Sunday, January 24, 2010

USGS Finds New Saudi Arabia! Oh, wait...

The BBC over the weekend had the headline: Venezuela oil 'may double Saudi Arabia'.  The headline was based on the just released assessment of Venezuela’s hydrocarbon deposits by the US Geological Survey (USGS).  Venezuelan oil is described as: "the largest accumulation ever assessed by the USGS".  The USGS mean estimate of recoverable Venezuelan oil is 513 billion barrels.

The USGS number is over five times 'Oil and Gas Journal's' estimate of 99 billion barrels for Venezuelan proven oil reserves.

To put all these billion barrel numbers in perspective, global consumption is currently around 30 billion barrels per year.  Saudi Arabia's oddly static (see Oil 101, Chpt.14) stated proven reserves are around 260 billion barrels. One could almost drive two Saudi Arabias between the 513 billion and 99 billion barrel estimates for Venezuela.  Which number is closer to the truth?

It comes down to the types of reserves being defined.  The USGS number refers to hydrocarbons technically recoverable if one completely ignores costs.  The 'Oil and Gas Journal' number factors in technical feasibility just like the USGS but additionally the economic cost of extracting heavy Venezuelan oil using similar processes to Canadian oil sands production.

The USGS has no mention of the fact that the costs to extract much of the hydrocarbons from the Venezuelan accumulation could be over US$200, US$300 or even US$1000 per barrel and would thus be unlikely to ever be produced.

Only in the very last paragraph (pdf) of the USGS report is there any attempt to put some perspective on their headline grabbing number: "No attempt was made in this study to estimate either economically recoverable resources or reserves within the Orinoco Oil Belt AU. Most important, these results do not imply anything about rates of heavy oil production or about the likelihood of heavy oil recovery. Also, no time frame is implied other than the use of reasonably foreseeable recovery technology." 

This sort of key disclaimer would be more appropriate in an opening paragraph.
The USGS say that their report is "critical to our understanding of the global petroleum potential and informing policy and decision makers."  How many policy and decision makers will read past the headline and opening paragraphs to understand that economics played no part in the analysis?

(HT/Terry G. for sending related link)
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