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Have we underestimated total oil reserves?

Original post made by phil on Jun 13, 2008


Black gold might not be as scarce as we thought. This week oil prices escalated to a record $139 per barrel, but that may partly be because the amount of available oil in known reserves has been significantly underestimated.Web Link

So says Richard Pike, a former oil-industry adviser and chief executive of the UK Royal Society of Chemistry, who blames flawed statistical calculations.

Oil companies produce a bell-shaped probability distribution for how much each oil reservoir might hold, and then quote as an indicator of the reservoir's capacity a figure they are 90 per cent certain they can exceed. When publishing a result for multiple reservoirs, they simply add up the figures for each one. And this is where the problem lies.

"They should be combining the bell curves for each reservoir," says Pike. Adding the numbers for each reservoir ignores statistical information about the extremes of the distribution, giving a result which underestimates the true total figure for all the reservoirs.

According to published estimates, there are 1200 billion barrels still to be extracted, but Pike says there could in fact be twice as much. "The figures are almost meaningless and just provide a conservative estimate for shareholders."

Pike claims that most oil companies do calculate statistically accurate estimates of the combined capacity of their oil reserves, but no one can access this information to work out how much oil there really is in total. "All companies keep their internal probabilistic estimates quiet," he says.

Comments (18)

Posted by Gary, a resident of Downtown North
on Jun 13, 2008 at 2:58 pm

phil,

Thanks for the article. It is just one more example of the abundance oil on this planet. Of course, the higher the price per barrel, the more oil is avaialble.

What is missed, in all of this, is the additonal costs that are caused by restrictions on exploration. Nuclear power restrictions are very much part of this obfuscation, becasue nuclear power reduces demand on oil, natural gas and coal.

The lefties and hatriots have much to answer for.


Posted by Mike, a resident of College Terrace
on Jun 13, 2008 at 3:20 pm

This is so naive, I don't know where to begin.

First, there is NO transparency about oil supply? Why does anyone think that is? It's because oil producers will NEVER reveal actual supply as long as THEY are permitted to have *their own* proxies doing arbitrage in oil futures.

I contributed a very good analytical piece about this phenomenon, here
Web Link

[Portion removed by Palo Alto Online staff.]


Posted by Gary, a resident of Downtown North
on Jun 13, 2008 at 4:04 pm

[Portion removed by Palo Alto Online staff.]

There are a number of expert reports that counter your paranoia about peak oil supply. This same paranoia about "peak oil" happened in the 70s. It is a myth, until it is proven true. However, it is not even close to being true, currently. New technology keeps EXPANDING the supply of oil.

The world is still awash in oil. However, if the lefties prevent us from exploiting it, we will, indeed, be doomed to mass poverty...in a sea of oil.

One can only ask: Why do leftie/luddites worship at the alter of scarcity?


Posted by Paul, a resident of Downtown North
on Jun 13, 2008 at 5:28 pm

There's plenty of oil down there at the right price. The reserves economically pumpable at $10/bbl are pumped out, but more oil gets pumpable at $130/bbl, even more at $300, and so on. Want more oil? You got it. Just pay more for it.


Posted by drill now!!, a resident of Midtown
on Jun 13, 2008 at 5:55 pm

In America alone we have AT LEAST enough oil to last us in a gluttony of oil use for 100 years. And that is just what we know about. And would make us oil independent...no more worries about some nutcase dicatator bringing us to our knees by cutting off our energy needs while we develop other methods.

So, why aren't we getting it?

Oh yes....lefties want us to be dependent on and at the mercy of dictators because we are BAAAAAAD!


Posted by Chill, a resident of Midtown
on Jun 13, 2008 at 6:02 pm

Mike, you are hilarious if you really believe prices keep going up "regardless of demand". You really need to learn a little bit about economics.

Let me remind you...we are in a free market. We choose to buy oil or not. Nobody forces us to buy it, nobody forces us to pay any price, it is simply demand, demand, demand.

Increase supply, price goes down.

Decrease demand, price goes down.

Can't regulate it away....dictatorships fail whenever they are tried. Freedom and capitalism work.


Posted by Jesse, a resident of Ventura
on Jun 13, 2008 at 6:16 pm

Oil under Yosemite for 200 years and more under Yellowstone but the environmet extremeists wont let us get it.


Posted by Mike, a resident of College Terrace
on Jun 13, 2008 at 7:11 pm

Jesse, So who's the extremist. Drilling in Yosemite, indeed! (unless you were shooting for an irony - if so, bully for you!)

Chill says "You really need to learn a little bit about economics."

