Monday, February 20, 2012

A Note On How Proven Petroleum Reserves Are Calculated

 We’ve all heard that ‘oil is running out’ and that peak oil has come and gone with the Hubbert Curve. Yet notice that data on oil reserves change and usually grow with time. While some of this is geologic discovery, there’s another component that often goes unlooked: profit. Proven Reserves are calculated by what’s economically profitable for extraction by today’s market price of oil. Perhaps the best example of this is Canada.

      Alberta is rich in oil and it’s been known since the 18th Century and yet were only relatively recently counted into proven reserves and exploited for oil. Why? The oil is saturated into sand and requires labor and energy intensive processes for extraction. Throughout fluxuating oil prices of the 60′s and 70′s, several companies made attempts to extract oil but only in 2003 did oil production take off. The oil was there. The technology was there. But only then was the profit there.

      And now we jump forward to today and the current status of energy. As emerging economies, BRIC, EU and the US increase their demand for industrial scale energy the supply will follow and can do so for a long time, even if oil as we think of it runs out. There’s a process called the Fischer-Tropsch process that can convert gas and coal to liquid hydrocarbon. Recall gas discoveries in the US recently or the coal vanes that run through so much of the Northeast Corridor of the US and in the UK and consider that if price (read demand) was to continue to climb, gas and coal are potential (albeit far off) reserves that could in theory last easily into the 22nd Century.

      Given the trajectory of world economic growth – even if it were only nominal per annum – there is an absolute need to find alternative solutions and intentionally put them into place. Some might think that as oil comes closer to running out, sooner or later alternative energy will no longer become the alternative. This is specious; oil is not running out anytime soon and the time to act is now. You can do your part and find incentives for using alternative energy for your home, taking advantage of rebates for energy efficient appliances and even contributing clean energy to your power grid by going to EnergyGridIQ today.

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