We are a long ways off from seeing the sunset for the oil industry. Photo Source: Chesapeake Energy media relations.
The year 1981 just called and said that we are out of oil. Well, according to estimates from the time, we should be.
Back then the world consumed just under 60 million barrels per day, and global proved reserves for oil stood at almost 700 billion barrels. At that rate, the world should have exhausted all its proved reserves sometime in December 2013. But instead of the last drop of oil being squeezed out of the Earth, global production has increased by 46%, and global reserves now stand 1 trillion barrels higher than they did 33 years ago.
Did some geological miracle more than double the amount of oil we have produced in the past three-plus decades?No. It's more of a disconnect between how much oil is physically left in the world and how data related to oil reserves is reported. Let's look at why these numbers have been misleading for so long and why today's current projection of 53 years of oil remaining -- based on recent numbers from BP-- is likely wrong as well.
Somewhere between 53 and 250 years, take your pick
There are a multitude of ways to describe the amount of oil remaining, but the most common is known as proved reserves.When you divide proved reserves by total production, you get the reserves-to-production ratio. This is where the 53-year estimate comes from and where that 32-year estimate originated in 1981. While the number is easy to understand, it's a red herring because it assumes production will remain constant forever and that the current proved reserves estimates represent all the oil left. As we all know, this simply isn't the case.
The problem with the term "proved reserves" is that many assume it describes a physical limitation on oil, but it is actually a calculated economic limitation. Every country has a slightly different way of calculating the amount, but the basic gist is that proved reserve estimates are what companies assume they can pull from the ground using existing technology while still generating a profit, which is based on the price of oil or gas over the past year.
This estimate can be impacted by several things: new technology that makes oil recovery less expensive, new reservoirs that were not considered economical at the time, or simply that a rising price of oil makes those once unattainable resources attainable. Overall, this is a relatively small amount of oil compared to the total physical amount of petroleum that is in the ground. The following image from the U.S. Energy Information Administration gives a visual idea of this concept. It is not to scale.
Source: U.S. Energy Information Administration.
In fact, looking at the historical trend of the world's reserve-to-production ratio since 1980, we are actually at one of our most abundant times in terms of proved reserves.
Source: BP 2014 Statistical Review of World Energy, IMF Commodity Prices Index Database, U.S. Energy Information Administration and author's calculations.
This is only the tip of the iceberg, though, because these projections don't include technically recoverable resources that are not yet deemed economical at today's prices.Considering all of the technically recoverable resources, we have enough oil to last us over 100 years at current production levels. Furthermore, if we also include more complicated oil reservoirs such as kerogen deposits, then we may have more than 250 years of oil supply. It all depends on how much consumers are willing to pay for that oil.
What a Fool believes
I'm not here to thumb my nose at peak oil theories, because there is an actual physical limit to the amount of oil in the ground. In fact, there are trillions of potential barrels of oil in Mother Nature's pressure cooker as we speak, but it will likely take thousands of years before they become oil reservoirs like those we are accustomed to drilling today. It is much more likely, however, that we will reach the economic limits of extracting oil from the ground before we reach the physical limits.
As investors, it is important to understand this dynamic because it prevents us from making hasty decisions about long-term investments. Is it possible that we will no longer use oil 53 years from now? That's not likely, but if it happens it will be becausewe have developed alternatives that are more economical, rather thanrunning up against the physical limitations of what's underground.
Tyler Crowe has no position in any stocks mentioned.You can follow him at fool.com under the handle TMFDirtyBird, onGoogle+,or on Twitter@TylerCroweFool.
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FAQs
Oil Reserves in the United States
The United States has proven reserves equivalent to 4.9 times its annual consumption. This means that, without imports, there would be about 5 years of oil left (at current consumption levels and excluding unproven reserves).
Is there only 50 years of oil left? ›
No more oil by 2068
Enough oil to last another 50 years with an average global oil consumption of 95 million barrels per day.
Who has the most untapped oil in the world? ›
Thanks to the shale oil boom, the US is now sitting on more oil reserves than Russia, which estimates as having 256 billion barrels of untapped oil. The next-richest countries in terms of oil after that are: Saud Arabia (212 billion), Canada (167 billion), Iran (143 billion) and Brazil (120 billion).
