How much oil is in the ground? That question has been asked for 150 years at local, national, and global scales. A precise answer is unknowable because most oil exists thousands of meters below the surface of the Earth, and it can be identified and measured only after drilling extremely expensive wells. But that hasn’t stopped legions of scientists and engineers from making educated (to varying degrees) estimates.
The most cited quantity is proved reserves. The Society of Petroleum Engineers provides a concise and widely cited definition:
“Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. Proved reserves can be categorized as developed or undeveloped.”1
Most oil industry analysts would agree with that basic concept of proved reserves. Yet there is strong disagreement about the accuracy and validity of the reserve estimates that you are most likely to see in the media, the classroom, or in government and industry reports.
Public information on proved oil reserves is available from four sources: the Oil & Gas Journal (OGJ), the Organization of Petroleum Exporting Countries (OPEC), the annual BP Statistical Review of World Energy, and the U.S. Energy Information Administration (EIA). These public sources have large differences in the degree of transparency regarding their methodologies.
About 90% of oil reserves are held by state (government) owned enterprises (SOEs) that are notoriously secretive about their methods for estimating and reporting proved reserves. Prominent SOEs include Saudi Aramco (Saudi Arabia), Rosfnet (Russia), China National Petroleum Corp., National Iranian Oil Co., Petróleos de Venezuela, Petrobras (Brazil) and Petronas (Malaysia).
In the United States, the Securities and Exchange Commission (SEC) requires companies whose securities are publicly traded to disclose their proved oil reserves. The SEC guidelines are extremely detailed, but they generally follow the idea outlined in the SPE definition. While vastly superior from a transparency perspective compared to SOE estimates, company submissions to the SEC can become mired in controversy.2
The BP, EIA, and OPEC reserve estimates exhibit notable differences that demonstrate how biases and subjective judgements affect reserve estimates. In the spring of 1983, OPEC changed the method used to allocate production quotas to its members, basing the new method in part on the quantity of proved reserves held by members. This triggered a multiyear “quota fight” in which several countries reported sudden and dramatically higher reserve estimates with no plausible justification for doing so.3
Consider how oil reserves in Venezuela and Canada are treated. High oil prices combined with technological improvements in the extraction and processing of oil sands in Alberta prompted Canada to increase its reserve estimates by a factor of seven from 1997 to 2008. BP and the EIA followed suit, although they did so in different years. Without explanation, OPEC refuses to acknowledge Canada’s oil sands as proved reserves.
A similar story unfolded for Venezuelan “heavy oil.” Favorable energy prices and technological advances prompted the Venezuelan government, BP, and the EIA to triple the country’s reserves estimates from 2007 to 2011. Once again, they did so in different years. In contrast to its stance on Canadian oil sands, OPEC included heavy oil in Venezuela–an OPEC member country–in its reserve estimates.
A final peculiarity of some reported reserves. Saudi Arabia, Kuwait, and the United Arab Emirates report constant or near constant reserves over multiple decades. But even in the absence of any major new discoveries, knowledge changes year to year due to production experience, development drilling, and the other sources of new information. Better information, technological advances, and changing economic conditions cause changes in reserve estimates. Constant oil reserves over long periods of time are not observed in countries where companies are required to publicly report and justify, at least to some extent, their estimates.
What is the moral of this story? One clear take away is that great care should be taken before equating a trend or a year-to-year fluctuation in reported reserves with a “real” change in the physical amount of oil we can readily use. By itself the precise definition of proved reserves is affected by a complex array of technological, geological, economic, and social conditions. When you add politics and lack of transparency to the mix, reserve estimates can appear as “a riddle, wrapped in a mystery, inside an enigma.”4
The need to mitigate anthropogenic climate change must shift how we view reserve estimates for oil and other fossil fuels. A significant portion of the fossil fuels remaining in the Earth’s crust must remain there, prevented from entering the atmosphere as carbon dioxide produced from combustion, to limit future climate to 1.5° C to 2.0° C above pre-industrial levels. This quantity left in the ground is called “unburnable carbon,” and it includes some oil volumes that currently are reported as proved reserves.5 In the United States and Europe where companies must disclose reserves and risk there is a need to adjust the entire accounting scheme to reflect the conundrum of counting proved reserves as valuable assets when in fact they may never be sold.6 In the case of SEOs, economic, social, and political pressure must be brought to bear to align their reporting with climate imperatives.
1 Society of Petroleum Engineers. “Petroleum Reserves Definitions,” March 1997. https://www.spe.org/en/industry/petroleum-reserves-definitions/.
2 Burdick, Rick L., and Anthony J. Renzi. “Restoring Confidence in Reported Oil and Gas Reserves: A Practical Approach.” Oil and Gas Financial Journal, 2nd Quarter (2004).
3 Laherrère, Jean, Charles A. S. Hall, and Roger Bentley. “How Much Oil Remains for the World to Produce? Comparing Assessment Methods, and Separating Fact from Fiction.” Current Research in Environmental Sustainability 4 (January 1, 2022): 100174. https://doi.org/10.1016/j.crsust.2022.100174.
4 Munro, Diane. “Saudi Oil Reserves: A Riddle, Wrapped in a Mystery, Inside an Enigma.” Arab Gulf States Institute in Washington, July 21, 2016. https://agsiw.org/saudi-oil-reserves-a-riddle-wrapped-in-a-mystery-inside-an-enigma/.
5 Carbon Tracker, Unburnable Carbon, Accessed 1/14/2023, https://carbontracker.org/resources/terms-list/#unburnable-carbon
[6] Bebbington, Jan, Thomas Schneider, Lorna Stevenson, and Alison Fox. “Fossil Fuel Reserves and Resources Reporting and Unburnable Carbon: Investigating Conflicting Accounts.” Critical Perspectives on Accounting 66 (January 1, 2020): 102083. https://doi.org/10.1016/j.cpa.2019.04.004.