Please have a look at our article, “Barrel Fever: Does Anyone Know How Much Oil There is in the World?” We’ve covered some of the same ground in posts here, but hopefully readers will still enjoy it.
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Please have a look at our article, “Barrel Fever: Does Anyone Know How Much Oil There is in the World?” We’ve covered some of the same ground in posts here, but hopefully readers will still enjoy it.
Comments are closed.
It’s a nice piece, Yves.
The only distinction that I would make is between public oil/gas companies and national oil companies (NOCs). OPEC quotas are set on the basis of reserves within cartel countries, I believe, so they have an incentive to goose their reserves. Hence Iraq’s revision. Other national oil companies (cough, cough, Russia, cough cough) have no incentive to provide any information at all.
Public companies (Exxon et al) often show lower reserves in times of rising prices because production sharing agreements allocate a larger share of reserve to the state, rather than the producer.
I think the important point (which you made) is that reserves are an accounting construct, and like any accounting, it’s vital that the statistic be used in the manner intended. Proved reserves have nothing to do with the actual amount of hydrocarbon in the ground, any more than the net property, plant, and equipment is an indication of the value of a manufacturing facility.
Gauging the amount of hydrocarbon in the ground is fraught with assumptions on recovery, especially as recovery is a function of economics. There truly is a lot more oil in the world at $150/bbl than there is at $50, just as the amount of gasoline that I NEED is a whole lot different at $1/gal than at $5/gal.
Mr. Pike of the Royal Society of Chemistry has an idea that isn’t new, or at least it hasn’t been for several hundred years.
Though, yes, oil companies report proven reserves by adding their reserves’ Bbls arithmatically (per SEC or SPE standard), no one in their right might who values these companies (or trades oil) would blindly follow this methodology and dismiss probable or possible without “risking” them first per Mr. Pike’s* methodology.
Hell, I even did this during a high school internship with an energy I-bank ten years ago.
*not really his
“Price is a result of demand and supply”
Price changes can also be the result of a change in the value of the unit of account, the US dollar.
The dollar price of gold rose the same amount (about 250% between 2002 and 2008) as the dollar price of oil except earlier. Since there is hardly any supply or demand effect on the price of gold, it is the best predictor of the value of the dollar.
The oil price hike is part of a broad-based monetary inflation and has nothing to do with supply or demand.