Will we ever run out of oil? ›
It's estimated that known oil-deposits will run out by 2052. Realistically, we may never run out of oil because, given the depth of the Earth's core, there will be new wells to discover. That said, it's highly likely that the practice of mining such depths will become economically unviable.
Do we have 100 years of oil left? ›
In its 2021 International Energy Outlook, the U.S. Energy Information Administration (EIA) projected that the world's oil supply will continue to meet the growing global energy demand until at least 2050 [source: EIA].
What year do we run out of oil? ›
According to the MAHB, the world's oil reserves will run out by 2052, natural gas by 2060 and coal by 2090. The U.S. Energy Information Association said in 2019 that the United States has enough natural gas to last 84 years.
How much oil is left in Saudi Arabia? ›
Oil Reserves in Saudi Arabia
Saudi Arabia has proven reserves equivalent to 221.2 times its annual consumption. This means that, without Net Exports, there would be about 221 years of oil left (at current consumption levels and excluding unproven reserves).
What will replace oil in the future? ›
Solar, wind, and nuclear power are all alternatives to energy from fossil fuels. Oil and gas dominate the global market but other forms are gaining ground research and development into cleaner energies continue. Nuclear power is less expensive than other forms of "green" energy like hydropower or solar.
How many years of gas are estimated to have left? ›
Assuming the same annual rate of U.S. dry natural gas production in 2021 of about 34.52 Tcf, the United States has enough dry natural gas to last about 86 years.
Who controls 80% of the world's oil? ›
OPEC was formed in 1960 and its 13 current member states hold more than 80% of the world's proven oil reserves.
Most observers cite anti-democratic governance, corruption, and mismanagement of the economy as causes of the crisis. Others attribute the crisis to the "socialist", "populist", or "hyper-populist" nature of the government's policies, and the use of these policies to maintain political power.
Who has more oil than Saudi Arabia? ›
Oil Reserves by Country
| # | Country | Oil Reserves (barrels) in 2016 |
|---|
| 1 | Venezuela | 299,953,000,000 |
| 2 | Saudi Arabia | 266,578,000,000 |
| 3 | Canada | 170,863,000,000 |
| 4 | Iran | 157,530,000,000 |
94 more rowsSaudi Arabia's proved oil reserves amount to some 102 billion barrels. That means that if Saudi Arabia stopped discovering new oil fields today and maintained its current production level of about 10.8 million barrels per day, it would have enough oil to last for about 26 years.
Why we will never run out of oil? ›
The reserves will never run out. They just get more and more expensive to produce from. As an example, the world's biggest known oil field isn't even included in the reserves because the only current way to get the oil out is to mine the rocks like coal, then heat it to 500C to break the oil's bind with the rocks.
Is crude oil made from dinosaurs? ›
The notion that petroleum or crude oil comes from dinosaurs is fiction. Surprised? Oil formed from the remains of marine plants and animals that lived millions of years ago, even before the dinosaurs. The tiny organisms fell to the bottom of the sea.
How long does the oil industry have left? ›
According to the U.S. Energy Information Administration's (EIA) International Energy Outlook 2023 (IEO2023), the global supply of crude oil, other liquid hydrocarbons, and biofuels is expected to be adequate to meet the world's demand for liquid fuels through 2050.
How long will US natural gas reserves last? ›
Assuming the same annual rate of U.S. dry natural gas production in 2021 of about 34.52 Tcf, the United States has enough dry natural gas to last about 86 years.
Which country has the largest oil reserves? ›
Venezuela accounts for the greatest share of global oil reserves. As of 2022, 19.38 percent of all known oil reserves were found in the South American country. Saudi Arabia followed, at some 17 percent.
Does the US have more oil than Saudi Arabia? ›
Thus, while the U.S. might indeed have greater oil resources than Saudi Arabia, U.S. oil reserves (per the BP Statistical Review of World Energy) are only about 1/10th those of Saudi Arabia. The distinction is important.
