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Tilting at Windmills

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January 29, 2006
By: Kevin Drum

KUWAIT'S OIL RESERVES....This news is a week old, but I forgot to blog about it last weekend:

Word just came out that Kuwait, long regarded as home to some of the world's largest reserves of petroleum, may possess only half the amount of oil reserves that it officially has been stating for many years.

According to a restricted report issued by the authoritative industry newsletter Petroleum Intelligence Weekly (PIW), internal Kuwaiti records reveal that the nation's oil reserves are far below the officially stated amount of about 99 billion barrels....The PIW report is based upon data circulating within the top echelons of the Kuwait Oil Co....The PIW report claims that Kuwait's remaining proven and nonproven oil reserves total about 48 billion barrels, or 51 billion fewer barrels than previously advertised.

Stuart Staniford has more here, including a technical discussion suggesting that this news shouldn't come as a surprise.

For my money, though, you can forget the technical discussion. Instead, take a look at the second graph in Stuart's post, which shows that virtually every OPEC country abruptly increased their reserve estimates in 1986. Although this was partly legitimate (the American companies that had provided the earlier reserve estimates had been systematically too conservative for reasons of their own), the increases were mostly nothing more than a response to OPEC politics. Export quotas are based on reserve estimates, and in the mid-80s every country raised their reserve estimates in order to get a bigger quota. They hadn't suddenly discovered a whole bunch of new oil they never knew was there before.

My rough rule of thumb is that OPEC's real reserves are about halfway between the 1980 estimate and the 1990 estimate or maybe a bit under that. Eventually it will be impossible to pretend otherwise, and we'll start hearing rumblings from other countries similar to those we're hearing from Kuwait. Buy a hybrid now and be prepared.

Kevin Drum 2:24 AM Permalink | Trackbacks | Comments (45)

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Comments

Why don't the reserves in the second graph decrease as oil is depleted? Is it some bizzarre plot of oil in ground + oil already converted to CO2 or are all these countries claiming to be finding oil at the same rate that they pump it out of the ground. Saudi Arabia is pumping 3 to 4 billion barrels a year. It ought to show up.

Posted by: B on January 29, 2006 at 2:44 AM | PERMALINK

There has been controversy amongsts the oil engineers of the world for years about the
true reserves in the middle east. They have
been refused access to test to confirm their
calculations. But they have estimated the
actual volume to be less than 1/3 of the
official stats.

Posted by: Semanticleo on January 29, 2006 at 2:47 AM | PERMALINK

On the plus side, having possibly passed peak oil might help with that global warming problem you mentioned.

Invest in hybrids.

Posted by: Demosthenes on January 29, 2006 at 3:02 AM | PERMALINK

Invest in coal

Posted by: murmeister on January 29, 2006 at 3:06 AM | PERMALINK

This is why nobody's investing in building any refineries or expanding refining capacity. They *know* that this capacity will be unused when production gets driven down.

Posted by: osama_been_forgotten on January 29, 2006 at 3:53 AM | PERMALINK

So how long till Al and friends apologize for all the mean things they said about Matt Simmons? My guess is approximately a trazillion years.

Posted by: Maynard Handley on January 29, 2006 at 4:16 AM | PERMALINK

For a long time now, OPEC has used a rationing system in which the amount that each member country pumps is based on that country's known reseves. So there has been a substantial economic incentive to exagerrate available reserves. It's likely that what's true of Kuwait is true, to a greater or lesser degree, throughout the Middle East.

Posted by: Alex on January 29, 2006 at 5:12 AM | PERMALINK

Forget the hybrid - walk or bike to work. Hint: you need to live close enough to your job to do this.

Posted by: uberman on January 29, 2006 at 7:27 AM | PERMALINK

Hybrids will buy you nothing. It is certainly not a fix if you actually believe the sky is falling.

Posted by: Patton on January 29, 2006 at 7:48 AM | PERMALINK

Speaking of Matt Simmons, in Twilight In The Desert he makes a pretty good case that the official number for Saudi proven reserves (289 BB IIRC) was pulled out of an orifice hidden beneath the optimistic oil minister's robes.

Posted by: Minnesotachuck on January 29, 2006 at 9:30 AM | PERMALINK

if 'Merkan's willful ignorance wasn't so tragic I'd laugh my ass off; truly the insatiablly greedy will get what they deserve as we descend into vicious, endless war and destruction, as nation tear each other to pieces over the dimishing drops of oil. Unfortunately the not-so-ignorant, not-so-greedy Americans that have been trying to bring reasoned attention to this problem for years but who have been shouted down by the cult of republicanism will go down with them.

