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Page added on October 22, 2010

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Those Supposedly Ballooning OPEC Oil Reserves

Geology

A slew of reports have been populating my feed reader recently announcing the growth of OPEC oil reserves, first from Iraq, then Iran, and now Kuwait.

I pay attention to this stuff because peak oil is very much on my radar, and has been for about a decade now. It’s more than disheartening to see these reports presented to the public without any sort of context. Before everyone starts jumping for joy, there are a few things that need to be taken into account.

First, OPEC countries — which include Iraq, Iran and Kuwait — are on the honor system when it comes to reporting their reserves. There is no independent audit to confirm whether their reported reserves are accurate or not.

Second, OPEC nations sell their oil according to quotas, which are based partially on their reported reserves. The more reserves a nation reports, the more oil it is allowed to sell. This particular quota system went into effect in the 1980s, and almost immediately all OPEC nations’ oil reserves jumped significantly. These nations have a direct, vested interest in exaggerating their reserves, not only to make more money, but because petroleum income directly translates into regional power. The chart below is well known to those who follow peak oil issues, but everyone should be aware of how this works when OPEC countries start announcing big new finds or growth in existing reserves.

In the 1980s, OPEC implemented a quota system for selling its oil, which depends partially on reported reserves. All OPEC nations reported a huge jump in reserves following this decision.

Third, according to this news article, Kuwait’s latest reserve growth added 12 billion barrels of petroleum to its existing reserves, bringing its total reserves to 113.5 billion barrels. That sounds like a lot — until it is measured against global consumption. According to the U.S. Energy Information Administration, the world consumes 85.5 million barrels of oil per day. That means all of Kuwait’s reported reserves can feed global consumption for about three and a half years, assuming no growth in demand from China, India, the United States, or any emerging economy.

So is it time to bust out the champagne and buy a new Excursion? Absolutely not. Oil prices may be fluctuating in the short-term, but the long-term trend is up, up, and away.

GantDaily



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