API DP 081-1995

Since the dawn of the petroleum industry in the mid 19th century, there have been recurrent waves of concern that exhaustion of the world’s petroleum resource base was imminent. In the light of historical hindsight, such concerns of exhaustion have been obviously premature. Despite the inevitability of an eventual peak and decline in world oil production at some future date, there is little empirical evidence to suggest that such a date will be any time soon, or that it will result from global resource exhaustion.

In fact, the available empirical evidence suggests just the opposite — by most measures, world oil resources are more abundant today than ever before. World production in recent years has resumed the growth that was briefly interrupted in the 70’s and early 80’s (though at a lower rate), as seen in Figure 1.

World production rose more than sixfold between 1950 and its peak in 1979 (at nearly 63 million barrels a day). After a sharp decline in the first half of the 80’s attributable to the Iran/Iraq war and an ultimately futile attempt by OPEC to defend an unrealistic price, supply began growing again after 1985, averaging about 1.4% per year since that time, and is expected to soon surpass the previous peak.

Despite this massive expansion of supply, there is little evidence of the effects of depletion available in the historical record. As seen in Figure 2, in 1950 proven reserves were 90 billion barrels, sufficient to sustain production at the 1950 rate for about 24 years. By 1993, reserves had expanded to nearly a trillion barrels, sufficient to support 1993 levels of production for another 45 years. Moreover, this more than tenfold expansion of proven reserves occurred despite the fact that 650 billion barrels had been consumed in the interim. However, there may be less here than meets the eye.

“Proven reserves” do not, have not, and were never intended to provide a measure of remaining resources, or even an approximation to such a measure. Rather, they are and always have been defined to represent a working inventory, continually replaced by new exploration and development. Current reserve estimates no more represent the remaining supply of oil resources than current inventories of groceries on the shelf are a measure of future food supplies3. Nonetheless, the level of proven reserves at any point does say something about future supply potential. Namely, it generally provides a lower bound on remaining resource potential4, rather than the upper bound it is often misinterpreted to represent

That upper bound, the amount of oil remaining in the earth, is clearly finite and, unlike proven reserves, clearly declines with cumulative production. However, its magnitude is unobservable, and more importantly, it is not clearly even relevant to the imminence of exhaustion. That is, oilfields are typically abandoned far before the oil in place is completely removed. On average, only about a third of the oil is recovered at the point where it typically becomes technically or economically impractical to continue production.