BP changes basis for worldwide reserves

With 41 years of known crude reserves, 67 years of natural gas, company says world not running out of energy

Kristen Nelson

Petroleum News Editor-in-Chief

BP’s annual Statistical Review of World Energy is out, and in addition to highlighting major events in energy in 2003, the company has focused on the current interest in reserves, and has revised its numbers in an effort to make the data more timely and accurate.

The bottom line, BP economist Mark Finley told an Anchorage press briefing June 22, is that the world is not running out of either oil or natural gas. In 1980 the reserve-to-production ration for oil was 29 years, and in the company’s 2003 numbers it is 41 years he said: “The current proved resource base of the world is sufficient to meet current production levels for 41 years.”

Finley said that in the 23 years BP has been tracking crude oil reserves, “the reserves have grown, even though the world has produced 80 percent of what at the time we knew as proved reserves for the whole world in 1980.” And while 80 percent of proved crude oil reserves known in 1980 have been produced, “proved reserves have actually risen by 70 percent since then.”

BP’s new numbers for oil reserves are 1.15 trillion barrels, some 10 percent higher than the number reported in 2002.

For natural gas, reserves have doubled since 1980, and the reserve-to-production ratio is 67 years, with gas numbers up 13 percent from BP’s numbers last year.

Numbers as reported by countries

And BP hasn’t tried to second guess the official government data, he said, “but what we do is work very hard at making sure that we have the most current and up-to-date statistics possible.”

BP revised its oil and gas reserves numbers, he said, because reserves have been so much in the news.

“Some people are arguing that the world is running short. Some people are arguing that world production is about to peak. And in fact, some people are arguing that the reason why oil prices are high is because we are facing, currently, a shortage of world oil resources,” Finley said.

In revising its oil and gas reserves data, part of what BP did was to “rely more on our own internal process for generating” the data. “When we produce the statistical review we send data surveys to governments all over the world, and we ask them, what is happening with production, consumption, by fuel? And this year we asked in our survey: what are your reserves?”

In the past, Finley said, BP “had tended to rely on external consultants for more of the data — and we decided this year, with all of the focus on reserves, we would try to do it and see if we could add more value by doing more ourselves” by going “right to the source of government ourselves with our annual survey.”

BP also focused, he said, on trying to get as much up-to-date, timely data as possible, given that “these reserves are announced annually, and if they aren’t announced in time to meet our production deadline, we can’t get them.”

Definitions were also revised. (See sidebar on Alberta oil sands.)

The focus, Finley said, was on getting “more timely, accurate, reliable, consistent data.”

Prices at 20-year highs

While oil prices hit a 20-year high, he said it is important to remember that in real terms those prices are only about half of what they were in the early 1980s. For natural gas it is another story: prices there are at record high levels.

Oil prices have been driven by “a lot of one-time effects,” Finley said, including “the war in Iraq, disruptions in Venezuela and Nigeria, but also rebounding economic growth and because of that, rebounding oil consumption, in China especially, but really all over the world, including here in the United States.”

With higher consumption, there was also higher production, but OPEC production cuts in 2001 and 2002 left inventories “at very low levels, and that left room for OPEC to increase production last year while still maintaining inventories basically at the bottom end of the normal historical range.” And, Finley said, “low inventories correlate historically very closely with high prices.”

Investment drives production

But significant growth in non-OPEC production is expected in the next few years, “because investment spending has increased significantly, and in fact, industry wide it’s at record levels right now.”

Consumption is the other side of the picture, and while right now robust economic growth is overwhelming high prices, U.S. gasoline consumption has started to drop in the last few weeks due to high prices, and high natural gas prices have already driven down U.S. natural gas consumption, which dropped by 5 percent in 2003 — by 7 percent in the industrial sector and by 13 percent in the power generation sector, even though the amount of electricity generated didn’t change much.

Fuel switching is the story here, Finley said, with a switch from natural gas to coal. There is also a switch from natural gas to residual fuel oils, and even some switch from natural gas to diesel when natural gas prices top diesel prices.

China and Russia: consumption and production ‘twins’

Russia’s economy is also growing, but the energy relationship is different there, Finley said: “in Russia higher energy production is pushing the economy higher,” and while Russia had increases in both oil and gas production, “really it’s been an oil story.” Production “collapsed when the Soviet Union unraveled, but 1998 was the low point and since then Russian production has risen by 2.5 million barrels a day of oil.”

That amount, Finley said, is enough to “meet half of all of the growth in worldwide consumption over that interval, and, in fact, Russian oil production growth has been faster than Chinese oil consumption growth.”

Oil sands added to oil reserves

The change came, BP economist Mark Finley said June 22, as part of a revision of the company’s reserves data. The data is being collected differently, and some of the definitions BP uses have also been changed.

“In the case of Canada,” Finley said, “we had historically had a footnote in the table that said we only do conventional oil resources: we didn’t include the oil sands.”

But, he said, production from Alberta’s oil sands is now approaching a million barrels a day. “It didn’t make sense to pretend that that oil doesn’t exist.”

The challenge then became how much of the oil sands to include.

The Alberta government talks about 174 to 175 billion barrels of “established reserve,” he said.

BP chose to use a second data series from the Alberta government, one called “an established reserve under active development.”

Or, as Finley described it to the Alaska State Chamber of Commerce: the data set that describes “where people are putting money on the table to turn a resource into a reserve.”

That amount is about 11 billion barrels, and that is what BP “chose as best matching up with the standard of what we’re trying to collect in the statistical review, which is a proved reserve, rather than a recoverable resource.”