LOL!!!! You mean like the price of diamonds and gold, controlled by artificial market arbitrage, and the lack of transparency into supply? You are seriously naive about markets.
Might I suggest "Kindergarten economics 001"


Posted by Gary, a resident of Downtown North
on Jun 13, 2008 at 7:44 pm

"There's plenty of oil down there at the right price. The reserves economically pumpable at $10/bbl are pumped out, but more oil gets pumpable at $130/bbl, even more at $300, and so on. Want more oil? You got it. Just pay more for it."

Paul,

Once again, you demonstrate the leftie zero-summer nonsense. First, you guys ban drilling off our coasts, inland, national parks... almost any new sites. Then you whine and lie about "peak oil". Then you claim, Ipso Facto, that oil supplies can only be increased through increased price per barrel. You completely ignore the new technologies of drilling that are available. Until we liberate these technologies to discover, there will be no no discovery (that's a tautology, Paul, in case you cannot figure it out). No rational analyst will peg oil at any given price, in a free market, because he or she will not be able to assure that technology is frozen in time. Many speculators lost their ass in the early 80s, when they bid up the price of oil, only to see it plummet.

[Portion removed by Palo Alto Online staff.]


Posted by a, a resident of Adobe-Meadows
on Jun 13, 2008 at 8:46 pm

[Post removed by Palo Alto Online staff.]


Posted by Statisticus, a resident of another community
on Jun 13, 2008 at 10:50 pm

Has anyone else checked the professor's math? My analysis indicates the oil companies are currently reporting the higher number to their stockholders.


Posted by Mike, a resident of College Terrace
on Jun 14, 2008 at 12:37 am

What's really amusing about all this is that many people who *know* what they're talking about have clearly shown that without unregulated arbitrage, we'd probably have $80 per barrel oil. The spread between that and the "market" (ha!) price is the profit taken by the arbitragers.

There is no direct relation between supply and demand in unregulated arbitrage markets. you want an example? Enron.


Posted by Walter E. Wallis, a resident of Midtown
on Jun 14, 2008 at 5:30 am

So doubling the supply would have no effect on price? Only if government were to control the price.


Posted by Paul, a resident of Downtown North
on Jun 14, 2008 at 9:14 am

Or a cartel, Walter.

Only unrconstructed lefties like Gary would believe a rising price has no effect on production. More bad news: technology don't come free. You want to ride you buy a ticket. Have you tried to rent an offshore drilling rig lately?


Posted by Gary, a resident of Downtown North
on Jun 14, 2008 at 9:49 am

Combines don't come for free, either, Paul, but they sure did lower the cost of grain production, resulting in a lower price to the consumer.

Innovations in drilling, such as multilateral horizontal wells are, indeed reducing the cost of production. For example:

"All of these new technniques have enabled oil and gas producers to develop new oil reserves on the North Slope for less than $2.50 a barrel. "

Web Link

Horizontal drilling also allows offset drilling into environmentally sensitive sites. As usual, though, the luddites/lefties try to stop any such attempts. They would rather see masses of poor people forced into state-controlled public transit.


Posted by Mike, a resident of College Terrace
on Jun 14, 2008 at 3:00 pm

"All of these new technniques have enabled oil and gas producers to develop new oil reserves on the North Slope for less than $2.50 a barrel. "

As usual, Gary garottes himself with his own research; that's $2.50 per barrel to *produce*, Gary. Why is oil trading at $140? Duh!


Posted by Gary, a resident of Downtown North
on Jun 14, 2008 at 3:39 pm

Mike, even with your leftist bias, you should be able to answer your own question.

The twin cartels of OPEC and luddites/leftists conspire to restrict a free market of competition. The world still has a huge reserve of oil, but it cannot, or will not be produced, thus demand will drive price...and speculation Duh?

Mike, you are constantly going on about non-free markets (distortions). Even a broken clock is right twice a day, so I happen to agree with you, with respect to the current oil market...it IS distorted. However, you and yours are a big part of the distortion, so why are you complaining? Oh..ah..I forgot, you are NOT complaining, becasue you like high oil prices (better to control the masses). That is why your side creates false scarcity in the first place. It worked for Paul Ehlich, too, but only for a while. Mike, you and yours will gp down in flames, just like Ehrlich.

For rational folk, high oil prices are not a good thing.

It is long past time that we drill our reserves of oil, and build nuclear power plants. There is nothing that is mutually exclusive between doing this and, at the same time, developing alternative sources of energy.


Posted by Palo Alto Online staff, a resident of Downtown North
on Jun 14, 2008 at 6:15 pm

Posters: please stick to the topic. Stop acting like a bunch of

[portion removed by Palo Alto Online staff.]

and stop posting ad hominem remakrs, or else we're going to

[portion removed by Palo Alto Online staff.]

you little

[portion removed by Palo Alto Online staff.]

Thank you,
Palo Alto Online staff


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