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Last Updated: June 13, 2016
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For years global oil majors have brushed off speculation that an imminent peak in global oil reserves spells the beginning of the end of the hydrocarbon age. There is a long-term trend of new oil finds and improved recovery outpacing consumption each year, they say, underpinning future output and returns.

BP’s latest benchmark energy review, however, makes this line a tougher sell.

The figures show that, since 2011, the world oil reserves have flatlined and are now dropping. Total proven reserves peaked at 1.7 trillion barrels in 2014 and, had BP not revised its 2013 figure downwards, last year’s 1.698 trillion barrel total would have marked the second consecutive fall since BP’s data began in 1980.

A key metric for future production potential, proven reserves are notoriously a moving target.

By definition they should account for the economic recoverability of the oil at prevailing prices and not everyone uses the same yardstick.

To what extent oil prices affect BP’s proven reserves figures is unclear and the historical correlation is weak. Many countries use opaque reserves accounting criteria and apply less rigorous measures for economic recoverability. Others, including the US and Brazil, use more stringent rules. Brazil wrote down a fifth of its proven reserves last year partly due to lower prices, accounting for most of the outright fall in 2015.

The price impact makes the recent slowdown in proven reserves even more troubling.

Reserves hit their apogee as oil prices surged to all-time highs over $100/b, a move which should make more, not less, oil in the ground worth developing and hence “proven.”

There are political motives why some oil producing countries, particularly within OPEC, may been keen to overstate or fail to update their data as output depletes reservoirs, some market watchers believe.

Michael Jefferson, a former Shell chief economist, believes world proved oil reserves could be overstated by up to half as a result of less scrupulous national reporting and the addition of less valuable, harder-to-produce unconventional oil such as oil sands and bitumen. Moves to curb climate change could put even more of the proven oil out of reach.

The impact of the massive cutbacks in global upstream spending is another key concern.

Exploration drilling has taken a big hit since the 2014 downturn and, although yet to feed through to proven reserves, future discovery rates will likely slow in the coming years as a result.

Tight oil to the rescue?

BP itself remains upbeat over the bigger trend of growing reserves.

Its chief economist Spencer Dale is keen to set aside annual statistical “wiggles” and focus on the “bigger picture” that there’s still plenty of proven oil in the world.

“I would take the message that there are enormous amounts of proved reserves relative to production levels…and that those reserves appear to be going up over time despite the fact that we keep consuming oil,” Dale said while presenting BP’s latest statistical review last week.

The technological breakthroughs that sparked the US tight oil boom are another reason why we should be upbeat over the world’s volumes of remaining oil, according to BP. Recovery rates of US tight oil have risen from around 5% to above 10% in some geological “sweet spots,” Dale said, with further gains still possible.

“This is enormously important because, if the big constraint for how long US tight oil can continue to grow is the size of the resource base…if you increase the recovery rate by 50%, you increase the resource base by 50%, so this is huge,” Dale said.

US proven oil reserves have already jumped 78% since 2009 largely due to tight oil, according to BP. At 55 billion barrels, US reserves now rank as the world’s 9th biggest after the UAE. At current production levels, that would last the US 12 years, about the same as BP’s own proven reserves, but well behind the global average of 50.7 years.

Referred to as the reserves-to-production ratio, the measure of how low long the world’s proven reserve could sustain current production also peaked in 2011, the numbers show.

Even more pressing for global oil majors is that Big Oil only controls a tiny proportion of the world’s remaining oil.

The proven reserves of the world’s biggest five oil and gas majors, for example, account for less than 3% of the total proven oil, Dale notes. By contrast more than 70% of the world’s reserves is mostly off-limits in OPEC member countries and two thirds of OPEC’s oil is in the Middle East.

By Robert Perkins, Senior writer/editor


Brazil Drilling Exploration Oil Oil Prices Oil Reserves OPEC UAE US
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September, 21 2019
Your Weekly Update: 16 - 20 September 2019

Market Watch  

Headline crude prices for the week beginning 16 September 2019 – Brent: US$69/b; WTI: US$63/b

