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Fossil Sources: “Running Out” is Not the Problem
International Journal of Hydrogen Energy 30 (2005) 1 – 7 www.elsevier.com/locate/ijhydene
Fossil Sources: “Running Out” is Not the Problem In which we discuss reserves, resources and the mythology that, sooner or later, our fossil sources will be gone. Then, to help appreciate the real reason fossil reserves will ultimately vanish, we evoke Weary Willie’s clown routine “sweeping up the spotlight.”
“‘Running out’ has the advantage of being easy to understand but the disadvantage of being wrong.” When Cesare Marchetti spoke these words in 1979, 6 years after the OPEC oil embargo, it was a deeply contrarian statement. It still is! But in the context of the International Symposium on Hydrogen in Air Transportation where Cesare was speaking, it was more than contrarian: it made many in the audience angry because the symposium’s rationale was to find a new aircraft fuel before we ran out of the old fuel. People dislike having their rationales punctured. Yet speaking from both historical evidence and logic, Cesare was right. Globally, there is little meaning to “running out” of fossil fuels. There are two overriding reasons. First, we can’t consume all fossil resources because long before they would be gone the resulting environmental disruption would have destroyed our economies and, thereby, removed any need for fossil fuels. Second, the mal-distribution of fossil fuels in Earth’s crust, especially oil, stirred together with religious and political fundamentalism has become the toxic brew that feeds so many of today’s geopolitical conflicts. In the beginning Civilization’s use of coal probably began more than 2000 years ago but, compared with wood and dung, it remained a minor fuel through the Middle Ages and up to the early industrial revolution. Then as expanding European cities depleted their surrounding renewable firewood, they increasingly turned to burning coal. Between 1840 and 1920, most European countries transitioned from wood (then the dominant renewable source) to coal (the prototype exhaustible source). It was a time of extraordinary, parallel and synergistic transitions, not just from wood to coal, but from agricultural to industrial economies, from rural to urban populations and muscle to steam engines. Steam engines powered locomotives pulling trains that carried coal and iron ore to steel mills. In turn, the mills manufactured steel to build more railways and locomotives that hauled more coal and iron ore—to build not only more locomotives but also ships that carried coal around the world where it could fuel more ships. Trends feeding trends. Of course, transitions are never stress-free. It has been reported that burning coal was, for a time, a capital crime in parts of continental Europe. The reason was witchhuntery. Fumes from coal burning were sulphurous, the odors of Mephistopheles and hell. So people who burned coal were judged the devil’s allies and some of these folks were burned at the stake—using wood, I presume. For a time, England also declared coal burning a capital crime. But in England the transgression wasn’t Satanism. Instead it was toxic air. Pragmatic, those old English!1 But our purpose is not to review more evidence of humankind’s long, disquieting history. Our purpose is to get a feel for the fossil resources and reserves that remain in the ground and what this means for our evolving energy system. Resources and Reserves In previous articles we evoked the Chinese counsel: “The first step to wisdom is getting things by their right names.” And just now I spoke of “resources” and “reserves”. So we must clarify how these two nouns are defined and differ. Following most 1 The English events are covered in Wilson R and Spengler J, Editors. Particles in Our Air: Concentrations and Health Effects. Distributed by Harvard University Press, 1996. Air Pollution Vol. 1 edited by Arthur C. Stern, Academic Press, 1979, covers some of the same history, but speaks only of torture, not execution. Should you be interested in the (appalling) history of coal, I recommend the recent, excellent book, Coal: A Human History, by Barbara Freese, Perseus Publishing, 2003.
0360-3199/$30.00 䉷 2004 International Association for Hydrogen Energy. Published by Elsevier Ltd. All rights reserved. doi:10.1016/j.ijhydene.2004.09.001
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D. Sanborn Scott / International Journal of Hydrogen Energy 30 (2005) 1 – 7
Fig. 1. How reserves and resources are defined and migrate.
