil resources has shifted to the Americas. It’s  “quickly changing the dynamics of energy geopolitics in a way that had been unforeseen just a few years ago.”
  • USA Today noted that Venezuela had become No. 1 in the world for proven oil reserves.  “Exploration of Venezuela’s 21,000-square-mile Orinoco belt shows that its oil deposits exceed the proven reserves of even Saudi Arabia.”
  • Foreign Policy published an analysis about the “new” petroleum abundance and impacts on climate change. The new golden age may indeed shake up the currently rich and powerful and create new regional forces, Steve Levine said.

But wait a minute.  Have the facts changed? Has the center of gravity shifted? Was all this totally unforeseen?

Or — consider this possibility — what if all this isn’t new?  What if geologists have known about these unconventional reserves all along?  If so, give a thought to the consequences of these mistaken policies. The wars over oil. The millions of lives wasted. The trillions of dollars down the military drain.  The irreparable and nearly catastrophic damage to relations between two of the world’s great cultures: Islam and Christianity.

This didn’t happen because the West was fighting merely for cheap oil or for oil industry profits. It happened because we in the West were told – over and over again – that  two thirds of  ALL of the world’s oil was located in the Middle East. By the press, by the governments and, most of all, by the oil industry.

As Federal Reserve Chairman Alan Greenspan said in 2007, the Iraq War “is largely about oil.”

In fact, this categorical misinformation was created by, and for, the world oil industry,  and it was distributed with willful ignorance by the US Energy Information Administration and most other governmental agencies, except the US Geological Survey.

Scientists at USGS had another set of data.

The two charts (above) are a good place to begin.   The first was created by BP in 2002, and the big green bar on the right hand side represents  Middle Eastern oil reserves. Obviously, it dwarfs the rest of the world. That’s what the oil industry wanted us to believe. Otherwise, sacrificing trillions of dollars and millions of lives in the Middle East wouldn’t have made sense.

The second chart should have been created by the USGS.   But it had to be created in 2002 to contrast the BP view with the scientific view in the USGS  World Petroleum Assessment and Analysis of Nov. 28, 2000. That world survey was one of a series of surveys that contrasted fairly sharply with the oil industry’s perspective.

The problem was not simply that BP and the rest of the oil industry have had a particular view that slanted to the Middle East.  The problem is that this was  the ONLY view available outside specialized circles.  The BP annual world oil assessment, and similar reports from Shell and Exxon and the federal Energy Information Administration, never once referred to the USGS. They never let on that there was any question about world oil reserves.  They all said that the Middle East had two thirds of the world’s oil. There was no other point of view available.

Of course the USGS could have done something about it.  Back in 2005 I asked a high level USGS official why the agency did not inform the media, and he said: “The USGS is not a political agency.”   The USGS official didn’t get that question very often because, in their naivete, the news media thought that the Middle East had two thirds of ALL of the world’s oil. They believed the oil industry and the government. And Daniel Yergin.  From Mother Jones to the New York Times to Fox News, from the 1970s to very recently,  everyone  writing news or dealing with public policy seemed to believe that the world’s supply of future oil  would necessarily gravitate around the Middle East — at least, until oil peaked. Then there would hardly be any.

The glass of beer analogy

To describe the situation, Dr. Colin Campell of the Association for the Study of Peak Oil once used this analogy:”Understanding [oil] depletion is simple. Think of an Irish pub. The glass starts full and ends empty. There are only so many more drinks to closing time. It’s the same with oil. We have to find the bar before we can drink what’s in it.”

But the analogy of a  tankard of beer is appropriate only for a tankful of gas.  A better analogy to the world oil industry would involve a street full of Irish pubs and a network of warehouses and distilleries.  The price keeps going up because the proprietors of your pub claim to be running out of beer. You can see for yourself, they say, the shelf is almost empty. The Ministry for Pubs says its worried and gives each of the pubs a generous  depletion allowance and other tax breaks. And the ministry loudly trumpets the  promise that it will eventually ease our dependence on beer while quietly cutting alternative beverage research.

