It is hard to track exactly what kind of oil has been found around the world, in what quantities, because of loose definitions and reporting practices. The U.S. Securities and Exchange Commission demands strict reporting for financial purposes: proved reserves means proved-so-far by current wells or firm development plans, saying little about the full size of the discovery. Naturally, the estimates are revised upward as fields are drilled, giving a misleading impression of “reserve growth.” While not globally significant, Shell’s recent cut in proven reserves that are not yet in production suggests that companies no longer have a cushion of underreported reserves. Evidently reserve growth is now being countered by reserve erosion.
Many countries report unreliable information. Last year 68 countries reported implausible reserves. Some have remained unchanged for years. Maugeri is right that OPEC countries had reasons to increase reported reserves in the late 1980s, but the key point is that the revisions have to be backdated to the discovery of the fields in order to build a sound discovery trend.
This corrected trend line shows that world discovery reached a peak in the mid-1960s, and fell below consumption in 1981. We’ve been in deficit ever since. In 2002 we found about 7 billion barrels but consumed 25 billion. The decline continues despite the use of new technology in a worldwide search encouraged by tax write-offs for most of the cost of exploration.
It is also true that some areas have been closed to exploration. The Caspian was one such region, but its contributions turn out to be too small to have much impact on the world total. The Middle East has been partially closed to foreign companies, but most of its oil lies in a few giant fields found long ago. It will take a great deal of time and money to offset the decline of these fields and find new, much smaller ones.
The 1932 peak of discovery in the mainland United States was followed by a corresponding peak in production 40 years later. The pattern is now repeating itself worldwide. Discovery in the North Sea peaked in the 1970s and has now passed the corresponding peak in production. Maugeri questions the bell-shape depletion profile, failing to grasp that it depicts the unconstrained U.S. environment. Elsewhere, the curve may be distorted for many reasons, from OPEC quota restraints to delayed opening of offshore areas, but the overall pattern is immutable, being imposed by nature.
The global peak in discovery came 40 years ago, so the peak of production is imminent, or already upon us. Rather than deny it, we should try to face it. For example, we could agree to coordinated import cuts to match the world depletion rate. That is annual production as a percentage of what remains, now running at about 2 percent a year. It would encourage energy saving and substitution by renewable energies. It would also help avoid destabilizing price shocks and geopolitical tensions, as more and more countries become dependent on Middle East exports. Above all, it would force consumers to face the reality of their predicament, as imposed by nature. If Maugeri does not trust geologists, he might listen to his own former chief executive, Franco Barnabe, who predicted that oil would peak next year.