Posted by: justfred on January 29, 2006 at 9:41 AM | PERMALINK

Back in the 80s I read an article that suggested that with the price spikes in the late 70s solar and wind power were close to competitive with oil (as an aside -- aren't all forms of energy solar? There are just different ways to store the energy). With 2 decades of technology improvement and rising demand (India and China) I would think we would be looking at a clear preference for non-oil energy.

If you're looking for an investment opportunity look for someone with technology and distribution in Asia for a low-cost hybrid or even a radical new technology (keep in mind lower switching costs in Asia with a low relative investment in cars with the US, Western Europe & Japan).

Posted by: jhe on January 29, 2006 at 9:47 AM | PERMALINK

"Buy a hybrid now and be prepared."

Why buy a hybrid now? Will it become more expensive in say 10 years?

Posted by: Freedom Fighter on January 29, 2006 at 10:17 AM | PERMALINK

Buying the hybrid will be less important than living close to the central economic core regions; the far-flung suburbs will shrivel and die as oil spikes in price. The bad news is it isn't necessarily clear where those central regions will be. Lots of american cities are "doughnut holes" - abandoned cores surrounded by low-density suburban development. Will we rebuild the central cities, or will new cores form inside the suburban rings?

What is clear is we'll need to recentralize our urban patterns to a large degree. To the extent that suburbia survives, it'll need to be far more self-sufficient. Windmills may become as ubiquitous as TV antennas used to be.

Posted by: jimBOB on January 29, 2006 at 10:29 AM | PERMALINK

Bring it on, baby. I got my geothermal heat pump extracting heat from the earth's core as I type. OK, not the core...just a couple of hundred feet under mi casa. But it is an amazing technology.

Posted by: Red State Mike on January 29, 2006 at 10:54 AM | PERMALINK

Where is betting that Kuwait has MORE oil than does Alaska but it really doesn't matter anyway - It's going to be China's oil and not ours. You just can't bomb these Mideast people into submission - the way Bush wanted to do it. The Mideast is finding out that they don't have to sell their goods to the US unless we pay a whole hell of lot for it, and we're not big enough to go to war with the entire Mideast to secure cheap oil.

You might just want to learn how to work from home and forget the hybirds.

Did anyone see Bush on Face the Nation? My gosh that man is so stupid. Yeah, just keep talking like you did today Bush and you're own Party will have to wack the presidental face - I mean whats in a face? Can Bush sell the GOP anymore? It's getting pretty iffy.

I like Bob - last of the old news man with any principles, he really did ask Bush some truly embarrassing questions and Bushs clearly is out of his element anytime he stumbles beyond a redneck bar room. It was clearly nothing more that bullshit, bullshit, and more bullshit.
I wonder if Americans are finally getting tired of Bush tough bar room talk? All hype and no realism, Bush truly was born to nothing but cheap, white trash and ture redneck type of bullshiter whom bullshitted the whole stupid nation. Bush is less than Tom DeLay - he is Tom DeLay. When did world's super power get so stupid and care so little for the truth. Maybe we'll in in TV land because we watch to much TV and Bush is nothing more that cheap soap opera.

And you know how Kevin loves hype and cheap soap operas - like most centrist Dems, they perfer reality TV to real boring, mundane drudgery of real life.

Posted by: Cheryl on January 29, 2006 at 11:17 AM | PERMALINK

How about buying a horse?

Posted by: Rootless Cosmopolitan on January 29, 2006 at 12:26 PM | PERMALINK

Cheryl's comment encapsulates many of the reasons why elected Democrats/Liberals are a diminishing breed. Bush can indeed continue to "sell" the GOP, and by comparison to Cindy Sheehan, Howard Dean, Barbara Boxer, Kristina Vanden Heuvel, John Kerry, Ted Kennedy, Harry Reid, Dick Durbin, Kos, Michael Moore, and so on, seems all to sane and normal to the average American. The constant barrage of extreme rhetoric which is the current Liberal/"Progressive" political stance instead of a reasonable, sober debate about substantive policy and principles is counterproductive. I fear for the complete dissolution of the Democratic Party. In stark contrast to what the "Choir" here sings day to day, the average American voter sees such extreme rhetoric, and feels he/she is held in contempt by those espousing it. I am concerned that we are past the tipping point, and that there is not going back for the Liberal movement. I know that makes a lot of your regulars happy, but I think it is an omen of things that will diplease all of us in the long run.

