The work of the IEA
As the Group will be aware, the UK Government works
closely with the International Energy Agency (IEA) on oil resource and market
issues. The IEA itself draws from a wide range of data, research and analysis
in forming its views. The quality of its work is high, and I would endorse this
as the most thorough and authoritative source for information on global energy
market issues. It is appropriate therefore that I have drawn heavily on the
IEA’s work in developing this note.
Assessment of reserves
The IEA’s assessment is that oil (and gas) reserves
are sufficient to sustain economic growth “for the foreseeable
future”, and “to meet anticipated increases in world energy demand
through to 2030”. This view is supported by its latest medium-term market
outlook, which predicts that global oil production capacity in 2012 will be
around 9 million barrels per day (10%) higher than in 2007. However, it should
of course be prudent to note the choice of date, i.e.to 2030. Any sensible
planning should include provisions going further forward in time.
There are several graphs that I have included below with
which the Group will I am sure be familiar. The first, from the IEA’s
2004 World Energy Outlook, reviews several estimates that have been made of
reserves of crude oil and natural gas liquids. The estimates do not vary
greatly, ranging between around 1100 to 1250 billion barrels.
“Proven” oil reserves are already larger than
the cumulative production needed to meet rising demand until at least 2030.
Although more oil will need to be added to the proven category to prevent
production peaking before then, it has been a long term feature of the market
that proven reserves have risen to equate to around 40 years supply on the
measure of “reserves-to-production”. The manner in which these
additional reserves have been added has developed in recent years (eg resulting
more from the impact of new technologies and improved reservoir management
rather than from new discoveries).
Moreover, the US Geological Survey has estimated
conventional resources yet to be discovered, but expected to be economically
recoverable, at 880 billion barrels, which together with proven reserves and
reserve growth puts the figure for remaining ultimately recoverable resources
at just under 2300 barrels – slightly more than twice the amount that has
already been produced.
The size of new finds from wildcat drilling has reduced
significantly over recent decades. However the concentration of drilling in
regions with mature fields such as the
“Unconventional” resources
Further vast resources also exist from
“unconventional” sources. The resources falling into this category
have been estimated at a further 1 trillion barrels[1][1], including Canadian oil sands,
extra-heavy oil from
It is worth noting that definitions of
“unconventional” have developed over time. For example, in the
1970s much offshore production would have been regarded as falling into this
category and to have been uneconomic, whilst today this accounts for around 30%
of global production. This serves to illustrate the major impact of the
development of new technologies and of the economics of recovery over time.
Conclusions and climate change
The conclusion that I would draw from this and other
evidence, and that is the clear view of the IEA, is that absolute global
geological resource is not in itself a constraint on production. Rather,
production challenges arise from a wide range of market, investment, technology
and geopolitical factors. This position is underlined in the IEA’s most
recent Medium Term Report, in which it predicts increasing tightness in the oil
market beyond 2010 and reduced spare capacity by 2m b/d by 2009, due to
investment barriers such as constraints on labour and equipment, geopolitical risks and
resource nationalism.
Others are better placed than I to advise the Group on
these wider investment and market aspects.
This is not to be complacent about addressing
uncertainties in the information we have about resources where these exist, and
the Government continues to support international efforts to improve reporting
on global oil (and gas) reserves, as noted in the recent Energy White Paper.
More generally, I am personally not convinced that
focusing on the “peak oil” concept is the most helpful
approach.
The challenge I believe lies in framing policies and in
advancing the technologies that will enable the fossil fuel resources that exist,
whether conventional or those currently dubbed unconventional, to be utilised
effectively, economically and sustainably.
I would place particular emphasis on the last of these. Climate change requires
that as “non-conventional” oil sources are developed, which I
believe inevitably they will be, it must be an imperative to do so in a manner
consistent with achieving the radical reductions on greenhouse gas emissions
that we need to achieve globally. Carbon capture and storage is a key
technology in this respect. From an environmental perspective, water usage too
will be an important consideration and constraint.
Alongside this, the radical transformation to a low carbon
world that we must achieve to avert climate disaster requires step changes in
the rate at which we develop and deploy new low carbon technologies. This
includes second generation biofuels, hydrogen and fuel cell technologies that
in the coming decades have the potential to replace oil as basis for our
transport systems. In this regard the establishment of the