Of course, the best kept secret in town is a huge stockpile of barley, yeast and hops in the warehouse across town.  If you asked about it in the 1970s or 80s, they’d tell you that it wasn’t “proven” beer.  It was only “potential” beer or even “undiscovered” beer.  Meanwhile, of course, we have to fight to secure our “proven” sources of beer.

Resource wars and world oil reserves 

The logic of the fights over world oil, especially the 1992 and 2003 invasions of Kuwait and Iraq,  went something like this:

Premise 1: The world needs oil. It is the lifeblood of commerce.    Premise 2:  Two thirds of  the world’s oil is in the Middle East.  Conclusion: The US  has to make sure it is accessible to the world. Even if it means war in the Middle East.

So, if you buy the premise, you buy the conclusion.  Few people ever questioned the alternative premise — that there were might be other sources of oil in the world or even alternatives to oil.

Of course, the invasions of Kuwait and Iraq   were not officially related to oil reserves. They were officially all about Iraq’s invasion of peaceful Kuwait, or Saddam Hussein’s weapons of mass destruction.  But of course it was well  understood by anyone paying attention that these were actually resource wars.

So what’s a “proven” reserve? Does it matter?

The embarrassing scientific reality is that petroleum geologists never really thought that the Middle East had two – thirds of all the world’s oil.   It was only two thirds of a special category called “proven” oil reserves.

Any geologist will tell you that it’s wrong to focus on “proven” reserves when you consider long-term strategic goals. As Standard Oil  geologist  Wallace Pratt said in 1944, it is a “fallacy … [to] cite proved reserves as a measure of available future supplies.”

Yet this is exactly what happened.  And the fallacy animated US policy in the Middle East for decades.  Why?

To begin with, the issue is technical.  A “proven” oil reserve is not the opposite of an “unproven” reserve. That’s a false dichotomy, and although it seems natural enough. But it’s quite misleading because oil fields that are not proven are often well characterized by seismic tests and sample drilling.

Along with “proven,” the actual technical categories of oil reserves that geologists use include:  identified, probable, recoverable, potential, and unconventional.  In 2007, industry-affiliated geologists adopted two new categories — contingent resources and prospective resources — to account for anomalies in the old proven reserve system.

Economists, analysts and stock brokers stick to proven reserves  because the economics of a proven reserve can be plotted down to the penny.  Proven reserves are a category that help guide investors who need to know just how easy the oil will be to find and what it will take to lift from the ground.  They need to know how light and pure the oil is, how much it will cost to refine, how close the oil is to the marketplace. Oil reserves that fall below a standard index of affordability are not called “proven” reserves under Securities and Exchange Commission rules,  and they are not developed because no one wants to lose the money it would take to develop them.

Conventional wisdom has it that investments are based on the world’s proven oil reserves. But it is probably more accurate to say that oil company investments and friendly country policies are what make reserves “proven.”

Proven reserves can be remarkably elastic over time.   Geologist M.A. Adelman noted n his book The Genie out of the Bottle that a special WWII mission to Persian Gulf estimated Saudi Arabia’s oil reserves at 16 billion proved and 5 billion probable. This was 1944.  Thirty years later, those same fields were estimated at 42 and 74 billion. In 1984, geologists estimated  another 199 billion barrels of probable reserves in the Gulf region. Today the proven reserve figure is about 265 billion according to OPEC and BP.

For the entire Middle East, the proven reserve figures are around 650 billion barrels, or about two-thirds of a world total of around one trillion.  But petroleum geologists have long known this is far too “conservative” an estimate, and too heavily slanted to the Middle East.

There is no doubt that the traditional hostility between Latin American nations and the once-US based oil industry had been a factor holding back oil reserve estimates in Venezuela and Mexico.  Nor is there any doubt that the under-counted Latin American reserves would have upset OPEC production quotas if they had suddenly been counted in the 1980s and 90s.