  • Global crude oil prices surged at the start of the week as news that a successful drone strike on the Abqaiq processing plant and the Khurais oil field in Saudi Arabia took out over half of the Kingdom’s crude production capacity
  • Brent prices jumped above US$70/b at one point on fears on global supply disruption, but abated as President Donald Trump authorises the release of US strategic petroleum reserves to cover the market
  • Initial fears that the Saudi Arabian crude output would be crippled for months proved to be extreme, with Saudi Aramco announcing that some 70% of capacity at Abqaiq had been restored within days
  • But more worryingly is that this incident escalates the risk of a full-blown military confrontation with Iran; the US was quick to accuse Iran of the attack, citing data on the attack, which was denied by Iran
  • Yemen’s Iran-backed Houthi rebels claimed responsibility for the attack, although initial results of a Saudi investigation pointed to the weapons originating from Iran
  • For now, crude oil prices have retreated as the risk of widespread supply disruption abated, but tensions are still high in the region
  • This comes after President Trump signals that he was considering easing sanctions in an apparent thaw in the US-Iran relationship; this opportunity now appears to have evaporated
  • Saudi Arabia’s new oil energy minister, Prince Abdulaziz bin Salman, made a positive impression at the recent OPEC+ meeting, with errant members of the group signalling that they were now ready to adhere to the supply deal
  • In Venezuela, the oil crisis continues as ongoing US sanctions now mean that the country cannot find enough vessels to transport its crude, as shippers fear losing insurance coverage if they transport Venezuelan oil
  • Iran has released the UK-flagged Stena Impero vessel that it had impounded, a lone bright spot in a region now clouded by geopolitical tensions
  • Against this backdrop, the US active rig count recorded yet another fall, losing five oil and seven gas rigs for a net drop of 12 to a new total of 886 rigs
  • With the shock of the Saudi drone attacks abating, crude oil prices are retreating back to their previous range – US$60-63 for Brent and US$56-59/b for WTI – as the impact of global supply was minimised; another attack, however, might cause a more permanent shift in prices


Headlines of the week

Upstream

  • Equinor has received consent from the Norwegian Petroleum Directorate to continue operations at the Tordis and Vigdis fields through 2036 and 2040, respectively, extending the life of the North Sea fields by 34 years
  • BP has announced that it will deploy continuous measurement of methane emissions for all future oil and gas projects in a bid to reduce emissions
  • CNOPC and Niger have agreed to collaborate on a 1,892km pipeline to carry oil from Niger’s Agadem rift basin to port facilities in Benin
  • The South African government is tabling a new law that will allow the state to take a free stake of up to 10% in all new oil and gas ventures, hoping to capitalise on a surge in upstream interest after Total’s Brulpadda discovery

Midstream/Downstream

  • As the IMO deadline for low-sulfur marine fuels approaches, refiners have begun stockpiling supplies of very low-sulfur fuel oil to ensure adequate supply; this includes Japan’s Cosmo Oil that aims to begin supplying VLSFO to the domestic marine market by October 2019
  • IndianOil’s Gujarat refinery stated it ready to produce 12,900 b/d of VLSFO by October while its Haldia refinery will start producing 5,500 b/d of VLSFO by December; this should be adequate to cover the India’s marine fuel demand
  • India is considering selling a stake in BPCL, the country’s second largest refiner, to an international firm to boost competition in downstream fuel retailing that has historically been dominated by state firms
  • Valero Energy and Darling Ingredients are launching the first renewable gasoil plant in Texas, focusing on producing renewable diesel and naphtha
  • In the UK, Essar Oil’s Stanlow refinery aims to increase its diet of US crude from a current 35% to 40%, leveraging on cheaper American oil
  • The after-effects of Russia’s contaminated crude through the Druzhba pipeline continues as Total issues a tender to sell 1.3 million barrels of tainted Ural crude through Rotterdam after failing to process it

Natural Gas/LNG

  • Poland has won a ruling from the EU courts to reduce Russian control over the key EU Opal pipeline that carries Russian gas from the Nord Stream link to Germany, preventing Gazprom from using most of Opal capacity in a bit to increase energy security for Eastern European countries
  • Vitol and Mozambique’s state player ENH have set up a new joint venture in Singapore to capitalise on trading opportunities for LNG, LPG, and condensate
  • Australia’s Liquefied Natural Gas Ltd and Delta Offshore Energy will supply gas from the Magnolia fields to an LNG-to-power project in Bac Lieu, Vietnam
  • Eni’s Baltim South West gas field offshore Egypt has started up production, only 3 years after discovery, producing an initial 100 mscf/d of gas
  • US gas player Sempra is looking to take FID on its Energia Costa Azul LNG project in Mexico’s Baja California region by the end of 2019
  • Egypt has announced that it expects to receive first natural gas from Israel by end-2019 through the East Mediterranean Gas pipeline, with initial supplies of 200 mscf/d that will rise to 500 mscf/d by 2020
  • The Independence floating LNG terminal in Lithuania – built to reduce the Baltic region’s dependence on Russian gas – is set to receive its first-ever cargo from Siberia, likely from Novatek’s LNG projects in Yamal
September, 20 2019
Financial Review: Second-Quarter 2019
Key findings
  • Brent crude oil daily average prices were 9% lower in second-quarter 2019 than in second-quarter 2018 and averaged $68 per barrel
  • The 117 companies in this study increased their combined liquids production 4.6% in second-quarter 2019 from second-quarter 2018, and their natural gas production increased 5.0% during the same period
  • Nearly half of the companies were free cash flow positive—that is, they generated more cash from operations than their capital expenditures
  • Dividends plus share repurchases were nearly one-third of cash from operations, slightly lower than the six-year high set in first-quarter 2019

Distributions to shareholders via dividends and share repurchases amounted to nearly 33% of cash from operations


See entire second-quarter review

September, 20 2019