Oil Reserves, Their Categories, and the World's Largest

camels in front of oil reserves

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Oil reserves are an estimate of how much oil can ultimately be recovered. This broad definition is also called oil in place. It includes undiscovered or "yet to find" reserves. It's based on the probability of finding reserves in certain geological areas. It also assumes new types of technology will make it economically feasible to extract the oil. 

A more precise definition is discovered oil reserves. There are three categories. These are based on how likely it is the oil can be recovered using current technology.

  1. Proven Reserves - There is a greater than 90% chance that the oil will be recovered.
  2. Probable Reserves - The chance of actually getting the oil out is greater than 50%.
  3. Possible Reserves - The likelihood of recovering the oil in place is significant, but less than 50%.

Keep in mind that part of an oil field's probable and possible reserves get converted into proved reserves over time. These discovered reserves are just a small part of the oil in place. It's just not technically feasible to get most of the oil out in any given field. 

Don't believe it when someone says the world will run out of oil on a certain date. Instead, oil will become too expensive to use long before it runs out.

Proven Reserves

Of the three categories, the most commonly used is proven oil reserves. That's where analysis of geological and engineering data demonstrates with reasonable certainty to be recoverable from known reservoirs. Only the oil that is commercially viable under current economic conditions is counted. If oil prices rise or new technology makes costs lower, then more fields become viable.

Reasonable certainty means that either actual production or conclusive testing has occurred. The testing includes drilling. If not, then the site must be adjacent and similar to areas that have been drilled. The size of the field is determined by the edges where the oil contacts adjacent gas or water formations.

Oil is not counted as proven if engineers are uncertain if it can be recovered under current economic conditions. Engineers don't count it if it's in completely untested areas.

Oil Sands Reserves

The ability to extract oil sands for a reasonable cost has increased the amount of proven reserves. Most of it, totaling about 166 billion barrels, is in Alberta, Canada. The United States imported 1.236 billion barrels from these fields in 2014. 

Oil sands are sand mixed with a thick substance called bitumen. The bitumen must be heated before it can be used as oil. Two tons of sand must be mined, using three barrels of water, to get one barrel of oil. The process is controversial because it uses a lot of energy and water and leaves a scar on the environment that can be seen from space. Companies are required to restore the area to its original condition after extraction.

World Reserves

In 2018, there were 1.73 trillion barrels of oil in the world. That's enough to last another 50 years since the world uses 95 million barrels per day. Only proven reserves are counted in the total world reserves. This number changes only slightly every year. 

Largest Reserves in 2018

The world's largest proven reserves are in just a few geologically unique areas. Reserves are the graveyards of prehistoric plants and tiny marine organisms. Their remains settled at the bottoms of ancient oceans and lakes 300 million to 400 million years ago. Layers of sediment covered them, increasing the pressure and temperature. That changed the chemical composition into oil. Since we use it faster than its being created, oil is considered a non-renewable resource

Most of the big fields in the proved oil reserves are in the Middle East, Venezuela, Canada, and Russia. Here's the number of barrels of proven oil reserves in 2018 for the top 15 countries according to the BP Statistical Review.

2018 Top 15 Oil Reserves by Country
Rank Country Billions of Barrels % of World Total
1 Venezuela 303.3 17.5%
2 Saudi Arabia 297.7 17.2%
3 Canada 167.8   9.7%
4 Iran 155.6   9.0%
5 Iraq 147.2   8.5%
6 Russian Federation 106.2   6.1%
7 Kuwait 101.5   5.9%
8 United Arab Emirates   97.8   5.7%
9 United States   61.2   3.5%
10 Libya   48.4   2.8%
11 Nigeria   37.5   2.2%
12 Kazakhstan   30.0   1.7%
13 China   25.9   1.5%
14 Qatar   25.2   1.5%
15 Brazil   13.4    0.8%

The list alone doesn't give the whole story, because of the relationships between the countries. Most of them produce more than they use, so they export to importers or those that use more than they produce. They use the petrodollars they receive to fund government services.

To increase their negotiating power, some of the oil exporters have banded together to manage world supply and influence prices. Although this is an illegal monopoly in most countries, it is perfectly legal in international law. The exporters have done so to keep the price of oil fairly high. Since oil is a non-renewable resource, these exporters have nothing left to sell when it's gone. For this reason, they want to get the highest profit possible while it lasts. They can only do this if they collude rather than compete.