conventions, such as the United Nations report, World Energy Assessment: Energy and the Challenge of Sustainability [1], I’ll define the “total resource base” to mean the total of some commodity in the ground, like coal or oil. “Reserves” are that portion of the total resource base that can be economically recovered at today’s selling prices, using today’s technologies and under today’s legislation. “Resources” are the remainder of the total resource base after subtracting reserves—they consist of material in the ground that is not economically recoverable under today’s conditions.2 Most of The World Energy Assessment uses the year 2000 as a reference date for data, which is the reference date I’m using in these articles on reserves and resources. When prices, technology or legislation change, the boundary between reserves and resources moves. For example, as prices increase (while other factors remain the same), the reserve envelope expands to include some of the material previously counted as resources. The reverse happens if prices drop. Price-change drivers can be either fleeting or sustained. In the short-term, geopolitics or a cold winter can trigger spotmarket price flares. (Although, in principle, short-term price flares may move resources into reserves, the time-lag required for development means that, practically, they often never make it to the reserve column.) In the mid to longer term, technological advances often lower costs: better technologies for finding and harvesting oil—like improved geological analyses, advanced drilling techniques and superior processes for refining low-grade ores. These technology-allowed lower costs re-classify some portion of the resources as reserves. Fig. 1, taken with minor format changes from the United Nations report World Energy Assessment..., encapsulates how the total resource base is partitioned and, by implication, how changing prices and technological advances move the internal boundaries between reserves and resources. This type of representation is commonly used by international and domestic organizations such as the US Bureau of Mines, the US Geological Survey, the World Energy Congress and the United Nations. The figure shows that resources are sometimes further subdivided into measured, indicated, inferred, hypothetical or speculative. Being two dimensional, Fig. 1 doesn’t show the effect of legislation—but that’s easily imagined. Legislation is the child of politics, which in turn, is the child of culture. In the United States legislation can move well beyond higher/lower oil depletion allowances. For example, it can manifest itself in such issues as the public lands, or sea-bottoms, which are or aren’t open for exploration. In some countries, culture and therefore legislation might ride on the whim of kings or religious leaders. With this understanding of the difference between resources and reserves, we can turn to the question: how much is left in the ground? For this we’ll examine the data of Table 1, which is also drawn from the World Energy Assessment.... 3 Table 1 gives global reserves and resources—and demonstrates that there is still a lot in the ground. Yet the idea of depletion continues to trouble many people. And it should, because regional depletion aggravates the international conflict rooted in—or 2 Some people use the word “resources” to mean what we’ve called the “total resources base.” By that convention, reserves become a component of reserves–rather than separate from reserves, which is the convention used in this article. Under either definition, reserves are reserves. 3 On some issues there is always disagreement. “What’s left in the ground” is surely such an issue. Folks who would disagree with the World Assessment... (and Cesare) include Colin Campbell and Jean Laherrère who wrote “The End of Cheap Oil” for Scientific American in 1998, and Kenneth Deffeyes who wrote, Hubberd’s Peak: the Impending World Oil Shortage, Princeton U. Press, 2001.
D. Sanborn Scott / International Journal of Hydrogen Energy 30 (2005) 1 – 7
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Table 1 World fossil energy reserves and resources
aggravated by—global mal-distribution. In North America and perhaps the United Kingdom, regional depletion impacts oil most, natural gas next and coal last. Transportation, oil’s hostage Crude oil is the sole source of free-range transportation fuels. This contrasts with coal and natural gas, which are the fossil fuels commonly used to power stationary services (electricity generation, for example)—because stationary services can almost always be powered by non-fossil energy sources. Therefore, let’s zoom to oil. I’m using the word “oil” to mean what is more properly called “conventional” crude oil—the stuff that’s comparatively easily pumped out from the ground. 4 How quickly will we deplete our oil reserves if we continue using oil at the year 2000 rate? Table 1 shows that if we consider only conventional reserves and assume no expansion of these reserves by new discoveries, price increases, technological improvements or oil-friendly legislation, they’ll be gone in about 42 years About 78 years if we include unconventional resources. If we include the total resource base, our remaining time climbs to about 230 years. If we include what geologists call “additional occurrences” the timeframe expands to almost 550 years. 5 These conclusions don’t account for the reality that, at least so far, we have always consumed more oil each decade than during the preceding one–which, if nothing else were happening, would bring depletion closer. But neither do they account for continuing new discoveries and technological advances that have steadily expanded resources and pushed depletion further away. 4 This contrasts with “unconventional” oil resources that are not “conventionally harvested”—for example the Athabascan oil sands in Canada
and the Orinoco basin reserves/resources in Venezuela. To harvest the oil sands (which are mixtures of bitumen, sand and water) we must separate the bitumen from the sand and water, and then process the bitumen into what’s called “synthetic crude.” “Unconventional” does not mean unrecoverable. Rather it means the nature of resource is different than the light crude oil that started the petroleum revolution. 5 If you would like to follow this arithmetic, using the data of Table 1 we can start with the 1998 rate of consumption: 132.7 [EJ/y] (conventional) + 9.2 [EJ/y] (unconventional) for a total = 141.9 [EJ/y]. If we divide only the conventional reserves by the total (conventional and unconventional) annual oil consumption be get a ratio = 6004[EJ]/141.9[EJ/y] = 42.3 [years]. Dividing conventional and unconventional reserves by total annual consumption we get a ratio = (6004 + 5108)/141.9 = 78.3 [years]. Dividing resource base by total annual consumption we get = (12,074 + 20,348)/141.9 = 228 [years]. Finally, if we divide the sum of the resource base plus additional occurrences (but not including coal from which we could also manufacture oil) by today’s total annual consumption we get: = (12.074 + 20,348 + 45000)/141.9 = 546 [years].
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Fig. 2. A century of monitoring the ratio of reserves to production.
