Bottled water still costs more, but gasoline, and the oil it comes from, seems to be an ever-more precious commodity. Last week, oil prices topped off at a crude $75 per barrel--and as prices rise, so do questions about oil's future.
Deep Pockets? Pump It
Oil companies generally pump their black gold from large underground pockets called fields, which come in many shapes and sizes. The oil from a small field might not fill the average Hollywood swimming pool. But the largest, Saudi Arabia's Ghawar field, produces around 5 million barrels a day, and it's been cranking out crude since 1951. (A barrel, by the way, contains 42 gallons, or 159 liters, of oil.)
The chemical composition of the oil, and the cost of extracting it, varies from field to field. So while you may think oil is oil, more than 160 varieties of the stuff are traded in markets around the world. You can buy West Texas Intermediate, Saharan Blend from Algeria, Tia Juana Light from Venezuela, or Brent Blend from the North Sea. And that's just the appetizer menu.
Got Oil? Prove It
A field's "reserve" is the amount of oil that can be extracted from it. Determining the size of a reserve involves geology, economics, and some educated guesswork. Different methods are used to calculate reserve sizes, and estimates can vary widely depending on the source. The figures used most often by the media represent so-called "proven" reserves.
Basically, proven reserves measure the amount of oil producers can safely expect to pump from known reservoirs and sell at a profit under current conditions. In 2005, the oil industry estimated that the world's total proven reserves come to roughly 1.2 trillion barrels.
Most of this oil (62 percent) comes from the Middle East--mainly from Saudi Arabia (22 percent), Iran (12 percent), and Iraq (10 percent). The United States has just a little more than 2 percent of the world's proven reserves.
Source: BP Statistical Review of World Energy 2006
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More Oil? See Canada
Although the world is using oil at a record pace--it consumed around 30 billion barrels in 2005--proven reserves have actually increased by 56 percent over the past twenty years. Some of this growth comes from the discovery of new oil fields, but most of it is economics.
Improvements in technology have made oil extraction more cost effective, while market forces have driven oil prices up. Simply put, oil that once wasn't worth extracting has become profitable to pump, and that increases the size of the world's "proven" reserves.
Take Canada's Athabasca oil sands. Located in Alberta, the oil sands are a mixture of sand, clay, water, and a tar called bitumen, from which oil can be extracted. Extracting the oil used to be prohibitively expensive, but today's oil prices are changing that equation. According to Alberta's government, 175 billion barrels are already recoverable--enough to make Canada second only to Saudi Arabia in proven oil reserves.
Lots Left? Hard to Say
Experts still disagree over how much of Alberta's tar-trapped oil should count as proven reserves. The same goes for oil sands in Venezuela and oil shale in the United States. Yet any large new oil reserves probably will come from nontraditional sources like these. Few industry insiders expect to find a new field like Saudi Arabia's Ghawar.
Already oil producers have a hard time replacing the 30 billion barrels the world uses up each year, and consumption rates continue to rise. If consumption continually outstrips the discovery of new reserves, global supply will inexorably shrink (some experts think this is already happening). The future of oil may well come down to a race between consumption and innovation--including innovations to reduce consumption.
Christopher Call and Steve Sampson
July 12, 2006
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