Posted by: Dr. Dan on January 29, 2006 at 12:27 PM | PERMALINK

The constant barrage of extreme rhetoric which is the current Liberal/"Progressive" political stance instead of a reasonable, sober debate about substantive policy and principles is counterproductive.

- Dr. Dan

We should invade their countries, kill their leaders and convert them to Christianity.

My only regret with Timothy McVeigh is he did not go to the New York Times Building.

The thing I like about Bush is I think he hates liberals.

-Ann Coulter

We have the ability to take him (Chavez) out, and I think the time has come that we exercise that ability

-Pat Robertson

Not to mention almost everything that appears on Free Republic and Little Green Footbals.

Posted by: jimBOB on January 29, 2006 at 12:42 PM | PERMALINK

Buy a hybrid now and be prepared.

You misspelled "bicycle".

Posted by: editer on January 29, 2006 at 12:44 PM | PERMALINK

jimBOB makes an interesting point, the only flaw in his logic is he is only quoting private citizens. The discussion of political hyberbole is really disgracefull with progressive politicians.

Posted by: fmcnulty on January 29, 2006 at 1:08 PM | PERMALINK

Why don't the reserves in the second graph decrease as oil is depleted?

1) It's tracking what the various countries have claimed is "proven reserves", not the actual reserves.

2) Note that he says, just before the graph. "I have personally never believed the publicly claimed numbers since the whole issue came to my attention. This graph just reeks:"

The real point of that graph is "Look! Everyone magically reported more oil in the 1980s, for no apparent reason."

Posted by: Erik V. Olson on January 29, 2006 at 1:22 PM | PERMALINK

"Experts" have been predicting that oil will run out for decades. They have never been right and are unlikely to be now (Jimmy Carter said as president that were would have to learn to "live without oil" by 1990 or so)

"Why don't the reserves in the second graph decrease as oil is depleted? Is it some bizzarre plot of oil in ground + oil already converted to CO2 or are all these countries claiming to be finding oil at the same rate that they pump it out of the ground. Saudi Arabia is pumping 3 to 4 billion barrels a year. It ought to show up. "

In general terms oil reserves haven't been going down for decades they have been increasing. Look at the figures: 1960 oil reserves were 200 billion barrels, 1980 oil reserves 670 billion, today oil reserves are one trillion. Why?
Oil reserve figures are provable exploitable oil deposits. As technology advances we can get more oil out of the ground. As prices increase, more oil becomes economically viable. And ther is still oil out there to discover.

Finally there are other sources of oil that are just waiting. See this RAND report of shale oil: http://www.rand.org/news/press.05/08.31.html
They are talking about reserves in the US in a 3 state area and their midpoint estimate is 800 billion barrels. One estimate of shale reserves is that worldwide there are over 200 times the recoverable shale deposits as traditional oil fields. Oil sands in Canada and elsewhere also look promising.

Yes the oil monarchies have likely grossly exaggerated their oil reserves, but there is a lot more out there.

Posted by: hist_ed on January 29, 2006 at 1:28 PM | PERMALINK

Hist_ed posted on 29 January 2006 at 1:28 PM:

In general terms oil reserves haven't been going down for decades they have been increasing. Look at the figures: 1960 oil reserves were 200 billion barrels, 1980 oil reserves 670 billion, today oil reserves are one trillion. Why?
Oil reserve figures are provable exploitable oil deposits. As technology advances we can get more oil out of the ground. As prices increase, more oil becomes economically viable. And ther is still oil out there to discover.

In general, this might be true, but for the last 15 years the growth rate in oil consumption has accelerated past that for oil discovery. More disconcerting is that the no new giant oil fields have been discovered and the prospects of finding any are nil. The available geographic formations just don't exist, unless you want to start drilling underneath the Antarctic ice sheet (damn, I knew there was a reason that global warming didn't bother the petroleum profiteers). What we have is what we can expect to be available for the next zillion years.

Finally there are other sources of oil that are just waiting. See this RAND report of shale oil: http://www.rand.org/news/press.05/08.31.html
They are talking about reserves in the US in a 3 state area and their midpoint estimate is 800 billion barrels. One estimate of shale reserves is that worldwide there are over 200 times the recoverable shale deposits as traditional oil fields. Oil sands in Canada and elsewhere also look promising.