The historical, year-by-year, relative strength of these two countervailing realities is given by the ratio of reserves identified each year divided by the annual consumption for the year. The numerator can be given in barrels of oil in the ground and the denominator in barrels of oil consumed per year, so the ratio comes out in units of “years”—years until we’ll run out. I find it remarkable that, today, the ratio is much the same as it was in 1900. In 1900 civilization had identified conventional oil reserves that, if used at the 1900 rate, would have lasted a little more than 40 years. In 2000, one century later, we had identified conventional oil reserves that, if used at the 2000 rate, will also last a little more than 40 years. Fig. 2, also drawn from World Energy Assessment..., gives the year-by-year ratio of reserves to annual consumption throughout the 20th century. The ratio is based only on conventional reserves—because in 1900 conventional reserves were all we knew about. Today, of course, we know that we also have large non-conventional reserves—and we are harvesting them. So it’s probably fair to say that the de facto ratio of “annual consumption” to “what’s left in the ground” has never been higher—and therefore, by this metric the number of years until we will “run out” has never been longer. Because we know changes in price move the boundary between reserves and resources—higher prices move resources into reserves and vice versa—we might think our century-long, constant ratio of reserves-to-consumption has been allowed by steadily rising prices. Wrong! In constant purchasing-power US dollars (the monetary currency of international oil trade), the price of oil has also stayed pretty much the same with, of course, short-term hiccups—as shown by Fig. 3, which was abstracted from British Petroleum’s Statistical Review of World Energy, June 2002 [2]. Because we’re using the year 2000 as the reference timeframe, the early-21st century price flares, triggered in part by the Bush II Administration’s mid-East misadventures, do not appear in Fig. 3. If you still believe we could run out of conventional and unconventional oil, we should remember we can always manufacture synthetic oil from coal—as Germany did during World War II. Indeed coal is just hydrogen-deficient oil. Of course as a source of petroleum-based fuels—all crude oil is hydrogen-deficient. Coal is just more hydrogen-deficient that the other fossil sources. A few brief statements can help us understand today’s oil markets: • • • • •
Most countries that use oil don’t have enough. Most countries that have oil don’t need as much. This means—whether exporters or importers—most of the world depends upon the rest of the world. It may come as a surprise that, in 2004, the world’s largest producer of oil is still the United States. Until the 1950s the United States was the world’s largest exporter oil.
D. Sanborn Scott / International Journal of Hydrogen Energy 30 (2005) 1 – 7
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Fig. 3. Crude oil prices in 2001 $ and $ of-the-day since the 1860’s.
What if we burned all of “today’s” fossil reserves? While we aren’t threatened by near-term global fossil fuel depletion, if our appetite for fossil fuels persists, irreversible climate volatility will be our fate. So let’s ask: If we only burn the fossil fuel reserves we already know are in the ground, what will be the impact on atmospheric CO2 ? In 1997 Dr. Hans-Holger Rogner, of the International Atomic Energy Agency, 6 studied this question [3]. His assumptions for the study were: • No further discoveries. • No further technological improvements. • Prices at or below the equivalent of $20/barrel. 7 If all the reserves meeting these criteria are consumed, then atmospheric CO2 will rise to more than 250% of pre-industrial age levels—that is to more than 700 parts per million by volume (ppmv). To place this in context, over the last 310,000 years the maximum atmospheric CO2 the world has experienced was about 310 ppmv—at least until the late 20 century when humankind pushed it off the historical scale to the more than 370 ppmv. Within this three hundred millennia timeframe, Earth went through several periods much warmer than today and also several ice ages. Over this timeframe, global temperatures and atmospheric CO2 tracked each other like two dogs on a tight leash. 8 Civilization may be able to survive more than 400 ppmv CO2 that, unavoidably, we are now doomed to reach, without prodding awake the very angry bear called climate volatility. But should atmospheric CO2 rise to more than 700 ppmv, we will experience a global catastrophe unlike any other in recorded history. Even those in history/myth, like the great flood. 9 So take no solace in hoping that, before we’ve brought on CO2 induced climate catastrophe, prices will rise to cap fossil fuel use. Prices won’t.
6 A cynic might believe Dr. Rogner may have a vested interest when he argues for the immensity of our fossil reserves. But that doesn’t make sense. Rogner is with the Atomic Energy Agency and you’d think that, if he had a vested interest, it would be to argue for the fossil fuel depletion as a rationale for promoting nuclear power. 7 The word “equivalent” means at price and quantity ratios (between gas, oil and coal) “equivalent” to these ratios in 1997, when the paper was written. 8 Discussed further in “Disruption Beyond Comprehension,” a forthcoming article in this IJHE article series. 9 Recently discoveries and research suggest that this flooding, the echoes of which still reverberate through many religions and cultures, was caused by the sudden release of waters contained within a massive freshwater lake located in what is now north eastern Canada.
