How Much Oil is Left in the World?

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Irina Slav
Irina writes about oil, gas, and all things energy. Her stories have appeared in Oilprice.com, Seeking Alpha, Business Insider, and Fortune.

In the oil industry,

We can get our data from a variety of sources, from the largest government bodies to small independent niche oil supply monitoring specialists. The question of how much oil is left in the world has been speculated upon for a long as the industry has existed.

Just a couple of years before the 2008 financial crisis, peak oil supply was a popular topic, garnering a lot of headline space. Now, more than ten years later, it is peak oil demand that is bothering the industry. Meanwhile, the question of how much oil is left in the world continues to fascinate.

That oil, like coal and natural gas, is a finite resource is nothing new. It was this finite nature of fossil fuels that sparked the peak oil supply worry. Yet those worrying about peak oil did not factor in the continual improvement of exploration and extraction technology, and the development of new methods to tap these finite resources.

Future supply depends on current investment

Investment in these improvements and the application of new extraction methods, however, depends on oil prices, which, in turn, depend on numerous factors. And while it may sound counterintuitive, low oil prices tend to spur greater improvements in oil extraction as companies strive to boost the efficiency of drilling while maintaining—or even lowering—costs.

This is what we saw during the 2014-2016 oil price crisis. In the United States, this was not just a time of many bankruptcies as exploration and production companies with high production costs couldn’t survive the price pressure. It was also a time of innovation as those still afloat struggled to make more with less. Many industry observers today argue the so-called second shale revolution was to a great extent fuelled by that innovation drive.

It is precisely these improvements in exploration and extraction that make it hard to pin down exactly how much crude oil is left in the world. In 2016, for example, the U.S. Geological Survey estimated there were up to 20 billion barrels of undiscovered, technically recoverable crude oil in the Wolfcamp Basin. (Part of the Permian shale play). Two years later, the USGS revised this estimate to 46.3 billion barrels. In just two years, the extraction methods used in the U.S. shale oil industry had changed enough to make more than double the amount of oil that was technically recoverable in 2016 recoverable in 2018.

Yet, prices can also discourage technical improvements in oil exploration and extraction. They can deter exploration growth in general, which is another thing that happens when the industry cycle reaches a low point, and we witnessed it relatively recently during the 2014-2016 crisis.

Reserve replacement ratios

Every oil company keeps an eye on its reserve replacement ratio. That is the ratio between new oil the company discovers through exploration and the oil it produces. If the company wants to survive and remain profitable in the long term, it needs to maintain a reserve replacement ratio of at least 100%.

In 2015, the reserve replacement ratio of the seven Big Oil majors—Exxon, Shell, BP, Chevron, Total, ConocoPhillips, and Eni—fell to just 75%. As a result, energy consultancy Wood Mackenzie in 2016 warned the world might face an oil shortage of as much as 4.5 million BPD by 2035. To date, reserve replacement is at a 20-year low, according to Rystad Energy data; oil companies are replacing just one in six existing barrels with new discoveries.

There is also another metric related to the reserve replacement ratio that has a bearing on estimates of global oil reserves. This is reserve life: the period that an oil company can continue producing a stable amount of oil from its existing reserves. In 2017, according to a Reuters analysis, the reserve life of Exxon’s oil declined from 17 to 13 years, and that of Shell fell from 12 to 10 years.

Now for some hard numbers.

In its latest Statistical Review of World Energy, BP estimated the world had 1.7297 trillion barrels of crude oil remaining at the end of 2018. That was up from 1.7275 trillion barrels a year earlier and 1.4938 trillion barrels in 2008. In 1998, the world had 1.1412 trillion barrels in remaining reserves.

So, as demand has continued to grow consistently over the last 20 years, so has production and, counterintuitively, so have global oil reserves. Yet in that same statistical review, BP said these higher reserves would last us for just another 50 years: another metric oil companies use to measure their business sustainability.

Called reserves-to-production ratio, this simply means the oil reserves of a company—or a planet—at the end of any given year, divided by the production of oil during that year. The caveat here is that the R/P ratio only provides us with the length of time reserves will last if production continues at the same rate. In other words, the world would have enough oil for another 50 years if production remains at 82-84 million BPD, which it averaged in 2018.

This is unlikely to happen. Energy demand has been growing as consistently as oil production. While at the moment, demand is lagging behind supply, most forecasters expect this to change as the global population grows fast, and this leads to an equally rapid rise in demand for energy. Notably, demand for electricity is expected to expand by 62% by 2050, according to Bloomberg NEF. While a lot of the additional generation capacity will come from renewables, oil will continue to feature heavily in the global energy mix, which makes it safe to assume production will continue growing for some time.

As this happens, the work of oil companies will become more challenging because recoverability of oil reserves will worsen. This is yet another facet of oil exploration and production that has a bearing on the answer to that fascinating question: how much oil do we have left?

As in other human activities, oil extraction begins with the “easiest” parts of a deposit—the places where there is the most oil that is easy to pump out of the ground. As these sweet spots get exhausted over time, producers need to tap harder to access reserves, which cost more to develop.

Again, the story of U.S. shale is a case in point. Thirty or forty years ago few companies, if any, paid any attention to shale because there was enough conventional oil. As that started to run out, E&Ps turned their attention to shale simply because there was no other alternative.

Deepwater exploration is another case in point. Offshore production has historically moved from shallow waters to ever-deeper deposits as natural depletion takes its toll. Onshore production has moved from conventional deposits to shale and oil sands, and from easy-to-access oil to more challenging fields.

Conclusion

So, as the difficulty level in oil extraction increases, so do costs. When these rise to a point when a company cannot extract the oil at a profit, the deposit becomes economically unrecoverable. Even if it remains technically recoverable, this is one more reason to take any global oil reserve estimate with a pinch of salt. Whatever technically recoverable oil the world has – is not all economically recoverable.

The amount of technically recoverable oil will probably continue to rise from year to year. Oilfield service companies continuously work to make exploration and extraction more reliable and more efficient. As for economic recoverability, this is a whole other matter. It depends on oil demand, and many believe oil demand is getting threatened by renewables—a threat that will only grow. We may well have enough oil to last us another 50 years. Whether this is time enough to wean ourselves off the fossil fuel before it runs out remains to be seen.

6 COMMENTS

  1. When I was young and in elementary school in the 1980’s, I learned the world had 50 years of oil left. Then, in college in the 1990’s, I found out we still had 50 years of oil left. In the 2000’s, reports came out that we have 50 years of oil left in the world supplies. Now, I find out we have 50 years of oil left. In 2050, I suspect that the world will have approximately 50 years of oil supplies remaining.

  2. Due to the current decline in OIL demand due to COVID-19, is it possible for oil companies to reduce the oil extraction?

    I mean can the oil RIGS be shut of for few days or work on alternate weeks or so..?

    Storing excess of oil is a dangerous option too.

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