Oil Reserves in the World

Étienne Angles d'AuriacVice President, Strategy, E&P at Total
"Shale oil currently accounts for only a small 5% share of global production."

The Development of Natural Gas: A Matter of Vital Importance

HydrocarbonsThe final phase in petroleum system formation, after a deposit has accumulated... , that is to say oil and gas, will continue to be essential over the next decades, despite the need to develop every other form of energy possible. The underlying issue is not a competitive one; the world simply needs all types of energy. In light of this, what is the outlook for oil and gas production over the coming century? In this article, Étienne Anglès d’Auriac, Vice President, Strategy, Exploration & Production at Total, offers his analysis.

For decades now, there has been debate surrounding how much longer oil and gas reserves will last worldwide and the question continues to go unresolved because it depends on many factors that evolve over time: exploration and extraction technologies and their costs, changes in global demand, the accessibility of deposits in light of global geopolitics and many other factors still.

The current state of oil and gas can be characterized as follows:

For 30 years now, we have consumed more oil than we have discovered, while for natural gas the situation is the opposite.
Natural gas is expected to remain “abundant”, despite strong growth in demand of approximately 2% each year.
The seeming abundance of oil, on the other hand, as illustrated by the falling price per barrelUnit of volume measurement for crude oil that is equivalent to approximately 159 liters (0.159 cubic meters)... , may be short-lived, and is attributable to the recent U.S. shale oilRefers to liquid hydrocarbons extracted from oil shale (see definition) by heating, pyrolysis or hydrogenation. and gas revolution. Nevertheless, shale oil currently accounts for only a small 5% share of global production.
Between 2013 and 2014, the oil industry invested more than $700 billion per year, but today, this amount has dropped to just a little over $400 billion, which is not enough to renew reserves.

Let’s take a more in-depth look at “unconventional” hydrocarbons, such as shale oil and gas, which are produced together. Gas is actually a vital part of the shale oil extraction process: if only oil is present in the underground deposits, extraction is difficult. The ideal situation is to have the right balance of both. With the development of shale oil, a substantial volume of additional natural gas became available on the U.S. market, thereby increasing the abundance of gas and bringing prices down to some of the lowest in the world.

When shale oil production began to expand significantly in the United States, the response of the Organization of the Petroleum Exporting Countries (OPECCreated in 1960, OPEC currently has 12 members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia... ) was to increase its own output to bring down prices, based on the idea that exploiting shale deposits would became too expensive and therefore slow down. However, two events proved this prediction wrong: technological improvements doubled productivity and significant new potential was discovered in the form of the Permian Basin in Texas. As a result, shale oil has become to a large extent profitable when prices reach $50 per barrel, with a break-even point of less than $40 per barrel for top-producing wells, which is far below the current price per barrel. These levels are becoming comparable to those of conventional offshore oilDescribes crude oil produced offshore, either in shallow water (depths up to 700 meters) using standard methods, or in deep water... operations.

Nevertheless, shale oil currently accounts for just 5% of global production, and is not expected to exceed 10% within the next ten years. Conventional oil will therefore continue to play an essential role, as will deepwater operations.

The Impact of the Climate Change Debate

What is left of available oil and gas reserves and how much longer will they last? Based on current conditions, it is estimated that 2,900 billion barrels worth of oil remain. Currently known conventional reserves should ensure more than 40 years of production. Future discoveries may increase this period to 60 years, while unconventional resources such as shale oil and heavy oil could translate into 90 years.

For natural gas, the time span is even longer. Gas resources are estimated at 3,200 billion barrels of oil equivalent, meaning an availability of 70 years for conventional resources, 90 years if estimated future discoveries are taken into account, and 150 years if shale gasShale gas is found in deeply buried clayey sedimentary rock that is both the source rock and the reservoir for the gas... is included. However, shale gas discoveries are difficult to estimate given that they tend to occur gradually over time as wells are drilled.

Before these resources can become reserves, they must be profitable and ready for production. This is where the climate change debate comes in. Not all of these abundant resources will necessarily be produced. The highly ambitious scenario put forward by the International Energy Agency (IEA)An independent, intergovernmental organization founded within the framework of the OECD... , which aims to keep average global temperatures from rising more than 2°C, predicts annual demand will increase by 0.9% for natural gas and decrease by 0.9% for oil. To meet the 2°C objective, use of coalCoal is ranked by its degree of transformation or maturity, increasing in carbon content from... , which continues to be the top source of electricityForm of energy resulting from the movement of charged particles (electrons) through a conductor... in the world, will have to decrease very sharply over the next 20 years to the benefit of natural gas. As we have seen, gas is abundantly available and emits half as much greenhouse gas (ghg) Gas with physical properties that cause the Earth's atmosphere to warm up. There are a number of naturally occurring greenhouse gases... for the same quantity of powerIn physics, power is the amount of energy supplied by a system per unit time. In simpler terms, power can be viewed as energy output... generated.

For all of these reasons, the development of natural gas has become and will remain a matter of vital importance for the world’s major companies.

Etienne Anglès d’Auriac is Vice President, Strategy, E&P at Total. A graduate of ESPCI Paris, École Centrale and INSEAD, he has more than 20 years of experience in the oil and gas industry and has worked all over the world, including in Dubai, Argentina and the United Kingdom.

