Mar 2010

The absurdity of relying on BP's data

Peak oil used to be the preoccupation of a small minority, but a parliamentary group has been set up to follow the issue and an increasing number of industrialists have begun to worry about it.

Seems to me that peak oil is still the preoccupation of a small minority. Parliamentary groups and warnings from Richard Branson notwithstanding. I’ve been banging on about peak oil for the best part of 15 years, for instance, and while it’s true that more people are now aware of the issue than was the case when I first encountered it, the number who believe it’s serious enough to warrant effective action remains negligible.

I’ve no doubt, for instance, were there a magic wand which could “solve the problem” of peak oil with no economic or social impact, those in power would be queuing to wave it. Unfortunately, so long as any solution requires accepting significant consequences for how we run things, the problem will be ignored. Eventually of course, it won’t be ignored any longer and it’ll be too late to solve… the consequences of peak oil will play out destructively, and those of us in a position to say “I told you so” will find no satisfaction in doing so.

Lord Hunt, the British Minister for Energy is starting to take note of the peak oil problem. See… it’s no longer activists and academics raising concerns, it’s industrialists. This is a far more important constituency to the modern politician, and one that warrants “private and behind-doors talks at the Energy Institute”. When a bunch of fuddy-duddy intellectuals and long-haired activists demand the attention of an elected minister, they are obviously being quite naive. When it’s “executives from Virgin, Arup, Stagecoach, Scottish and Southern Energy, and Solar Century as well as other industrialists” though? Well, then the doors of the Energy Institute get flung open and “Hunt and a range of energy-policy civil servants” attend to the concerns of those they represent.

Bizarrely, the Energy Minister is still — 15 years after it’s been completely discredited — trying to calm fears with references to the BP Statistical Review of Energy.

BP and others are telling us [there’s 40 years of supply left], but you lot, Virgin, Scottish and Southern, and others are telling us something completely different. We do not know who to believe. Let’s do a proper risk assessment with industry.Lord Hunt

I know I’ve covered this before, but I’d like to revisit it. Try to clear it up once and for all. That way we can move past the “BP mirage” (for that’s what it is; a mirage) and start dealing with peak oil in a reality-based fashion.

Each year BP collate global energy numbers into the BP Statistical Review of World Energy. On the surface, it’s an impressively comprehensive document that covers energy production, consumption and reserves in all sectors. Unfortunately, on the subject of oil reserves at least (I’ve not spent much time researching the validity of what it has to say about nuclear, coal or any other energy resource), it’s fundamentally flawed. Broken beyond all recognition. Worse than useless. So anyone who uses BP’s numbers on oil — other than as a cautionary example — is making a terrible error.

Someone in Lord Hunt’s position should bloody well be aware of that.

For those who seek evidence of the inaccuracy of BP’s Statistical Review (with regards to oil reserves), I suggest downloading the “Historical Data” stats (1.6MB MS-Excel Workbook). On the ‘contents’ page click “Oil: Proved reserves – barrels (from 1980)” and examine the numbers carefully. It won’t take you long to discover some extremely odd things. But to save you some time, let me point you towards a couple of oddities which highlight the two primary reasons why the data is worthless. It’s not often a data-set is quite so self-evidently worthless.

The first thing to check is the reported reserves for the United Arab Emirates (UAE). Back in 1980, the UAE is listed as possessing 30.4 billion barrels of proven crude oil reserves. This meant they had the sixth largest reserves of oil on the planet. For the next five years this number didn’t change much. It fluctuated around the 32 billion barrel mark and in 1985 stood at 33 billion barrels. All of which, it can be argued, is fair enough. It suggests that the oil industry in the UAE was working hard to ensure that — each year — they were discovering slightly more than they produced.

Then, however, something remarkable happened. According to BP, in 1986 the UAE had proven reserves of 97.2 billion barrels. This is close to a threefold increase in a single year. Vitally, and I cannot stress this enough, the increase was not a result of a monster new field being discovered. Rather, it was a result of OPEC’s decision to change their quota system. In the mid-1980s OPEC decided that member states would have their production quotas set based upon proven reserves. The more oil you had, the more you were allowed to produce and sell.

Which reveals a rather surprising fact about the BP Statistical Energy Review… it is not compiled by BP surveyors and petroleum geologists. It is merely the collation of information submitted by national agencies. So, next year should the UAE claim to have once again trebled their reserves overnight despite little or no new discoveries, BP will calmly tell us that we now have 50 years until supply constraints.

I don’t suggest BP is in the wrong for producing these numbers. They are merely collating the claims being made by national governments (and they don’t hide this fact) However, anyone… Lord Hunt, I’m looking at you… who paints these numbers as something other than political and economic artefacts, most certainly is in the wrong.

Cast an eye over the other OPEC numbers during the mid-1980s and you’ll discover a similar pattern. Iran’s proven reserves jump 50% in one year. Iraq staggers their rise over a handful of years, but still see a 200% rise between 1982 and 1986. Kuwait jumps from 67 billion to 92.7 billion in one year. Saudi Arabia from 169.6 to 255 billion in one year. Venezuela from 28 to 54.5 billion in one year.

All of these increases are unverified, and all occurred roughly around the time OPEC began financially rewarding members based upon proven reserves.

The second oddity I’d like to point out is related to the first, in that it is a result of incentives to maximise reserve claims. It centres around the large number of petroleum exporters who claim unchanged reserves over a period of many years. Either they are asserting that production has no bearing on proven reserves (if I take a quantity of liquid from a full bottle, it remains full) or else they are claiming to have, quite incredibly, discovered annually precisely the same quantity of new oil as they pumped. For decades on end.

The UAE, who leapt from 33 billion to 97.2 billion barrels in 1986, then rose to 98.1 billion barrels in 1987. At which point apparently, new discoveries began to precisely mirror production. In 1988 they again reported 98.1 billion barrels of proven reserves despite pumping and exporting almost 1.6 billion barrels in 1987. The same goes for 1989, 1990, 1991… in fact this continues until 1996 when there’s a reported drop of 0.3 billion to 97.8 billion barrels. Each year since then they have reported no change in reserves. In 2008, the UAE still claimed to be sitting on 97.8 billion barrels of proven reserves.

This pattern is repeated — almost without exception — throughout the Middle East.

In 1987, according to BP, Iraq was sitting on 100 billion barrels. This remained unchanged for 8 years. Then in 1996 it rose to 112 billion. In 1997 it was 112.5 billion where it remained until the year 2000 when it saw a minor increase to 115 billion which is apparently where it has remained ever since. For the 11 years between 1991 and 2002 Kuwait’s reserves remained unchanged at a reported 96.5 billion barrels of oil.

I could go on. And if you think I’m cherry-picking the most damning data, just download the spreadsheet and see for yourself. Also, compare and contrast with non-OPEC countries like Norway who operate more transparent reserve-accounting systems. In those cases you’ll see both reserves and production gradually rise, plateau and fall off. Significantly, in those cases you’ll also note the smaller quantities involved (it’s the people with the vast majority of the oil who are least open about how much they have left).

I don’t know exactly when we’ll see serious oil supply shortfalls, but the consensus of opinion among those who don’t accept the BP data is that it will happen this side of 2020. Potentially a long way this side. Unfortunately, whatever The Guardian might have to say, those people are still very much in a minority. The majority view is expressed by the BP data set… the view that despite the massive incentives to do otherwise, the oil-producing nations are accurately reporting their reserves and that those reserves have not been noticeably reduced by two decades of production.

Posted in: Opinion