World's oil reserves might be much larger than estimated

William Atkins
Saturday, 21 June 2008 21:40

Science - Energy

Pike says this large discrepancy is a result of a widespread misunderstanding in the way that proven oil reserves are calculated.
Oil companies, Pike says, use a simple arithmetic calculation to come up with amount of their proven oil reserves.

Instead they should add up all of their oil field numbers with a probability distribution (bell-shaped curve) in order to more accurately estimate the amount of oil reserves each company owns.

Pike says that the oil companies calculate a figure for each oil site in which they are 90% confident that they can exceed that number after pumping out all of the oil.

Oil companies have multiple sites, so simply add up all of these figures to make one grand total. Instead, Pike says it would be more mathematically accurate to add the proven oil capacity of individual fields in a probabilistic manner based on the bell-shaped statistical curve.

Pike states, “They should be combining the bell cures for each reservoir.” [New Scientist (June 14-20, 2008, page 4): “More oil than we reckoned”]

He states that simply adding the figures together is inaccurate because it does not take into account the extremes of the probability distribution. In other words, they consistently underestimate the amount of oil they actually have located.

Pike declares, “The figures are almost meaningless and just provide a conservative estimate for shareholders.” [New Scientist]

Such inaccuracies in reporting would, therefore, provide higher oil prices because we actually think we have less oil reserves than what we really have in the ground. It is just a matter of supply and demand. If all of a sudden the oil companies decided to report twice as much proven oil reserves, this much larger figure would no doubt tumble the price of oil.

According to The Independent article “Oil shortage a myth, says industry insider,” Dr. Pike is reported to have said “… there was anecdotal evidence that big oil producers were glad to go along with under-reporting of proven reserves to help maintain oil's high price.”

The article quotes him saying: "Part of the oil industry is perfectly familiar with the way oil reserves are underestimated, but the decision makers in both the companies and the countries are not exposed to the reasons why proven oil reserves are bigger than they are said to be.”

Pike continues, "The bad news is that by underestimating proven oil reserves we have been lulled into a false sense of security in terms of environmental issues, because it suggests we will have to find alternatives to fossil fuels in a few decades. We should not be surprised if oil dominates well into the twenty-second century. It highlights a major error in energy and environmental planning – we are dramatically underestimating the challenge facing us.”

Not everybody agrees with Pike. Please read on.