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D. Sanborn Scott / International Journal of Hydrogen Energy 30 (2005) 1 – 7
Reflections on the day oil hit US$44 per barrel I wrote that last sentence on August 2, 2004; the day oil prices rose to almost US$44 per barrel—then the highest in history. Faced with that news, I thought back to the 31st article of this series “Okay! But now tell me about cost” in which I wrote that light Arabian could be pumped for less than $2 US per barrel [4]. The morning news had given me a jab of self-doubt, so I called my longtime friend, Ben Ball. Ben has enjoyed a remarkable career in the energy business that includes teaching Petroleum Management at MIT’s Center for Advanced Engineering Study, serving as Vice President of Gulf Oil and now acting a much in-demand consultant. I reached Ben at his home in Sugar Land, Texas, and asked, “Do you think I was too aggressive when I said ‘light Arabian crude can be pumped at less than $2 per barrel?”’ Ben replied, “No! But maybe too conservative. You could have said ‘between one and two dollars.” Then, in his wonderful Texas drawl and engaging humor, he went on to explain some fundamentals. 10 “Oil prices don’t follow the supply–demand–price curves taught in Economics 101”. In traditional economics, the high-cost suppliers begin producing when price exceeds some threshold and they go out of business when the price drops below some threshold. “In the oil business, at least in the short-to-medium term, it’s exactly the opposite. The high-cost producers are pumping full blast all the time. You don’t hear about Texas increasing or decreasing supply. It’s the $1/bbl producers that turn the spigot on and off. “Price flares have nothing to do with conventional economic fundamentals. It’s whim. Anyone who thinks they can predict the price of oil next year is either ‘blowing smoke’ or terribly naive. I tell folks that the best you can do when forecasting oil prices is to say that they will be somewhere between $10 and $100 per barrel. Oil price predictions are just WAGs.” (I assumed a WAG was a professional oilman’s term for something I hadn’t yet learned. So I asked—to be told it was a Wild Ass Guess.) “There is something else. Over the longer term of 8–10 years, we sometimes speak of ‘price attenuation’—because it takes that long to bring on a new field. For example, if we have prices in the range of $25–$35, producers will go out looking for oil even under 10,000 ft of water. That is why we often speak of a 7-year half-life—because it takes seven years for half the (high-cost) oil supply to respond to a price change. And it’s important to understand that the cost of producing is overwhelmingly the cost of exploration and development.” So what were my conclusions? First, it’s difficult to keep our head screwed on when the immediacy of the morning headlines tells us the sky is falling. Second, remember the fundamentals! As long as Arabian crude can be pumped for a few dollars a barrel, the price cannot be understood with the neat logic of Economics 101. Moreover, when we realize that the cost of oil is largely the cost of exploration, it’s sobering to remember that the Saudis don’t need much exploration. Theirs is a land of sand floating on oil. Finally, Ben directed me to that day’s New York Mercantile Exchange (NYMEX) listings. NYMEX is a trading house that allows you and me to buy or sell futures in commodities such as crude oil (“puts” and “calls” if you’re a pro). Like any trading market, price is a balance between folks who believe price will go up and those who believe it will go down. On August 2, 2004, the day’s price was almost $44/bbl. Yet the NYMEX future for December 2009 (more than five years into the future) was $33.70—more than $10 below the August 2, 2004 price. Ben chortled, “Anyone who truly believes we’re ‘running out’ should look at the price of these 2009 oil futures and invest every last penny. If they don’t, they’re either stupid or lying.” Last thoughts on collapsing fossil reserves Today, worldwide fossil fuel interdependence grows year by year. In 2000, the United States imported 56% of its oil, a quarter of that from the Mideast; western Europe imported 60%, almost half from the Mideast; 82% of Japan’s oil came through the Straits of Hormuz. Yet eventually, one way or another, both the external costs of geopolitical and environmental stresses will be internalized—by either good planning or, more likely, by unplanned catastrophes. Internalization will drive up the cost of using fossil fuels and thereby reduce reserves by pushing them into the resource ledger. Moreover, as the benefits of hydrogen technologies become increasingly apparent, fossil-fuelled technologies will lose their grip over energy systems, thereby making fossil sources increasingly irrelevant (something difficult to visualize today). The longer-term consequence of these two concomitant trends is that today’s experience of expanding reserves (in part by colonizing resources) will slow. Indeed, there will come a time when our experience of continually expanding reserves boundary will reverse, and ultimately collapse.
10 When talking to a Texan we must remember it isn’t oil, it’s awl.
D. Sanborn Scott / International Journal of Hydrogen Energy 30 (2005) 1 – 7
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Collapse? I found it difficult to be comfortable—to have an intuitive feel—for how reserves could shrink, when all this coal, oil and natural gas will still be in the ground. Then my thoughts tumbled to Emmet Kelly. Emmet created and played perhaps the world’s most famous sad-sack clown, “Weary Willy.” Of Willy’s many routines, his best may have been the heart-breaking, yet joyfully simple performance, “sweeping up the spotlight.” From high in the circus tent, a spotlight controller focused the beam on the floor enveloping Willy. Then Willy, with his broom, began sweeping the spotlight’s edges inwards. The spotlight controller saw what Willy was up to—and gradually shrank the size of the illuminated circle on the floor until, with one last sweep, the spot, spotlight—and Willy—vanished. It was a magnificent, happy-sad, routine that reminded a damp-eyed audience of Emmet Kelly’s genius. 11 To me, the entire floor of the big tent can be a metaphor for reserves and resources. The area illuminated by the spotlight, a metaphor for reserves. Prices and technologies determine the spotlight’s diameter. But, in the end, Willy’s broom—a metaphor of environmental intrusion, geopolitical instabilities and hydrogen technologies—reduces the size of the reserves until they vanish. The floor of the big tent will still be there. But the spotlight will have vanished. Running won’t cap fossil fuel use. But the risk to international peace should. And the global environment will. This is the thirty-seventh in a series of articles by David Sanborn Scott Institute for Integrated Energy System, University of Victoria, Victoria, BC, Canada, V8W 2Y2 E-mail address: [email protected].
References [1] Published by United Nations Development Programme. First Printing; 2000. pp. 136–171. [2] Data from the BP statistical review of world energy may be found on the British Petroleum website, bp.com. [3] Rogner H-H. An assessment of world hydrocarbon resources. Annu Rev Energy Environ 1997; 22:217–62 [In particular, see pp. 259 and Fig. 8]. [4] Scott DS. Okay! but tell me about cost. Int J Hydrogen Energy 2004;29:563–7.