The Organization of Petroleum Exporting Countries formed in 1960. The 12 OPEC members hold 80% of the world's proven reserves. The biggest importers are the United States, the European Union, and China. 

U.S. Reserves

The U.S. Energy Information Administration reported 39.2 billion barrels of reserves. The largest reserves are in Texas, North Dakota, the Gulf of Mexico Federal Offshore, Alaska, and California. After years of stagnation, U.S. reserves are now growing again thanks to higher oil prices that make new technologies cost-effective. Horizontal drilling and hydraulic fracturing can extract oil from shale and other "tight" formations or those with very low permeability. Texas and North Dakota accounted for 90% of the total growth. 

Also, the United States maintains the world's largest strategic petroleum reserve. It holds 727 million barrels. It's used to keep the economy running smoothly when there's a crisis or shortage. Since it is not open for production, it's not included as part of the U.S. proven reserves. 

The United States has 3 trillion barrels trapped in the Green River shale oil formation in Colorado. It costs between $40 a barrel and $80 a barrel to recover it, making it barely worth it even when oil is $100 a barrel. Extraction could also deplete the water table and damage the environment. But, if technology continues to improve and prices rise, it would be feasible to produce 100,000 barrels a day for 30 years.

Relationship of Reserves to Production

A country must have large reserves to produce and export a lot of oil. But having large reserves isn't enough. It must also have the political stability and expertise to extract, refine, and ship the oil.

For example, Venezuela has the world's largest reserves. But its type of reserves is expensive to extract, requiring a high level of expertise. In addition, the government, which had nationalized the oil industry, also mismanaged the production. It may have even damaged the reserves. As a result, it's not even in the list of top 10 oil producers. Since most of the government's revenue depended on oil, the country's economy has collapsed.

Here are the 2018 top 10 oil producing countries, according to the U.S. Energy Information Administration.

2018 Top 10 Oil Producers by Country
Rank Country  Production (mbd) Share of World Total
1 United States   17.9 18%
2 Saudi Arabia   12.4 12%
3 Russia   11.4 11%
4 Canada     5.3   5%
5 China     4.8   5%
6 Iraq     4.6   5%
7 Iran     4.5   4%
8 UAE     3.8   4%
9 Brazil     3.4   3%
10 Kuwait     2.9   3%
  Sum Top 10   70.9 70%
  World Total 100.6  

Relationship of Reserves to Oil Prices

Oil prices are not dictated by the overall supply. Instead, they vary according to the price of oil futures contracts in the commodities market. The oil futures contracts are agreements to buy or sell oil at a specific date in the future for an agreed-upon price. That's why oil prices change daily. It all depends on how trading went that day.

The oil price forecast has shown such volatility in prices because of the changes in oil supply, dollar value, OPEC’s actions, and global demand.

Traders look at three factors, only one of which are reserves. They also look at production capacity. It depends on investment decisions made by a small number of decision-makers in Saudi Arabia, Kuwait, Venezuela, and Russia.

Most important is demand, particularly from the world's largest user, the United States. These estimates are provided monthly by the Energy Information Agency

Oil Reserves and Climate Change

There is a movement afoot called "Keep It in the Ground" that could affect extraction of oil reserves. When oil is burned, it emits greenhouse gases. They act like a blanket that traps the sun's light and heat.

So much oil has been burned since 1880 that it's raised the earth's average temperature 1 degree Celsius. This global warming has caused the climate to change. Some of its effects are rising sea levels, extreme weather, and ocean acidification.

As a result, a growing number of people argue that the solution to global warming is to end oil extraction. They argue the world must shift to renewable energy to stop adding greenhouse gases. The current level is over 411 parts per million. The last time carbon dioxide levels were this high was in the Pliocene era. Sea levels were 66 feet higher, there were trees growing at the South Pole, and the temperature was 3 C to 4 C higher than today.

If successful, this movement could make the amount of oil reserves irrelevant. The world's leaders in energy production would be those with the largest solar, wind, and geothermal energy farms. If it's not successful, scientists warn that the earth is headed for the sixth mass extinction.