International

Inconsistencies in reported oil industry statistics feed a growing debate

May 1999 Vol. 220 No. 5
International

Kurt S. Abraham,
International Editor

Debate grows over accuracy of industry statistics

As the upstream industry and financial analysts attempt to assess where oil prices are headed, a new controversy is emerging over the dependability of data. Specifically, some people question the accuracy of oil reserve figures and supply-and-demand data. These indicators are particularly important, because they have proven to be the foundation upon which oil traders set crude futures prices, and operators base many of their investment decisions.

Reserve figures indicate present and future production capacity and deliverability. In turn, capacity and deliverability directly affect the supply / demand balance. Two radically different views of where reserves and production are headed were published recently by Canadian Energy Research Institute in its bi-monthly newsletter, Geopolitics of Energy.

The first, authored by well-known explorationist / consultant Dr. C. J. Campbell, contends that many countries’ proved oil reserve figures are inflated, through error or political meddling. Compared with World Oil’s latest estimate of 969.7 billion bbl and a 1.034-trillion-bbl figure published by our friendly competitors, Dr. Campbell estimates that global oil reserves are only 821 billion bbl. Using "rational" depletion profiles and other geological inspiration, he argues that crude output by countries other than the five largest Middle Eastern producers peaked in 1997 and shows no reasonable hope of significant reversal.

Meanwhile, the share of global output held by these five Middle Eastern producers has risen from 16% in 1985 to about 29% at present, and should grow to 35% in 2001. Given that world demand has never quit growing and should increase at a long-term rate of 1.5%, Dr. Campbell says oil prices are ripe for a radical increase.

Contrast this with the piece written by Michael C. Lynch, executive director of the Working Group on Asian Energy and Security at the Center for International Studies at Massachusetts Institute of Technology. As president of the U.S. Association for Energy Economics, he attacks from a market / economist angle. He insists that forecasts of oil production, demand and pricing have been wrong consistently, and that "the current glut of oil is no fluke."

Mr. Lynch believes that now, more than ever, large amounts of oil will be developed over the next decade. He states that obstacles to oil development are not geologic, but political and/or regulatory, i.e., transient. Building on statistical history, he says there are no signs that the linear growth of non-OPEC oil production is about to cease. He points out that in the U.S., the number of wells drilled by just 1970 was 33.4 per 100 sq km of sedimentary basin. By contrast, that same number in the rest of the world is less than one well per 100 sq km.

Having read both pieces, this editor believes that neither gentleman is completely right or wrong. The likely scenario is somewhere in that "gray middle." To read both pieces in total, contact CERI by phone (1-403-282-1231), fax (1-403-284-4181) or E-mail (ceri@ceri.ca).

Supply-and-demand gyrations. Meanwhile, Houston consultants Groppe, Long & Littell (G, L & L) are waging the intellectual equivalent of guerrilla warfare against the International Energy Agency (IEA). As partners Henry Groppe and George Littell told World Oil recently, they believe that IEA estimates of global oil supply and demand are "inaccurate and misleading." In advising oil company customers, G, L & L tell executives that IEA continually overstates production and understates deliveries. Hence, IEA overstated output by 1.7 million bopd in 1997 and 1998.

In addition, Mr. Groppe said IEA underestimates processing gains when calculating supply, and fails to distinguish between crude, condensate and NGLs when looking at OPEC output. G, L & L conclude that there were no true production cuts by OPEC in March 1998 and less than 300,000 bopd after meeting in June 1998. Coupled with the UN relaxing controls on Iraqi oil exports, production of crude by OPEC members increased during first-half 1998. The increase in this output, rather than reduced demand, caused the price collapse during 1998, said G, L & L.

At World Oil, we are sufficiently intrigued by apparent flaws in IEA’s methodology, so we will publish an in-depth article next month that contains G, L & L’s findings, and explains how they arrived at their conclusions.

GRI needs producers’ help to study global resources. Chicago-based Gas Research Institute seeks natural gas producers to invest in a "Global Emerging Resource Consortium" that will evaluate non-conventional gas resources worldwide. An "investment opportunity" under GRI’s Select program, the $1.1-million, 18-month project will comprehensively evaluate the types, locations and sizes of emerging gas resources outside the U.S. It also will study the economics and production viability of these resources.

The project will create resource maps featuring pipeline and marker information; identify technologies best suited to solve regional production challenges; conduct seminars on advanced new technologies used to evaluate and develop emerging resources; and provide participants exclusive access to an electronic database of all consortium findings.

GRI defines emerging gas resources as reserves that "typically hold trapped gas that is difficult to commercially produce." Examples include tight sands, coalbed methane and gas shale. These provide nearly 20% of U.S. gas supply. The consortium project will require individual participation fees of $75,000. Full offer descriptions and terms are available on GRI’s web site at www.gri.org, or request more information by phone at 1 (773) 399-8100.

FROM THE ARCHIVE