11 If you’d enjoy watching Kelly’s routine, see if you can get a video or DVD of “The Greatest Show on Earth.” By modern standards, it’s a
dated movie, but it can be fun watching this Hollywood history of the Ringling Bros. & Barnum and Bailey Circus.
Fossil Sources: “Running Out” is Not the Problem In which we discuss reserves, resources and the mythology that, sooner or later, our fossil sources will be gone. Then, to help appreciate the real reason fossil reserves will ultimately vanish, we evoke Weary Willie’s clown routine “sweeping up the spotlight.”
“‘Running out’ has the advantage of being easy to understand but the disadvantage of being wrong.” When Cesare Marchetti spoke these words in 1979, 6 years after the OPEC oil embargo, it was a deeply contrarian statement. It still is! But in the context of the International Symposium on Hydrogen in Air Transportation where Cesare was speaking, it was more than contrarian: it made many in the audience angry because the symposium’s rationale was to find a new aircraft fuel before we ran out of the old fuel. People dislike having their rationales punctured. Yet speaking from both historical evidence and logic, Cesare was right. Globally, there is little meaning to “running out” of fossil fuels. There are two overriding reasons. First, we can’t consume all fossil resources because long before they would be gone the resulting environmental disruption would have destroyed our economies and, thereby, removed any need for fossil fuels. Second, the mal-distribution of fossil fuels in Earth’s crust, especially oil, stirred together with religious and political fundamentalism has become the toxic brew that feeds so many of today’s geopolitical conflicts. In the beginning Civilization’s use of coal probably began more than 2000 years ago but, compared with wood and dung, it remained a minor fuel through the Middle Ages and up to the early industrial revolution. Then as expanding European cities depleted their surrounding renewable firewood, they increasingly turned to burning coal. Between 1840 and 1920, most European countries transitioned from wood (then the dominant renewable source) to coal (the prototype exhaustible source). It was a time of extraordinary, parallel and synergistic transitions, not just from wood to coal, but from agricultural to industrial economies, from rural to urban populations and muscle to steam engines. Steam engines powered locomotives pulling trains that carried coal and iron ore to steel mills. In turn, the mills manufactured steel to build more railways and locomotives that hauled more coal and iron ore—to build not only more locomotives but also ships that carried coal around the world where it could fuel more ships. Trends feeding trends. Of course, transitions are never stress-free. It has been reported that burning coal was, for a time, a capital crime in parts of continental Europe. The reason was witchhuntery. Fumes from coal burning were sulphurous, the odors of Mephistopheles and hell. So people who burned coal were judged the devil’s allies and some of these folks were burned at the stake—using wood, I presume. For a time, England also declared coal burning a capital crime. But in England the transgression wasn’t Satanism. Instead it was toxic air. Pragmatic, those old English!1 But our purpose is not to review more evidence of humankind’s long, disquieting history. Our purpose is to get a feel for the fossil resources and reserves that remain in the ground and what this means for our evolving energy system. Resources and Reserves In previous articles we evoked the Chinese counsel: “The first step to wisdom is getting things by their right names.” And just now I spoke of “resources” and “reserves”. So we must clarify how these two nouns are defined and differ. Following most 1 The English events are covered in Wilson R and Spengler J, Editors. Particles in Our Air: Concentrations and Health Effects. Distributed by Harvard University Press, 1996. Air Pollution Vol. 1 edited by Arthur C. Stern, Academic Press, 1979, covers some of the same history, but speaks only of torture, not execution. Should you be interested in the (appalling) history of coal, I recommend the recent, excellent book, Coal: A Human History, by Barbara Freese, Perseus Publishing, 2003.
0360-3199/$30.00 䉷 2004 International Association for Hydrogen Energy. Published by Elsevier Ltd. All rights reserved. doi:10.1016/j.ijhydene.2004.09.001
2
D. Sanborn Scott / International Journal of Hydrogen Energy 30 (2005) 1 – 7
Fig. 1. How reserves and resources are defined and migrate.
