Technology marches on - so does oil

OPEC Bulletin Commentary March 2007

Advances in technology have enabled the world to increase its oil resource base to levels which would have been considered unimaginable in the past. There is little doubt that this march of progress will continue unabated well into the future.

Half a century ago, for example, who would have foreseen the transformation of the North Sea into a major oil-producing area, with Norway becoming the world’s third-largest exporter? In fact, at that time, offshore oil was not even classified as conventional, because it was not considered economically recoverable. However, the twin engines of technology and economics have resulted in the huge expansion of global reserves in that sector of the global industry.

Technological breakthroughs, in such areas as sub-surface imaging (3D and 4D), drilling and offshore production, have had a dramatic effect on upstream activity, leading to large discoveries, particularly in deepwater. This has contributed to significant additions to hydrocarbon resources, increased exploration success and expanded access to new frontier areas.

Not surprisingly, estimates of the ultimately recoverable resources of conventional oil (URR) have increased, for example from just 0.6 trillion barrels throughout the 1940s, rising to 2tr b in the 1960s and 1970s, up to the latest mean assessments by the US Geological Survey (USGS) of 3.3tr b. Indeed, the USGS’s latest four estimates of the URR have seen consecutive rises.

Interestingly, at the time of each USGS estimate since the mid-1980s, cumulative world production since the start of the modern oil industry in the 19th century, as a percentage of the estimated global resource base, as perceived on each occasion, has been relatively stable, at just under 30 per cent.

Technological progress should also allow the development of large amounts of non-conventional oil at lower cost, and will thereby enable an extension of the availability of oil supply, and support its role in the long run. Indeed, we expect advances in technology to continue to blur the distinction between conventional and non-conventional oil.

The diverse nature of non-conventional oil impedes efforts at collective quantification, but estimates of recoverable heavy oil, tar sands and oil shale alone, with present technology, total around 600 billion barrels. However, these estimates are expected to rise in the future, since there are many unexploited regions in the world. Extraction rates should also increase, with intensification of research and development.

To provide a further insight into non-conventional oil, this issue of the OPEC Bulletin has a feature on heavy oil in Venezuela and the tar sands in Canada.

In the light of all this, it is clear that there will be enough oil reserves to meet world oil demand growth well into the future. Up to 2030, OPEC’s reference case scenario sees world oil demand rising by an annual average of 1.4 per cent, with oil accounting for close to 40 per cent of energy demand.

With nearly 80 per cent of proven global crude oil reserves — ie conventional reserves — OPEC will be relied upon increasingly to supply the incremental barrel, and our Member Countries are committed to doing this. To put this commitment into perspective, a simplistic calculation suggests that OPEC’s recoverable crude oil reserves will last around 80 years, at present production rates.

When the issue of non-conventional oil enters the picture — and some Members also have a significant role to play here — then clearly there are even stronger grounds to dismiss notions of oil supply peaking in the not-too-distant future.

There is plenty of oil across the world, in its diverse forms — conventional and non-conventional.

The accent, as Saudi Petroleum and Mineral Resources Minister, Ali I Naimi, has contended, should be placed on deliverability of oil, rather than availability.

This Commentary is taken from the March 2007 edition of the OPEC Bulletin, which can be downloaded free of charge in PDF format from the OPEC website.

OPEC Bulletin (March 2007)

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