Are We Running Out of Oil and Gas?
Crude oil and natural gas, like other natural resources, have a finite supply. Because we are consuming more and more of these fuels each year, there is concern that we may exhaust them in the near future. In this section we review the current supply of crude oil and natural gas and consider when we might run out of these valuable energy supplies.
Current Situation:
Crude oil and natural gas are finite resources. We know how much are produced and how have been discovered. The discovered oil and gas which have not bee produced are called reserves. The reserves of oil and gas exist in reservoirs below the earth's surface. Scientists estimate how much are left by trying to judge the reservoir's size and the amount of hydrocarbons that can be recovered. The reserves are determined based on current economics and technology. The reserves are those that can be economically produced using present technology and current costs and prices. Therefore, this value has a lot of scientific guesswork associated with it and can change with new technology like 3-D seismic and oil and gas prices.
If we divide the reserves of crude oil in units of billion barrels by the annual production in billion barrels per year we get the number of years of production left at this production rate. This is called the reserve lifetime or R/P ratio. This value can be calculated for the world, a country, a state, and a field. It is an important indicator. We would like this number to be as large as possible because that means we could produce from this field for many years. As we produce a field the R/P ratio (reserve lifetime) will decline. The same situation can be used to describe natural gas except we measure the reserves in trillion cubic feet and the production in trillion cubic feet per year.
At the end of 2013 there were 1,687.9 billion barrels of proven oil reserves. In 2013, the world produced 31.685 billion barrels of oil (86,808 thousand barrels per day). That means that we had 53.3 years of oil left at the current rate of production.
The reserve lifetime for natural gas is 55.1 years.
This means that if we keep on using oil and gas at the rate we did in 2013 we will run out of oil in 2056 and natural gas in 2068.
Before we relax too much, there are a couple of problems with this prediction. First, the world keeps on using more and more energy.Over the past twenty years, oil demand has grown 1.3 % annually and natural gas use has increased 2.5% per year.Assuming the same growth rates,we would run out of oil by 2042 and natural gas by 2044.Before we panic and wonder how fast scientists can develop other energy sources, we need to consider another part of the equation.
Reserves end-of-year = Reservesbeginning-of-year _ Production + Additions
This equation says that the reserves at the end of the year are equal to the reserves at the beginning of the year less production plus additions. What are these additions? Scientists aren't sitting idly by and waiting for the reserves to run out. As we have learned in earlier sections, they are looking for oil and gas all around the world and using sophisticated technology to find more oil and gas. Let's suppose that these scientists can replace 75% of the production each year. (This may seem like a pretty high number but companies that average this kind of performance would soon be out of business.) On this basis, we would run out of oil in 2097 and gas in 2087. Natural gas runs out sooner because it has a higher growth rate.
There is of course one little problem with our simple mathematical exercise.Does the world have enough undiscovered oil and gas?
The USGS conducts assessments of basins throughout the world and is continually updating their appraisals.
The USGS has recently announced that the area north of the Arctic Circle has an estimated 90 billion barrels of undiscovered, technically recoverable oil, 1,670 trillion cubic feet of technically recoverable natural gas, and 44 billion barrels of technically recoverable natural gas liquids in 25 geologically defined areas thought to have potential for petroleum.
These calculations always seem to trouble people. How do we know how much oil and gas are waiting to be discovered if we haven't discovered them? Is this a wild guess or is there some science involved in making this estimate? Actually, it's a little of both. Let's call it scientific guesswork. Scientists know where other rock formations may be located that could contain hydrocarbons. They have information on production from wells around the world that helps their assessment. These scientists also consider the latest technological developments that improve our ability to find and recover hydrocarbons. Of course, it is a lot more complicated than this and considerable effort is made in preparing a range of estimates.
Using these estimates of undiscovered oil and gas, we can expect to run out of oil in 2057 and natural gas in 2064.These calculations are subject to a great deal of uncertainty, however, they do highlight the fact that oil and gas are depletable resources and that we only have a certain amount left.
There are several things to remember about this analysis or any other estimates of when oil and gas resources might run out:
The amount of undiscovered oil and gas is an estimate and that estimate is revised based on new technology, new discoveries and additional information.Please see National Oil and Assessmen for more information.
The USGS assessments are presented as estimates at various levels of probability: 95% probability of at least at certain level, mean and 5% probability of at least at certain level.The range of these estimates can be significant.
Whatever the amount of undiscovered oil and gas that the world contains, it is a finite resource that has taken millions of years to produce.* Like all of the earth's resources, we need to be good stewards of the oil and gas supply and ensure that they are used most efficiently.
See the American Petroleum Institute report Strengthening Our Economy: The Untapped US Oil and Gas Resources
What Are Companies Doing to Find More Oil and Gas?
Oil companies spend billions of dollars searching for new oil fields. Each year companies try to replace the oil that they produce. If a company fails to replace and add to reserves they will not be able to increase production and revenues. According to statistics compiled by Houston investment banking firm, Simmons & Company International, major oil companies have spent about $260 billion over the past decade just to maintain the same level of production. Independent producers spent $16 billion over the same time period and were able to increase production by 6%.
Why are these results so disappointing? First of all oil companies are dealing with resources that are depleted or used up. The reserve lifetimes in the above table indicate how long it will take before the reserves are depleted. In the case of the United States, the oil reserve lifetime is 12.4 years. This means that 8.1% (1/12.4) or 2.46 billion barrels of the oil is produced each year. To replace these US oil reserves companies must find 2.46 billion barrels of oil. If the oil and gas industry wanted to increase production in 2009 to keep up with the increase in U.S. oil consumption, the industry would have to find 3.11 billion barrels (2.46 billion barrels + 19,419 thousand barrels per day x 366 days/year consumed in 2008 x 1.0% growth rate = 2.53 billion barrels).
The cost to achieve this is rather large. In spite of tremendous improvements in exploration technology, based on a finding and development cost of $18.49/B for 2005-2007, it would cost $46.78 billion in 2009. Where does this money come from? It comes from company profits and private investors. When oil prices are low, companies don't have enough profits to look for more oil and gas. The laws of supply and demand tend to balance things out because when supply drops, prices increase to encourage companies to find more oil and gas. So when gasoline prices are low, remember that this means less money to find the crude oil necessary to make gasoline in the future.
When Will Oil Production Peak?
One of the questions hotly debated in oil and gas circles is when will crude oil production peak.The date an level of this maximum production are considered significant because 1.) supplies of oil will start to decline, 2.) the cost of the remaining production will increase,*and 3.) the world better have a contingency plan to move to new fuels or suffer an economic meltdown.
The milestone is probably less significant than one might first guess.First of all the date is for conventional oil production and does not include supply from unconventional sources such oil sands and very low gravity crude oil or bitumen.The forecast also does not consider conversion of coal and natural gas to crude oil.
A study from scientists at the University of Newcastle, suggested that conventional production will peak between 2012 and 2024 ("Mathematical model forecasts year conventional oil will peak," Oil & Gas Journal, May 7, 2007). Forecasters at the Energy Information Administration predict the peak will be between 2033 and 2067.Analysis performed by PetroStrategies indicates the peak will occur between 2033 and 2047.The subject is treated in more detail in an excellent article on Wikipedia called Peak Oil.
For other articles on peaking oil production, please see the following links:
Hubbert Peak of Oil Production
Peak Oil Primer

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