conventions, such as the United Nations report, World Energy Assessment: Energy and the Challenge of Sustainability [1], I’ll define the “total resource base” to mean the total of some commodity in the ground, like coal or oil. “Reserves” are that portion of the total resource base that can be economically recovered at today’s selling prices, using today’s technologies and under today’s legislation. “Resources” are the remainder of the total resource base after subtracting reserves—they consist of material in the ground that is not economically recoverable under today’s conditions.2 Most of The World Energy Assessment uses the year 2000 as a reference date for data, which is the reference date I’m using in these articles on reserves and resources. When prices, technology or legislation change, the boundary between reserves and resources moves. For example, as prices increase (while other factors remain the same), the reserve envelope expands to include some of the material previously counted as resources. The reverse happens if prices drop. Price-change drivers can be either fleeting or sustained. In the short-term, geopolitics or a cold winter can trigger spotmarket price flares. (Although, in principle, short-term price flares may move resources into reserves, the time-lag required for development means that, practically, they often never make it to the reserve column.) In the mid to longer term, technological advances often lower costs: better technologies for finding and harvesting oil—like improved geological analyses, advanced drilling techniques and superior processes for refining low-grade ores. These technology-allowed lower costs re-classify some portion of the resources as reserves. Fig. 1, taken with minor format changes from the United Nations report World Energy Assessment..., encapsulates how the total resource base is partitioned and, by implication, how changing prices and technological advances move the internal boundaries between reserves and resources. This type of representation is commonly used by international and domestic organizations such as the US Bureau of Mines, the US Geological Survey, the World Energy Congress and the United Nations. The figure shows that resources are sometimes further subdivided into measured, indicated, inferred, hypothetical or speculative. Being two dimensional, Fig. 1 doesn’t show the effect of legislation—but that’s easily imagined. Legislation is the child of politics, which in turn, is the child of culture. In the United States legislation can move well beyond higher/lower oil depletion allowances. For example, it can manifest itself in such issues as the public lands, or sea-bottoms, which are or aren’t open for exploration. In some countries, culture and therefore legislation might ride on the whim of kings or religious leaders. With this understanding of the difference between resources and reserves, we can turn to the question: how much is left in the ground? For this we’ll examine the data of Table 1, which is also drawn from the World Energy Assessment.... 3 Table 1 gives global reserves and resources—and demonstrates that there is still a lot in the ground. Yet the idea of depletion continues to trouble many people. And it should, because regional depletion aggravates the international conflict rooted in—or 2 Some people use the word “resources” to mean what we’ve called the “total resources base.” By that convention, reserves become a component of reserves–rather than separate from reserves, which is the convention used in this article. Under either definition, reserves are reserves. 3 On some issues there is always disagreement. “What’s left in the ground” is surely such an issue. Folks who would disagree with the World Assessment... (and Cesare) include Colin Campbell and Jean Laherrère who wrote “The End of Cheap Oil” for Scientific American in 1998, and Kenneth Deffeyes who wrote, Hubberd’s Peak: the Impending World Oil Shortage, Princeton U. Press, 2001.
D. Sanborn Scott / International Journal of Hydrogen Energy 30 (2005) 1 – 7
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Table 1 World fossil energy reserves and resources
aggravated by—global mal-distribution. In North America and perhaps the United Kingdom, regional depletion impacts oil most, natural gas next and coal last. Transportation, oil’s hostage Crude oil is the sole source of free-range transportation fuels. This contrasts with coal and natural gas, which are the fossil fuels commonly used to power stationary services (electricity generation, for example)—because stationary services can almost always be powered by non-fossil energy sources. Therefore, let’s zoom to oil. I’m using the word “oil” to mean what is more properly called “conventional” crude oil—the stuff that’s comparatively easily pumped out from the ground. 4 How quickly will we deplete our oil reserves if we continue using oil at the year 2000 rate? Table 1 shows that if we consider only conventional reserves and assume no expansion of these reserves by new discoveries, price increases, technological improvements or oil-friendly legislation, they’ll be gone in about 42 years About 78 years if we include unconventional resources. If we include the total resource base, our remaining time climbs to about 230 years. If we include what geologists call “additional occurrences” the timeframe expands to almost 550 years. 5 These conclusions don’t account for the reality that, at least so far, we have always consumed more oil each decade than during the preceding one–which, if nothing else were happening, would bring depletion closer. But neither do they account for continuing new discoveries and technological advances that have steadily expanded resources and pushed depletion further away. 4 This contrasts with “unconventional” oil resources that are not “conventionally harvested”—for example the Athabascan oil sands in Canada
and the Orinoco basin reserves/resources in Venezuela. To harvest the oil sands (which are mixtures of bitumen, sand and water) we must separate the bitumen from the sand and water, and then process the bitumen into what’s called “synthetic crude.” “Unconventional” does not mean unrecoverable. Rather it means the nature of resource is different than the light crude oil that started the petroleum revolution. 5 If you would like to follow this arithmetic, using the data of Table 1 we can start with the 1998 rate of consumption: 132.7 [EJ/y] (conventional) + 9.2 [EJ/y] (unconventional) for a total = 141.9 [EJ/y]. If we divide only the conventional reserves by the total (conventional and unconventional) annual oil consumption be get a ratio = 6004[EJ]/141.9[EJ/y] = 42.3 [years]. Dividing conventional and unconventional reserves by total annual consumption we get a ratio = (6004 + 5108)/141.9 = 78.3 [years]. Dividing resource base by total annual consumption we get = (12,074 + 20,348)/141.9 = 228 [years]. Finally, if we divide the sum of the resource base plus additional occurrences (but not including coal from which we could also manufacture oil) by today’s total annual consumption we get: = (12.074 + 20,348 + 45000)/141.9 = 546 [years].
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Fig. 2. A century of monitoring the ratio of reserves to production.