Getting at and processing the shale oil deposits in any reasonable commercial venture will likely not occur in the lifetimes of any of the folks currently alive on the planet. The amount of oil-bearing shale which needs to processed is stupefying. The process is energy intensive itself, because the rock essentially needs to be cooked to allow the oil to move out of the rock's pores. The resulting tailings will build a replica the Rockies. Worse, the process needs tons of water for processing and cooling, none of which is available in the areas immediate to those three states you mention. The last time the oil companies looked at oil shale, they expected the Federal taxpayer to build them a water pipeline from the Great Lakes which they could exploit for free. Did I mention that they expected the states bordering the Great Lakes would allow them to use unlimited quantities of water free too? Given the economic constraints, please paint me a rosy picture when reality is introduced.

The oil sands of Canada and Venezuela are more viable, but they will not contribute to American energy independence.

Yes the oil monarchies have likely grossly exaggerated their oil reserves, but there is a lot more out there.

No, there is not a lot more out there. There is certainly not a lot more out there given the current energy consumption growth rate and the falling discovery rate. That is what what increases the urgency in finding alternative energy sources beyond any form of oil.

Posted by: PrahaPartizan on January 29, 2006 at 1:57 PM | PERMALINK

I'm not surprised. Most producers are probably overestimating, for varying motives.

Posted by: Jimm on January 29, 2006 at 4:17 PM | PERMALINK

Worse still, oil reserves are meaningless if the oil cannot be extracted. Often, oil fields collapse after 1/2 the oil is removed, and more intense methods of removal need to be undertaken, like injecting water into the wells, horizontal drilling (Expensive) or drilling more wells into a known field (diminished returns for each additional well drilled). If they say the field contains 50 billion barrels, but only half can actually be extracted, what do the fields really contain? You simply cannot extract every drop. One poster mentioned coal. Fact: It is in the best interest of oil exporters to contain cost of oil. If oil hits $100/barrel, it becomes profitable to turn coal into liquid hydrocarbon (That's Gasoline, folks). Fact: In the State of West Virginia ALONE, there is more energy beneath the ground than there is ALL of Saudi Arabia. We should keep pumping these desert insects dry. What else does their economy produce? They are toast the second the spigot runs dry. The wealthy princes will live off the hoarded money and exile away, as the peasants revolt and charge in on camels. What goes around comes around. Nostradamus just said so.

Posted by: Nostradamus on January 29, 2006 at 4:34 PM | PERMALINK
Why don't the reserves in the second graph decrease as oil is depleted?

Because
(a) finding oil reserves costs money TODAY
(b) the NPV (net present value) of having oil reserves that will be tapped in the future is lower the further off one plans to tap the oil. If you had proven reserves enough for 500 years, would you pay geologists for find the 501st year's supply? Or would you leave that problem to future generations?

The corollary of these two things is that countries and firms maintain a fairly constant runway of proven future oil, and as they consume each year's supply, they prospect for to replace the consumed oil.

Posted by: TJIC on January 29, 2006 at 4:44 PM | PERMALINK

rootless cosmopolitan : if you get a horse , get a jackass also ; togather they can produce you a HYBIRD ( SO TO DOUBLE SPEAK ) WANDERER

Posted by: WANDERER on January 29, 2006 at 5:03 PM | PERMALINK

It is important to remember that oil reserves are a function of price. So there is always a pricing scheme implied in an estimate of reserves. The relationship is that the higher the price, the greater the reserves.

There will always be oil, we will never run out. However, there may be some point where you won't want it for a particular use because it is too expensive, and other alternatives will present themselves.

Posted by: StevenH on January 29, 2006 at 5:06 PM | PERMALINK

Well shucky darn. Them there Kuwaiti towelheads lied to us about how much oil they got in the ground? Poppy should kick their raggedy asses back into Iraq, where we saved 'em from in the first places.

We all gonna be Raptured here shortly, so don't y'all worry about a thang. Ole Georgie's in charge. Now scuse me while I sniff a little disco dust that Neil brought me and get back to the real work of my presidency - getting to Level 20 on Super Mario Bros. - Yee ha......

Posted by: George W. Bush on January 29, 2006 at 6:32 PM | PERMALINK

Oh dear, another OPEC number playing silly-bugger with their reserve estimates.