So by using the economic definition of an oil reserve, as opposed to the scientific definition, the oil industry in effect pulled a slight of hand and reset the premise of the world geo-strategic energy debate.   No doubt it was misleading, and intentionally so. All too often, even the word proven was dropped from most news articles and government agency reports about world oil reserves. So people naturally thought that the Middle East had two thirds of ALL the world’s oil, and nobody in government or the oil industry took it upon themselves to challenge that notion.

The usual explanation, repeated in this Wikipedia article, is that “the total amount of unconventional oil resources in the world considerably exceeds the amount of conventional oil reserves, but are much more difficult and expensive to develop.”

How “much more” expensive?  Is it so much more that the reserves can’t be counted?   But the fact is that Canadian and Venezuelan tar sands and heavy oils require a fraction of the total sale price to upgrade and ship from remote locations.  The amount can be significant in a volatile market.  But it is in the neighborhood of 15 to 30 percent at most.

So now we have the information equivalent of the BP gulf of Mexico blowout.  We now know the vast extent of the Marcellus Shale gas reserves and the Canadian oil sands and the Arctic reserves.  We now know that there were trillions and trillions of barrels of oil in the geosynclinal trough from the Orinoco River to the Falkland Islands.

Imagine if we had known that in the 1980s and 90s.  The sad thing is, we did. Or at least, the scientists did.

Bottom line:  One of the most important  lessons of history is that interested industries can control the premises of  information and set the terms of the debate. They can submerge the science.  If anything, this underscores the need for better scientific information about major resource policies and geostrategic planning.


Personal note:

I first heard about the massive oil reserves in Canada and Latin America — far bigger than the Middle East — while I worked in Washington in the trade press.  I covered energy and environment for the Business Publishers as the editor of Energy Resources and Technology and  Latin American Energy Report.

During a presentation put on by a Washington “think-tank,” I met a group of geologists who were concerned that the facts were not on the table.   Dr. Bernardo Grossling of the USGS was among them, and there were a number of others who were there to argue that there would be no need for military intervention to keep open the Strait of Hormuz.

Alirio Parra, then head of Petroleos de Venezuela, spoke at the same meeting.  I’ll never forget the shock when he announced that the fabled heavy oil field in the Orinoco region had at least three to four trillion (yes, with a T) barrels of oil, and that the oil field stretched down the eastern slope of the Andes Mountains all the way to Argentina.

Grossling testified on the Hill several times about the abundance of oil in Latin America, but few if any in the press reported it, mostly because there was so much contrary information being churned out of the new Energy Department and the oil industry.

A few weeks after the panel I ran into energy expert Dan Yergin on the floor of the American Stock Exchange in New York.  I asked what he thought of all this and he said what everyone in the oil industry was saying:  It’s not really oil, it’s too expensive to make it into oil, and  the future is in the Middle East.  A decade later he confirmed this with his book  The Prize.

But I was never convinced  that the Middle East was “The Prize.”  Heavy oil only takes an extra $20 to $40 per barrel to upgrade, and the costs of those processes were coming down.

I wrote about the “proven reserve problem”  for my publication, Energy Resources and Technology, and kept writing about it. I wrote about it in the Baltimore Sun for the 10th anniversary of the 1979  Iranian oil crisis. I wrote about it online for the 20th anniversary.   And the 30th.

My take on it is not so much that Peak Oil is a fallacy — I wish it wasn’t, actually, because I sympathize more with people who would like to see more energy conservation. We probably will run out of oil some day, although it may be far too late.

My professional concern is the extent to which the oil industry can set the terms of national debate and guide political and social capital along the path that favors them economically, no matter what the cost in terms of wasted lives, wounded soldiers, or squandered taxes.

It seems, after all, we wrecked Iraq and militarized the Persian Gulf just because oil there was cheaper, not because it was the only source of oil.

My concern is how little we understand about blowback and what happens to people and institutions who insist on creating and imposing their own information environments.

More info: In 2002 – 2003 I wrote The Oil Reserve Fallacy.    It has many sources and links in this area.

Also see the recent “Golden Age of Oil that Wasn’t” and the Grist magazine article, “What if we never run out of oil?

Comments are closed.