energy resources & security of supply
The issue of security of supply is now at the top of the energy policy agenda. Concern is focused both on price security and the security of physical supply. At present around 80% of global energy demand is met by fossil fuels. The unrelenting increase in energy demand is matched by the finite nature of these sources. The regional distribution of oil and gas resources, on the other hand, does not match the distribution of demand. Some countries have to rely almost entirely on fossil fuel imports. Information in this chapter is based partly on the report ‘Plugging the Gap’.
Oil is the lifeblood of the modern global economy, as the effects of the supply disruptions of the 1970s made clear. It is the number one source of energy, providing 36% of the world’s needs and the fuel employed almost exclusively for essential uses such as transportation. However, a passionate debate has developed over the ability of supply to meet increasing consumption, a debate obscured by poor information and stirred by recent soaring prices.
In Chile oil mainly comes from imports. Within Chile there is only one source located in the Magallanes Basin and it is managed by Empresa Nacional del Petróleo20 (ENAP for its abbreviation in Spanish). In 2007 production was 6.8 millions barrels; this figure represents 15.4% decrease compared to the previous year.
the reserves chaos
Public data on oil and gas reserves is strikingly inconsistent, and potentially unreliable for legal, commercial, historical and sometimes political reasons. The most widely available and quoted figures, those from the industry journals Oil & Gas Journal and World Oil, have limited value as they report the reserve figures provided by companies and governments without analysis or verification. Moreover, as there is no agreed definition of reserves or standard reporting practice, these figures usually stand for different physical and conceptual magnitudes. Confusing terminology (‘proved’, ‘probable’, ‘possible’, ‘recoverable’, ‘reasonable certainty’) only adds to the problem.
Historically, private oil companies have consistently underestimated their reserves to comply with conservative stock exchange rules and through natural commercial caution. Whenever a discovery was made, only a portion of the geologist’s estimate of recoverable resources was reported; subsequent revisions would then increase the reserves from that same oil field over time. National oil companies, mostly represented by OPEC (Organisation of Petroleum Exporting Countries), are not subject to any sort of accountability, so their reporting practices are even less clear. In the late 1980s, OPEC countries blatantly overstated their reserves while competing for production quotas, which were allocated as a proportion of the reserves. Although some revision was needed after the companies were nationalized, between 1985 and 1990, OPEC countries increased their joint reserves by 82%. Not only were these dubious revisions never corrected, but many of these countries have reported untouched reserves for years, even if no sizeable discoveries were made and production continued at the same pace. Additionally, the Former Soviet Union’s oil and gas reserves have been overestimated by about 30% because the original assessments were later misinterpreted.
Whilst private companies are now becoming more realistic about the extent of their resources, the OPEC countries hold by far the majority of the reported reserves, and information on their resources is as unsatisfactory as ever. In brief, these information sources should be treated with considerable caution. To fairly estimate the world’s oil resources a regional assessment of the mean backdated (i.e. ‘technical’) discoveries would need to be performed.
Natural gas has been the fastest growing fossil energy source in the last two decades, boosted by its increasing share in the electricity generation mix. Gas is generally regarded as an abundant resource and public concerns about depletion are limited to oil, even though few in-depth studies address the subject. Gas resources are more concentrated, and a few massive fields make up most of the reserves: the largest gas field in the world holds 15% of the ‘Ultimate Recoverable Resources’ (URR), compared to 6% for oil. Unfortunately, information about gas resources suffers from the same bad practices as oil data because gas mostly comes from the same geological formations, and the same stakeholders are involved.
Most reserves are initially understated and then gradually revised upwards, giving an optimistic impression of growth. By contrast, Russia’s reserves, the largest in the world, are considered to have been overestimated by about 30%. Owing to geological similarities, gas follows the same depletion dynamic as oil, and thus the same discovery and production cycles. In fact, existing data for gas is of worse quality than for oil, with ambiguities arising over the amount produced partly because flared and vented gas is not always accounted for. As opposed to published reserves, the technical ones have been almost constant since 1980 because discoveries have roughly matched production.