So... when are you Yanks gonna invade and seize Soviet Albertastan? Seems inevitable now.

Posted by: Soviet Canuckastani on January 29, 2006 at 7:30 PM | PERMALINK

i rode a hybrid mule down into the canyon what is grand , slow but very dependable.FESTUS HAGEN

Posted by: FESTUS HAGEN on January 29, 2006 at 7:49 PM | PERMALINK

You might find this of interest:

Iran is running out of oil

Posted by: M. Simon on January 29, 2006 at 9:50 PM | PERMALINK

Electricty is not a viable transportation fuel.

Solar and wind will not help much in that area. Despite the USA being the Saudi Arabia of wind.

Posted by: M. Simon on January 29, 2006 at 10:04 PM | PERMALINK

I am in the middle of a long-running argument at the PeakOil.com message board with a petroleum engineer over the concept of oil reserves as it applies to the USA. If you would like to see the level of obfuscation in action by a supposed expert, check it out.
http://www.peakoil.com/fortopic16568-0-asc-0.html

The bottom-line is that the USA has been practicing these same reserve tactics for years. The fact that the Kuwaitis and Saudis also do it only points that they have learned from and are imitating the best. The best being our brightest geologists and bureaucrats within the USA oil industry and the USGS. In all it is pretty shameful and only hurts everyone's understanding of where we stand with respect to our energy predicament.

Posted by: Webster Hubble Telescope on January 30, 2006 at 12:18 AM | PERMALINK

Webster Hubble Telescope said:Yes the oil monarchies have likely grossly exaggerated their oil reserves, but there is a lot more out there.

So, you think it's a good idea to release the majority of the C)2 stored over the past 100 million years back to the atmosphere within ~500 years?

Because that's what you're talking about.

Try it in your own home and let us know how it goes.

Posted by: F'in Librul on January 30, 2006 at 3:03 AM | PERMALINK

Kevin,

More stupidity on your part. Reserves are a function of price. They represent economically viable reserves. Since oil went up, reserves grow.

Posted by: McA on January 30, 2006 at 3:10 AM | PERMALINK

McA,

In that case, Repsol's reserve base should have gone up substantially in the last 2 years right, as their marginal fields get to be more extractable (ignoring the moment the issue of actually getting hold of people and equipment).

HistEd,

"In general terms oil reserves haven't been going down for decades they have been increasing. Look at the figures: 1960 oil reserves were 200 billion barrels, 1980 oil reserves 670 billion, today oil reserves are one trillion. Why?"

Because OPEC decided to make your production quota a function of your population and your reserves. It's real hard to lie about how many people your country has.

Also, could you kindly break that down between actual, like oil and gas, and crap like Oil Sands that are brutally hard to ramp up to production of millions of barrels a day.

Ian Whitchurch

Posted by: Ian Whitchurch on January 30, 2006 at 5:05 AM | PERMALINK

'There will always be oil, we will never run out.'
--StevenH

So, I take it the Earth is really hollow and filled to the brim with petroleum? Not only that, contrary to scientific theory, the Earth's diameter is infinite, too? Interesting....

Posted by: Stephen Kriz on January 30, 2006 at 6:40 AM | PERMALINK

StevenH was too out of it (typical for the libertopian market-religionist faithful) to realize that the price/supply relation is effectively (and physically, must be) asymptotic for a reserve like oil. IOH, effective supply is some value "100%" at $200/bbl and higher, maybe 90% at $100/bbl, 75% at $50/bbl, etc. The cornucopians don't get or like the basic material constraints - like that inexcusable and blessedly late idiot "Dr." (officially, but not up to it) Julian Simon.

Posted by: Neil' on January 30, 2006 at 10:25 AM | PERMALINK

You should link to "The Oil Drum" more often Kevin.
Several other good analysts there, not just Stuart Staniford.

Posted by: JS on January 30, 2006 at 11:27 AM | PERMALINK

You'd be much much better off in the short-to-medium term by selling your car, learning to live car free (and making the life changes necessary to do so), and putting all that extra money (payments, insurance, gas) into a nice mildly agressive energy based mutual fund, and then retiring in 15 years when your mutual fund dividend payouts eclipse your take home pay.

This method is working quite well for me, and all i did was not buy a new car right away after paying off my first one.

Posted by: sampo on January 30, 2006 at 1:25 PM | PERMALINK

BOMB THEIR ASS AND TAKE THEIR GAS.

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