An Open Letter to Mr. Porter
Author of

"Are we running out of oil?"
Discussion paper #081 by the American Petroleum Institute

Dr. Colin J. Campbell
8 April 1996

Dear Mr. Porter:

I started reading your paper thinking that here we would have an authoritative statement of this important subject. I began to jot down notes and comments on points of detail, but by the time I was about half way through, the penny dropped. I realized that it was not an objective and analytical study as it appeared to be, but a "lobbying" document to deliver a predetermined message and discredit any counter arguments. In some ways, it reminds me of a trial in which counsel tries to undermine the evidence by subtle innuendo and inference. I will comment only on the main flaws in the logic.

1. Discrediting past estimates of Ultimate Recovery
It is obvious that the ability to predict Ultimate Recovery improves as depletion proceeds, and data and understanding grows, in the same way that it is easier to predict when an old man will die than a young one. To emphasise how the early estimates proved erroneous is innuendo to generally discredit the idea that realistic estimates can be made. In this way, the reader is led to believe that Nature will provide in unspecified and mysterious ways, and that the very concept of Ultimate Recovery is somehow flawed. But then, like a beacon of truth above the obfuscation, it admits on Page 23 that a consensus of recent estimates points to an Ultimate Recovery of about two trillion barrells of conventional oil, and that the only way to significantly defer the consequential peak in production is to bring in large amounts of non-conventional oil.

2. Confusing the USGS Study
The USGS study is itself very sound once its special reserve definitions are decoded. A simple way to do that is to explain that Proved Reserves have a high probability of occurrence (90-95%) whereas that the USGS "Identified" reserves have a low probability (5-10%), being notional geological amounts unconstrained by economic, technological or timing factors. "Reserve Growth" is treated as if it were a dynamic akin to discovery, when it is mainly an artifact of the reporting process. Using Median Probability reserves, in which the risks that the actual will be above or below the estimate are equally matched, overcomes all these confusions. If the current discovery trend (about 7 billion/year) is taken into account, it is clear that only the low end of the USGS Yet-to-Find deserves consideration to the extent that it could affect the pending production peak. The USGS number of 2.3 trillion barrels reduces to about 1.75 once these factors are taken into account. This is a very good number based on distribution and discovery trend analysis.

3. Discrediting Hubbert
Having admitted that Hubbert hit it on the nail when he predicted that the USA would peak when it did, efforts are made to discredit his approach by magnifying a segment of his decline curve and emphasising how the actual curve has differed. Hubbert's contribution was to equate peak unfettered production with the midpoint of depletion. That there are relatively minor daily departures from the predicted curve, 40 years on, hardly diminishes the value of his general proposition.

4. The Reserve to Production Ratio escape hatch
Having admitted that Hubbert got it right, and having accepted that about two trillion is a good consensus Ultimate Recovery, logic would lead to the conclusion that peak production will come when one trillion barrels have been produced. Instead, appeal is made to the mistaken notion that dividing the reserves by current annual production indicates the number of years current production can be sustained. Since Production and Reserves fall in parallel the R/P ratio stays the same. It is an utterly flawed approach, widely used in the report. After peak, production declines at a certain depletion rate until it is exhausted, as every oilfield demonstrates.

5. Failure to distinguish conventional and non-conventional oil
More than 95% of all oil produced to-date, as well as that to be produced over the next decade or so, is what can be called conventional. Once it has peaked and shortages appear, more non-conventional oil will be produced by tapping large heavy oil deposits, and undertaking more enhanced recovery techniques, infill drilling, etc. But this kind of oil has a very different depletion pattern, rising only slowly to a long low plateau, and is costly to produce, also in environmental terms. It may amount to about half of all production by 2050, but by then the total will be less than half what it is today if the two trillion consensus number is about correct. We are of course not running out of oil, the question posed in the title: only cheap and abundant supply.

The report ends with the question "Does it matter anyway?" Now the real motive is revealed. The report seeks to depict the world as floating in oil, such that those countries that actually control supply by their large endowment will be persuaded to open their doors for fear of being left out in the cold. It further seeks to discourage consuming governments from introducing conservation measures in order to ameliorate the transition to the inevitable coming fall in production. In the past, when the major international companies controlled the industry from top to bottom,they could make long term strategic plans to match supply and demand. Now that they have lost control of most of world supply, they are forced to take a short term view. Naturally they seek to dissuade governments from any actions curtailing their throughput with adverse affects on their marketing profits: no one can blame them for that. It is a reasonable position for the American Petroleum Institute to take, but it should be understood for what it is.

I am rather gratified that the counter view should have been seen to be sufficiently close to the mark to warrant this elegantly written and comprehensive rebuttal. It is a "discussion" paper which I hope will stimulate the discussion that this serious subject deserves.

yours sincerely,

C.J. Campbell