Introduction
This is a concluding or wrap-up column. It adopts an eclectic catch all approach to the items covered but is devoted to the topic of petroleum resources and reserves, which was introduced to my Sunday Stabroek series four weeks ago. Its singular aim is to is to provide me the opportunity to offer readers a miscellany of brief comments that may afford them a greater understanding of the two concepts, which have been interrogated in this column series.
In my discussion of the two concepts of petroleum resources and petroleum reserves that has occupied the last four columns thus far, considerable light has been thrown on their sheer complexity and uncertainty. Remarkably also, these features persist even though industry specialists and associated professionals have been making great efforts, over recent years, to secure commonly agreed objective standards on an industry-wide basis.
In what follows I shall proceed as indicated here 1] look at their treatment when the two concepts are combined 2] consider if knowledge of held resources and reserves constitute a free good 3] their application as a combined unit 4] TRR and ERR and 5] window of opportunity concerns; concluding with a comment on the window of opportunity for oil in the energy transition.
Combined
Unless a didactic approach is deliberately adopted much of the usage of the two concepts is vague and somewhat casual; the terms are used interchangeably. However; for the purposes of this column series I consider the two concepts when combined casually as meaning:
Finds/discoveries of plays that are commercially competitive
Here a play refers to a group of fields, sometimes called prospects. A play or prospect combines fields typically located in similar geological regions.
Of note, in the literature, there is a broadly recognized play cycle, which we have not mentioned so far, That consists of 1] initial scanning for potential reserves 2] testing sampling identifying and making adjustments to estimates of quantities that are extractable 3] a period of high success 4] a period of lower success and 5] a decrease in further exploration within the area.
Knowledge is not a free good
It should come as no surprise to most, if not all readers of this column that, knowledge of a country’s operational and executable petroleum reserves is not a free good. It has an opportunity cost especially in the case of a frontier off-shore region like Guyana. Indeed, in Guyana the resource Owner and Lead Contractor share, by Agreement, [contract] the substantial final cost attached to petroleum exploration. This cost includes petroleum engineering and related scientific skills, equipment, technology and innovation access though patents costs. The price of all these is important for the determination of profitable spending on exploration and development by not only the Owner and Contractor but as well actual and potential investors, including other firms and stock owners.
TRR and ERR
As an economist I am struck by the consideration that petroleum resources are also regularly designated on the basis of technical and economic determinants. Thus, technically recoverable resources, TRR is basically the amount of oil and gas that can be extracted by utilizing current technology without any reference to economic feasibility.
In contrast, economically recoverable resources, ERR, refers to the amount of technically recoverable resource that can be extracted economically. With the gains from technological advances and favourable economic conditions, the ERR part increases within the TRR.
As noted before there are several unconventional resources that cannot be readily converted to the proved reserves category by utilizing the present day technology. Examples of unconventional oil resources include shale oil, extra heavy oil, tar sands, and bitumen, the commercial extraction of which are difficult and cost intensive.
Window of opportunity
Clearly knowledge of Guyana’s petroleum resources and reserves is crucial for determining the capability of Guyana to sustain its competitive export of crude oil to expanding world markets for oil. The ready availability of such markets is therefore by definition a necessary condition for its continuation.
When I pondered on this a year ago I was pre-occupied with the apprehension that, global alarm over the climate transition along with an induced energy transition would shorten the opportunity window for Guyana’s crude oil export. That window I argued was up to the decade of the 2050s. based on two considerations.
First, the United Nations target date for successful global climate and energy transitions away from global dependence on carbon emitting fuels. And, second the US Energy Information Administration’s modeling of primary energy use.
The first consideration is largely a declaration of intent, and to that extent, perhaps quite straightforward. For the second consideration, the United States, EIA data, which I discussed at length before showed strong support for the United Nations target dates, revealing that, despite the many challenges and risks attached to the global climate transition, Guyana faces a decades-long opportunity to become, and remain, a significant global supplier.
As matters stand presently, petroleum resources will continue to be essential for the survival of the global economy. The use of petroleum is confidently expected to continue in the foreseeable future with a majority of nations banking on that. However, increasing scope for renewables will grow because it is emerging that sustainable energy use is needed to affect a successful climate transition.
Conclusion
In this wrap- up column, I close with the observation that, success in petroleum resources and reserves acquisition, is plotted as one of two ratios: first the number of discoveries per the number of years of exploration and second, the number of discoveries per number of exploratory wells drilled. In the first phase of exploration, success ratios can rise with time as experience is gained. After that phase, the success ratio typically tends to decrease over time. The area becomes more mature with respect to exploration (commonly termed, discovery maturity).
However, this can be overridden if new exploration-plays, as defined here offset or reverse a decreasing trend in the success ratio.