Proven Reserves


Proven Reserves Explained

But, because of the heating needed to get oil from tar sands and oil shales, and the extra effort to drill deeper and frack rocks, some of the resources will be used up recovering the rest of it, increasing the rate of use. And, we don’t really know very well what the resource is; serious investors and regulators tend to rely on the proved reserves for good reasons.

You may also recall from earlier in the course that peak whale oil production from the US fleet was followed almost immediately by a tripling of the cost, even though oil production continued at fairly high levels during the following decades—impacts of scarcity are felt long before the resource is exhausted. People often assume that production of a resource follows a sort of bell curve, starting slow, then rising rapidly, peaking, declining and tailing off to almost nothing. If that model is accurate, then the peak—peak oil, or peak coal, or peak-whatever, occurs when half of the resource has been used. The whale-oil experience suggests that scarcity shows up and starts to restrain the economy just about then. If so, then we now may be much closer to problems from fossil-fuel shortages than we realize.

Another point worth considering is that some countries have a lot of fossil fuel, and others not much (see the "World's Proven Reserves" figure just below). And, who has fossil fuel and who uses it are not always the same. For oil, for example, for most recent years including 2016, the US was the third-largest producer, although the US was #1 by a small margin in 2015, based on data from the International Energy Agency. But, because the US is the largest user, being third in production isn’t enough, and the US is the largest importer.

Video: Where is Oil, Coal, and Gas? (1:28)

Click for a video transcript of "Where is Oil, Coal, and Gas?".

PRESENTER: This shows where we know that there are oil, and coal, and gas. So the oil in each case is the black one, and then the coal is this little sort of purple-y one, and the gas is blue one. This happens to be the Middle East right here, and the Middle East has more than half of the proven reserves of oil in the world. It's not the place you go for coal, but there's a whole lot of gas there.

The US uses a lot more oil than most places. We have lots of oil in the US, but it's only 14% of the proven reserves. There's a huge amount of gas that's been found, but it still only gives 6%, and then the coal is fairly high in the US. And you can sort of walk around here. Europe uses a lot of energy, and they are very poor in basically everything. They've got more of the coal than anything else, but they really don't have all that much. There's a whole lot of some of these up in Russia, and so on. So you can run down. And Asia here, and there's a whole lot of coal, Australia especially.

But you can notice that because the way this is distributed, some people use more than they have, and some people have more than they use. There's a lot of trade that goes in various directions, and this makes the international economy and the international politics fairly interesting.

Source: Data and base map from US Energy Information Agency, 2011.

Notice that the sorts of numbers here can be “spun” in many, many ways in the public discussion. Estimates of how much we have already discovered in the ground are at least somewhat uncertain; estimates of how much is in the ground that we haven’t discovered yet, or haven’t learned how to recover, are much more uncertain. Businesses and companies might have reason to report optimistic numbers, or pessimistic ones, depending on what they want to accomplish or sell or buy just now. How long the resource will last depends on how fast we burn. Should we estimate using modern rates of burning, or future ones, and if future, what will they be?

The rise of gas and oil fracking in the US has led to a rapid increase in reserves. You may hear people talking about a century of gas, although others use numbers as small as 25 years for the US reserve. But, at the start of fracking, gas was only about ¼ of the US energy use, so relying on gas as our main fuel could bump the low-end estimates down to only about 6 years. You could find some justification for bragging about a century or more of gas or warning that we may run out in a decade or less, by carefully choosing which estimates to adopt and how to use them. The module is to be very careful about the first numbers you hear, and think and compare before using a number to make decisions on, say, where to invest your retirement fund! (This applies to what you see in this class, too; no one can give you the absolute truth on this topic!)