Investors and oil market watchers are constantly wondering just how much oil is in the ground. Just how large are each country’s oil reserves? The market seems to cycle between cries that we have reached “peak oil” (a term indicating the maximum rate of oil extraction after which oil extraction will permanently decline), and waves of new discoveries. For the last five to seven years we seem to be in the latter part of the cycle with major new discoveries of recoverable oil made in Brazil, the United States, Venezuela and Canada. These discoveries lead to exuberant optimism about the amount of oil beneath the surface. But what do we really know about oil reserves and why is it important?
For investors and industry watchers the major issues are: 1 – size of reserves 2 – efficiency of recovery and 3 – long term industry stability. All three of these – not just reserve size – are essential to understanding the health of a country’s oil industry and the economic power it can command.
This past July, Rystad Energy, an independent research group based in Norway, released a new study claiming that the United States actually has the largest oil reserves in the world – greater than even Saudi Arabia, Russia and Venezuela. The group analyzed 60,000 oil fields around the globe over the course of three years and concluded that the United States holds 264 billion barrels of recoverable oil. The problem with Rystad’s study is that the 264 billion barrel number is largely based on projected discoveries, not actual proven oil reserves. Projected discoveries are calculated based on the rate of recent oil discoveries, which the United States happens to have a particularly high number of, and extrapolating a continued similar rate into the future.
Once projected discoveries and probable discoveries are removed from the equation, the number drops to only 40 billion barrels (not counting this month’s announcement of a new discovery of an estimated 10 billion barrels in Alaska). The data from Rystad’s report really indicate that the United States has a higher rate of new oil discoveries in recent years and greater expectations for future discoveries than other countries, not that the United States has more proven oil resources.
Rystad is not the only group providing estimates of global oil reserves by country. OPEC also regularly reports on estimated oil reserves. The most recent data from OPEC and non-OPEC countries can be found in its 2015 Annual Statistical Bulletin. OPEC does not specify how it collects and measures this data and acknowledges that it relies on member and non-member countries to self-report and that while “reasonable efforts have been made to ensure the accuracy of the ASB’s content,” its data may be flawed and usefulness limited. According to OPEC statistics, Venezuela and Saudi Arabia – both OPEC countries – have far and away the most proven oil reserves of any country.
Perhaps a more compelling statistic for investors is the estimated value of a country’s petroleum exports. OPEC calculates such statistics for OPEC member nations only. Among them, Saudi Arabia completely overpowers every other OPEC country by nearly 30%. No other OPEC country even comes close. This means that, economically, Saudi Arabia commands the most power amongst OPEC members. Its oil industry is more efficient and cost effective, even though its proven oil reserves are estimated at slightly less than Venezuela’s.
The dream among frackers and their proponents is for the U.S. (in conjunction with Canada, most likely) to eventually rival Saudi Arabia for estimated value of petroleum exports. To achieve that level of production and exporting success, North America has a long way to go in technological innovation, resource discovery and industry-government cooperation. However, such measures of economic success are a better gauge of power in the energy market than mere oil reserve estimates.