Roland ViallyEngineer at IFP Énergies Nouvelles
"We now have reason to hope that world oil production will decrease due to lower demand rather than depletion of reserves."

The Difficult Task of Estimating Oil Reserves

Oil reserve figures often leave room for uncertainty and have stirred up many debates among experts as well as dividing public opinion. This is because they may refer to several different ideas and have fluctuated over the years as technology and the world economy have evolved. In this article, Roland Vially, a geologist at French petroleum and renewable energies institute IFP Énergies Nouvelles, sheds light on the topic.

When geologists locate a depositAn accumulation of natural resources, such as oil, natural gas, coal, uranium, metal ore or another commodity... in an area they are exploring, they make an initial estimation of the volume of oil inside, known as the in-place resources. Given the considerable uncertainties involved, experts give no fewer than three probability‑based statistics:

A lower figure (P1): there is a 90% chance of reaching or exceeding this production volume. An example may be 100 million barrels. That's the pessimistic estimate.
An upper figure (P3): there is a 10% chance of reaching or exceeding this production volume. An example may be 500 million barrels. That's the optimistic estimate.
A median figure (P2, or P50): there is just as much chance of being above or below this production volume. Based on this above examples, this would equate to 250 million barrels.

However, not all this oil can be recovered because, during extraction, pressure in the deposit decreases and the proportion of water rises. In fact, for oil, only about a third of the in-place resources can actually be extracted. These are known as the technically recoverable resources.

Once the engineers have had their say, in step the economists, who compare the extraction cost with the sale price per barrelUnit of volume measurement for crude oil that is equivalent to approximately 159 liters (0.159 cubic meters)... . If, as in 2014, the price per barrel were to fall from $100 to $50, then certain fields would no longer be profitable. The viable oil is known as economically recoverable resources.

Next, a fourth level appears: proven reserves. At this stage, it has been established that the deposit exists, that it is technically possible to extract the oil, that it is economically viable to do so, and that there are even the necessary investments to go ahead. The oil then stops being called a "resource" and is instead referred to as a "reserve", and this is the final figure that is announced on the oil markets. However, even then it may not be entirely conclusive. International oil companies listed on a stock exchange are required to certify their figures, but state-owned national oil companies, which own 80% of reserves, are not – and the figures they announce can sometimes be influenced by politics.

The Hubbert Peak Theory

Proven reserves worldwide are estimated at somewhere between 1,600 and 1,700 billion barrels. It is thought that half of this is in the Middle East, 19-20% in South America, 14% in North America, 9% in Europe and Eurasia, 8% in Africa and 2-3% in Asia‑Pacific.

But how long will these reserves last? This is the question that has been troubling the oil industry for 60 years. In 1956, American geophysicist M. King Hubbert published extremely detailed data on U.S. oil wells after ten years of painstaking research. Hubbert projected that once half the ultimately recoverable resources had been drawn out of the ground, the extraction rate would then naturally decline – that is, there would be a peak in production. He calculated what this theory would mean for the entire United States, and predicted a decrease in production from 1973. At the time, his work was either ignored or dismissed as fanciful. But then, in 1973, astounded experts noticed a peak in U.S. oil production, and they began to ask themselves if Hubbert's theory might even be applicable to the entire world.

Periodic forecasts were made, causing great alarm since the potential decrease was often mistaken for "the end of oil". However, with each new calculation, the predicted peak was projected further and further in the future. Hubbert's theory was not without merit, but it was limited to proven reserves. Since his research in the fifties, a lot has changed: calculations now take Alaska's resources i to account, as well as offshore oilDescribes crude oil produced offshore, either in shallow water (depths up to 700 meters) using standard methods, or in deep water... production, improved techniques and unconventional oilOil that cannot be extracted using current technology or that entails additional technology or costs to produce... extraction. In the U.S., the shale oilRefers to liquid hydrocarbons extracted from oil shale (see definition) by heating, pyrolysis or hydrogenation. and gas revolution pushed Hubbert's curve upward again. After long taking after a one-humped camel centered on 1973, it began morphing into the two-humped variety, with the resemblance growing every year. Successive reassessments of ultimately recoverable resources then flattened the curves into plateaus rather than bell shapes.

The Energy Transition Impact

Another, more recent factor has complicated Hubbert's forecasts further. Now that many countries have committed to the energy transition under the global climate production sharing contract (or agreement)Oil contract under which the oil that is produced is shared between the state and the oil company... , Hubbert's reasoning – which only took supply into account – is no longer adapted. We will still need fossil fuels for several decades, but demand for them should progressively dwindle. We now have reason to hope that world oil production will decrease due to lower demand rather than depletionIn the oil industry, depletion corresponds to the gradual decline in production from an oil or gas well... of reserves. As the saying goes, "The Stone Age didn't end for lack of stone."

After graduating in geology from the universities of Lyon and Grenoble, Roland Vially specialized in geology at the École Nationale Supérieure des Pétroles et des Moteurs from 1981. He is now an engineer at IFP Énergies Nouvelles, where his research focuses on frontier exploration areas, from mountain chains to deep offshoreRefers to sea-based oil exploration and production operations, as in "offshore license" or "offshore drilling". reservoirs, as well as assessing worldwide oil and gas resources. In January 2018, he became a project leader for the BRESS underground energy resources office at the French Ministry for an Ecological and Inclusive Transition.