A New, Unanticipated Oil World

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The aforementioned letter (by Jeffrey Hughes, President and founder of HTK Consultants) offered these facts and predictions circa 1999:

1. World oil discoveries peaked in the 1960s.
2. World oil production will peak in the next ten years.
3. U.S. oil production peaked in the mid-1970s.
4. The U.S. currently imports 60 percent of its oil, mostly from Saudi Arabia, Venezuela, and Mexico.
5. Nearly 64 percent of the world's remaining oil is in five Persian Gulf countries.
6. Saudi Arabia alone has more proved oil reserves than all non-OPEC countries combined.
7. There is roughly 1,039 billion bbl. of oil remaining worldwide.
8. The world is finding only 7 billion bbl. of new oil each year.
9. The world is consuming more than 26 billion bbl of oil each year.
10. The world could theoretically run out of oil by the year 2050.

The letter ended by predicting that the U.S. would have to "import over 85 percent of its oil in the next 10-15 years."

Update, 17-18 Years Later

In 2016, net petroleum imports to the United States were 24 percent of domestic consumption. Net imports that peaked in 2005 at 12.5 billion barrels have fallen since, with 2016 registering 4.8 billion barrels. The results for 2017 (not yet finalized) could bring the percentage under 20 percent for the first time since the mid-1960s. And here are the updated facts from the world of 1999.

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1. World oil discoveries peaked in the 1960s.

World oil discoveries peaked in 1964 at about 70 billion barrels. Since then, yearly additions have recently averaged 9 billion barrels (2000-2015). Explorers in 2017 discovered the lowest volume of oil since at least the 1940s, according to Rystad Energy, an oil and gas consultancy. This said, global reserves have increased significantly from additions to existing fields, the result of new technology (see points below).

2. World oil production will peak in the next ten years.

Approximately 72 million barrels per day was produced in 1999, which increased 12 percent to 81 million barrels per day in 2009. From the 2009 level, 2016's output rose 14 percent to 92 million barrels per day--the highest ever.

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3. U.S. oil production peaked in the mid-1970s.

Domestic oil production peaked in 1970 at 9.6 million barrels per day. After dipping to a low of 5 million barrels per day in 2008, 2015 output was 9.4 million barrels per day, the highest since 1972 and nearly a 90 percent increase from the 2008 low. In 2018, the U.S. is expected to break its 1970 record for oil production.

4. The U.S. currently imports 60 percent of its oil, mostly from Saudi Arabia, Venezuela and Mexico.

In 2016, net petroleum imports were 24 percent of U.S. oil consumption, a 60 percent decline from the above amount. Imports from Saudi Arabia fell from 1.5 million to 1.1 million barrels per day between 1999 and 2016, a 25 percent decline. Total OPEC imports fell from 4.2 million to 3.2 million barrels in the same period, a 25 percent drop.

5. Nearly 64 percent of the world's remaining oil is in five Persian Gulf countries.

In 2016, 72 percent of world oil reserves were in OPEC, led by Venezuela and Saudi Arabia. But with technically recoverable oil, the U.S. exceeds all of OPEC (1.44 trillion barrels vs. 1.22 trillion barrels).

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6. Saudi Arabia alone has more proved oil reserves than all non-OPEC countries combined.

This is no longer the case. Saudi Arabia's 2016 proved reserves of 266 billion barrels compares to 486 billion barrels for non-OPEC.

7. There is roughly 1,039 billion bbl. of oil remaining worldwide.

At year-end 2016, world oil reserves were estimated to be 1.7 trillion barrels, a 65 percent increase from the above despite interim consumption of 565 billion barrels.

8. The world is finding only 7 billion bbl. of new oil each year.

In 2016, 2.4 billion barrels from new fields of conventional oil were discovered worldwide, down from the average of the last 15 years of 9 billion barrels. However, additions to reserves in existing fields have allowed total reserves to grow significantly (see below).

9. The world is consuming more than 26 billion bbl. of oil each year.

In 2016, world oil usage of 35 billion barrels was 35 percent higher than the above figure. By 2050, oil consumption is forecast to reach over 44 billion barrels.

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10. The world could theoretically run out of oil by the year 2050.

At current consumption rates versus proved reserves, the world would "theoretically" run out of oil in 2066. But oil exploration and reserve development will not cease. Proved reserve additions can be expected to keep up with if not exceed annual consumption in the years and decades ahead.

Conclusion

Predictions from 1999, in retrospect, were far too pessimistic about the global oil market and the U.S. in particular. The last decade has been among the most prolific in the history of the petroleum industry--and centered right here in America. Human ingenuity, what Julian Simon labeled "the ultimate resource," has prevailed over the alleged limits to nature. A month before Hughes's letter, the economics editor of the Oil & Gas Journal, Robert Beck, predicted that "additional demand for crude oil will have to be satisfied primarily by increased production from OPEC countries, because that is where the vast majority of the world's oil reserves lie," in the article "Resurgent Oil Demand, OPEC Cohesion Set Stage for Optimistic Outlook for Oil Industry at the Turn of the Century." Again, this was the conventional wisdom. But Beck's boss was less sure. "Plenty of fluid hydrocarbon remains," wrote Oil & Gas Journal editor Bob Tippee in his article titled "How an Institution Responds to the Turn of a Millennium" the month after Hughes's letter. "And OGJ will continue publishing the best material available about the space-age innovations that keep pushing exhaustion of an undeniably finite resource further into the future than anyone seems able to imagine." Tippee was sage. More "space age innovation" has happened than could have been imagined. Excitement about 3-D technology and horizontal drilling in the 1990s was but a precursor to what today is a U.S./global oil and gas production boom from hydraulic fracturing, a story told elsewhere.* The Oil Age, 150 years old, may still be young. Peak-oil predictions made in the second half of the 19^th century, and throughout the 20^th century, all assumed a nonentrepreneurial world instead of one in which innovation and discovery open the door to more. Resources, after all, are not fixed but created by resourceship, particularly in private property, free-market settings.

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*The natural gas breakthrough with hydraulic fracturing technology dates back to 1998. The same would occur with oil about a decade later. For gas, see Russell /Gold, The Boom: How Fracking Ignited the American Energy Revolution and Changed the World (Simon & Schuster: 2014), chapter 6. For oil, see Zuckerman, The Frackers, pp. 235-36, 252, 318-20, 364-65. The post A New, Unanticipated Oil World appeared first on IER.

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