The historical, year-by-year, relative strength of these two countervailing realities is given by the ratio of reserves identified each year divided by the annual consumption for the year. The numerator can be given in barrels of oil in the ground and the denominator in barrels of oil consumed per year, so the ratio comes out in units of “years”—years until we’ll run out. I find it remarkable that, today, the ratio is much the same as it was in 1900. In 1900 civilization had identified conventional oil reserves that, if used at the 1900 rate, would have lasted a little more than 40 years. In 2000, one century later, we had identified conventional oil reserves that, if used at the 2000 rate, will also last a little more than 40 years. Fig. 2, also drawn from World Energy Assessment..., gives the year-by-year ratio of reserves to annual consumption throughout the 20th century. The ratio is based only on conventional reserves—because in 1900 conventional reserves were all we knew about. Today, of course, we know that we also have large non-conventional reserves—and we are harvesting them. So it’s probably fair to say that the de facto ratio of “annual consumption” to “what’s left in the ground” has never been higher—and therefore, by this metric the number of years until we will “run out” has never been longer. Because we know changes in price move the boundary between reserves and resources—higher prices move resources into reserves and vice versa—we might think our century-long, constant ratio of reserves-to-consumption has been allowed by steadily rising prices. Wrong! In constant purchasing-power US dollars (the monetary currency of international oil trade), the price of oil has also stayed pretty much the same with, of course, short-term hiccups—as shown by Fig. 3, which was abstracted from British Petroleum’s Statistical Review of World Energy, June 2002 [2]. Because we’re using the year 2000 as the reference timeframe, the early-21st century price flares, triggered in part by the Bush II Administration’s mid-East misadventures, do not appear in Fig. 3. If you still believe we could run out of conventional and unconventional oil, we should remember we can always manufacture synthetic oil from coal—as Germany did during World War II. Indeed coal is just hydrogen-deficient oil. Of course as a source of petroleum-based fuels—all crude oil is hydrogen-deficient. Coal is just more hydrogen-deficient that the other fossil sources. A few brief statements can help us understand today’s oil markets: • • • • •
Most countries that use oil don’t have enough. Most countries that have oil don’t need as much. This means—whether exporters or importers—most of the world depends upon the rest of the world. It may come as a surprise that, in 2004, the world’s largest producer of oil is still the United States. Until the 1950s the United States was the world’s largest exporter oil.
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Fig. 3. Crude oil prices in 2001 $ and $ of-the-day since the 1860’s.
What if we burned all of “today’s” fossil reserves? While we aren’t threatened by near-term global fossil fuel depletion, if our appetite for fossil fuels persists, irreversible climate volatility will be our fate. So let’s ask: If we only burn the fossil fuel reserves we already know are in the ground, what will be the impact on atmospheric CO2 ? In 1997 Dr. Hans-Holger Rogner, of the International Atomic Energy Agency, 6 studied this question [3]. His assumptions for the study were: • No further discoveries. • No further technological improvements. • Prices at or below the equivalent of $20/barrel. 7 If all the reserves meeting these criteria are consumed, then atmospheric CO2 will rise to more than 250% of pre-industrial age levels—that is to more than 700 parts per million by volume (ppmv). To place this in context, over the last 310,000 years the maximum atmospheric CO2 the world has experienced was about 310 ppmv—at least until the late 20 century when humankind pushed it off the historical scale to the more than 370 ppmv. Within this three hundred millennia timeframe, Earth went through several periods much warmer than today and also several ice ages. Over this timeframe, global temperatures and atmospheric CO2 tracked each other like two dogs on a tight leash. 8 Civilization may be able to survive more than 400 ppmv CO2 that, unavoidably, we are now doomed to reach, without prodding awake the very angry bear called climate volatility. But should atmospheric CO2 rise to more than 700 ppmv, we will experience a global catastrophe unlike any other in recorded history. Even those in history/myth, like the great flood. 9 So take no solace in hoping that, before we’ve brought on CO2 induced climate catastrophe, prices will rise to cap fossil fuel use. Prices won’t.
6 A cynic might believe Dr. Rogner may have a vested interest when he argues for the immensity of our fossil reserves. But that doesn’t make sense. Rogner is with the Atomic Energy Agency and you’d think that, if he had a vested interest, it would be to argue for the fossil fuel depletion as a rationale for promoting nuclear power. 7 The word “equivalent” means at price and quantity ratios (between gas, oil and coal) “equivalent” to these ratios in 1997, when the paper was written. 8 Discussed further in “Disruption Beyond Comprehension,” a forthcoming article in this IJHE article series. 9 Recently discoveries and research suggest that this flooding, the echoes of which still reverberate through many religions and cultures, was caused by the sudden release of waters contained within a massive freshwater lake located in what is now north eastern Canada.
