Tuesday, 27 November 2007

World Top Oil - scratching the surface

Financial times has published a useful, if somewhat confusing oil map:

click for a larger flash based map

The producer/consumer maps need a bit of explaining:

Production is for all liquids, including other than crude oil (distillates, natural gas liquids). This means that the production figures can be inflated for a while, but cannot be sustained at these levels for longer periods by pumping "other liquids" than crude oil. It is useful to remember that out of the 86 million barrels of oil produced each day, more c. 73 Mbpd is crude oil. The rest is other liquids. That means 85% needs to come from actual crude oil and that production is staying level at best, or shrinking. Other liquids cannot fill this gap forever.

Reserves is next interesting column. There are various different levels of "proven" oil reserves (P1, P2, P3) for crude oil reserves. They can be summarized as follows (from Jean Laherrere):
  1. Proved 1P - at least 90% probability
  2. Proved + Probable 2P - at least 50% probability
  3. Proved + Probable +Possible 3P - at least 10 % probability
However, to make things more confusing, some people do not use the definition of geological probability for the existence of an oil reserve, but vague assertions like:
  1. Proved P1 - reasonable certainty
  2. Probable P2 - more likely than not
  3. Possible P3 - less likely than probable
So, which definition of a reserve is FT using? Based on the numbers for Saudi Arabia, it looks like they are using official and knowingly inflated figures given by the countries themselves. These figures were supposed to be 1P figures (from the upper set of definitions), but based on several analyses they appear to be something completely different (i.e. artificially inflated).

So in summary: the reserve figures given, esp. for Middle East countries are likely to be higher than in reality. That is, probably less oil exists than what is claimed to. There is no 100% certainty on this, as the real data is the national secret of each country and knowing the exact amount of oil in place is not trivial.

The next image, is for oil consumers. This is a bit more simple set of figures. However, even here there is a caveat. USA is undoubtedly the biggest consumer. Still, even from that figure, part of real US consumption is missing. Why? Because USA produces most of their purchased goods outside it's own borders, esp. in China. It has been estimated that roughly 1/4 of China's emissions is actual outsourcing from consuming regions (namely OECD). So, when China is using oil, roughly one fourth of that is actually used directly to manufacture and transport goods to USA, Europe, Japan, etc. BTW, this is after balancing the trade in the opposite direction (OECD countries manufacturing and shipping goods to China). So, in reality direct+indirect oil consumption for Usa, Japan, Germany, Korea, Canada & France should be much higher and the share of China lower. Keep this in mind.

As a side note, it is perhaps interesting to consider, that US Department of Defense (i.e. the military + navy + airforce) is the worlds biggest single consumer of oil (excluding nations). And if one thinks what important function US military has been and is serving in the Middle East (oil protection), then one could say that consumption should be equally divided by all consumers in the world (at least the OECD countries benefiting from this protection).

The last image is that of oil movements. This is perhaps the most unfortunate image, because it only shows oil from the point of origin to the end destination. The actual routes are missing! What you don't see is how much oil is piped and through which geographical areas. For that you need a pipeline map (not up-to-date, from year 2003).

EU, Africa & ME oil pipeline infrastructure in 2003

You don't see how much oil passes in tankers through the Straight of Hormuz and various other chokepoints. Hormuz is especially important in geo-strategic terms to OECD countries, esp. USA and Japan, but also most of Europe. If Hormuz flow is cut (say a war with Iran), say bye-bye to much of the oil. This is crucial to keep in mind, when thinking about oil movements. It is also quite obvious one of the reasons, even if not the only reason, why USA is in Afghanistan (pipelines), Iraq (oil fields + pipelines) and is looking hard at Iran (fields, Straight of Hormuz).

Major oil choke points and the importance of Straight of Hormuz

So, the usual caveat applies. When looking at data. Check the sources and think about what they mean. Otherwise numbers can deceive. BTW, this warning applies also to the writings of this blog, even though attempts are made to convey truthful information. Just like at Financial Times.