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Reflections on the day oil hit US$44 per barrel I wrote that last sentence on August 2, 2004; the day oil prices rose to almost US$44 per barrel—then the highest in history. Faced with that news, I thought back to the 31st article of this series “Okay! But now tell me about cost” in which I wrote that light Arabian could be pumped for less than $2 US per barrel [4]. The morning news had given me a jab of self-doubt, so I called my longtime friend, Ben Ball. Ben has enjoyed a remarkable career in the energy business that includes teaching Petroleum Management at MIT’s Center for Advanced Engineering Study, serving as Vice President of Gulf Oil and now acting a much in-demand consultant. I reached Ben at his home in Sugar Land, Texas, and asked, “Do you think I was too aggressive when I said ‘light Arabian crude can be pumped at less than $2 per barrel?”’ Ben replied, “No! But maybe too conservative. You could have said ‘between one and two dollars.” Then, in his wonderful Texas drawl and engaging humor, he went on to explain some fundamentals. 10 “Oil prices don’t follow the supply–demand–price curves taught in Economics 101”. In traditional economics, the high-cost suppliers begin producing when price exceeds some threshold and they go out of business when the price drops below some threshold. “In the oil business, at least in the short-to-medium term, it’s exactly the opposite. The high-cost producers are pumping full blast all the time. You don’t hear about Texas increasing or decreasing supply. It’s the $1/bbl producers that turn the spigot on and off. “Price flares have nothing to do with conventional economic fundamentals. It’s whim. Anyone who thinks they can predict the price of oil next year is either ‘blowing smoke’ or terribly naive. I tell folks that the best you can do when forecasting oil prices is to say that they will be somewhere between $10 and $100 per barrel. Oil price predictions are just WAGs.” (I assumed a WAG was a professional oilman’s term for something I hadn’t yet learned. So I asked—to be told it was a Wild Ass Guess.) “There is something else. Over the longer term of 8–10 years, we sometimes speak of ‘price attenuation’—because it takes that long to bring on a new field. For example, if we have prices in the range of $25–$35, producers will go out looking for oil even under 10,000 ft of water. That is why we often speak of a 7-year half-life—because it takes seven years for half the (high-cost) oil supply to respond to a price change. And it’s important to understand that the cost of producing is overwhelmingly the cost of exploration and development.” So what were my conclusions? First, it’s difficult to keep our head screwed on when the immediacy of the morning headlines tells us the sky is falling. Second, remember the fundamentals! As long as Arabian crude can be pumped for a few dollars a barrel, the price cannot be understood with the neat logic of Economics 101. Moreover, when we realize that the cost of oil is largely the cost of exploration, it’s sobering to remember that the Saudis don’t need much exploration. Theirs is a land of sand floating on oil. Finally, Ben directed me to that day’s New York Mercantile Exchange (NYMEX) listings. NYMEX is a trading house that allows you and me to buy or sell futures in commodities such as crude oil (“puts” and “calls” if you’re a pro). Like any trading market, price is a balance between folks who believe price will go up and those who believe it will go down. On August 2, 2004, the day’s price was almost $44/bbl. Yet the NYMEX future for December 2009 (more than five years into the future) was $33.70—more than $10 below the August 2, 2004 price. Ben chortled, “Anyone who truly believes we’re ‘running out’ should look at the price of these 2009 oil futures and invest every last penny. If they don’t, they’re either stupid or lying.” Last thoughts on collapsing fossil reserves Today, worldwide fossil fuel interdependence grows year by year. In 2000, the United States imported 56% of its oil, a quarter of that from the Mideast; western Europe imported 60%, almost half from the Mideast; 82% of Japan’s oil came through the Straits of Hormuz. Yet eventually, one way or another, both the external costs of geopolitical and environmental stresses will be internalized—by either good planning or, more likely, by unplanned catastrophes. Internalization will drive up the cost of using fossil fuels and thereby reduce reserves by pushing them into the resource ledger. Moreover, as the benefits of hydrogen technologies become increasingly apparent, fossil-fuelled technologies will lose their grip over energy systems, thereby making fossil sources increasingly irrelevant (something difficult to visualize today). The longer-term consequence of these two concomitant trends is that today’s experience of expanding reserves (in part by colonizing resources) will slow. Indeed, there will come a time when our experience of continually expanding reserves boundary will reverse, and ultimately collapse.
10 When talking to a Texan we must remember it isn’t oil, it’s awl.
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Collapse? I found it difficult to be comfortable—to have an intuitive feel—for how reserves could shrink, when all this coal, oil and natural gas will still be in the ground. Then my thoughts tumbled to Emmet Kelly. Emmet created and played perhaps the world’s most famous sad-sack clown, “Weary Willy.” Of Willy’s many routines, his best may have been the heart-breaking, yet joyfully simple performance, “sweeping up the spotlight.” From high in the circus tent, a spotlight controller focused the beam on the floor enveloping Willy. Then Willy, with his broom, began sweeping the spotlight’s edges inwards. The spotlight controller saw what Willy was up to—and gradually shrank the size of the illuminated circle on the floor until, with one last sweep, the spot, spotlight—and Willy—vanished. It was a magnificent, happy-sad, routine that reminded a damp-eyed audience of Emmet Kelly’s genius. 11 To me, the entire floor of the big tent can be a metaphor for reserves and resources. The area illuminated by the spotlight, a metaphor for reserves. Prices and technologies determine the spotlight’s diameter. But, in the end, Willy’s broom—a metaphor of environmental intrusion, geopolitical instabilities and hydrogen technologies—reduces the size of the reserves until they vanish. The floor of the big tent will still be there. But the spotlight will have vanished. Running won’t cap fossil fuel use. But the risk to international peace should. And the global environment will. This is the thirty-seventh in a series of articles by David Sanborn Scott Institute for Integrated Energy System, University of Victoria, Victoria, BC, Canada, V8W 2Y2 E-mail address: [email protected].
References [1] Published by United Nations Development Programme. First Printing; 2000. pp. 136–171. [2] Data from the BP statistical review of world energy may be found on the British Petroleum website, bp.com. [3] Rogner H-H. An assessment of world hydrocarbon resources. Annu Rev Energy Environ 1997; 22:217–62 [In particular, see pp. 259 and Fig. 8]. [4] Scott DS. Okay! but tell me about cost. Int J Hydrogen Energy 2004;29:563–7.
11 If you’d enjoy watching Kelly’s routine, see if you can get a video or DVD of “The Greatest Show on Earth.” By modern standards, it’s a
dated movie, but it can be fun watching this Hollywood history of the Ringling Bros. & Barnum and Bailey Circus.